SoundExchange, the organization that collects royalties for streaming sound recordings, increased its payouts to artists and rights owners by 55% in 2009, according to information in its recently filed IRS Form 990.
Distributions to artists increased 55% to $156 million, while income received during the year rose 20% to $204.2 million. SoundExchange collects royalties on behalf of recording artists and owners of the master rights owners for streaming in the United States. Publishing revenues for webcasting are collected by the performing rights organizations ASCAP, BMI and SESAC.
These numbers show the incredible growth of webcasting as a revenue source for artists and record labels. SoundExchange expects to make 2010 payments to artists and copyright owners in excess of $250 million, an increase of about 60% over 2009 payments.
Three numbers in particular point to SoundExchange achieving greater efficiency in 2009: during the year the balance of unpaid royalties increased only 13% in 2009 while collections rose 20% and payments jumped 55%. In other words, money went out the door at a faster rate than it came in and stayed in the unpaid account.
In spite of improving the rate at which money has left the building, one number is likely to draw some attention: the $294 million balance of SoundExchange's payable account as of Dec. 31, 2009. The organization's 2008 Form 990 drew a great deal of criticism earlier this year -- although much of it came without proper understanding of how SoundExchange works and the accounting issues at play.
Perhaps as a result of this criticism, SoundExchange released its latest Form 990 with much more transparency than in past years. It proactively offered the following information about the components of payable balance of $294 million:
-- $88 million of "pipeline" funds that were in transit at the time
-- $43 million for royalties without sufficient data to pay out
-- $25 million not paid until royalty disputes with some webcasters are resolved
-- $16 million on hold for various administrative reasons
-- $11 million in uncashed checks
-- $111 million in "unpayable funds" in four categories: amounts unclaimed by foreign societies ($23 million), royalties related to problematic data ($23 million), unclaimed royalties ($43 million) and account issues ($22 million).
SoundExchange had 5,335 artists and copyright holders registered at the end of 2009. The average annual payment to artists rose 57% to $1,550 from $986, while the average annual payment to copyright holders increased 35% to $10,040 from $7,415. Operating costs rose to $16.7 million, or 7.7% of revenue.
Aware of public concern, SoundExchange points to progress it has made recently. The organization claims to have paid out $38 million in unpayable funds in Q1 through Q3 of 2010. It says that $15 million of the $25 million in "rates under appeal" were paid out in 2010. The $16 million of royalties under administrative hold balance at the end of 2009 was reduced by 40%. And SoundExchange claims that 16,000 resolved entries that were taken off the unpaid list.
Stakeholders have every right to expect SoundExchange to improve at resolving problems and registering artists and copyright owners. As that happens, a greater percentage of royalties will flow out in a timely manner. That's important. Webcasting revenues are becoming truly significant and the market's legitimacy would suffer if SoundExchange does not continue to become a more efficient conduit.