SoundExchange Financials Show Fewer Unclaimed Royalties, Persistent Data Problems

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A peek under the hood shows SoundExchange has fewer unclaimed royalties, though data issues are a consistent impediment to distributing royalties to artists and labels.

SoundExchange's year-end balance, as reported on the organization's Form 990 and detailed for Billboard, grew $45 million, to $431 million at the end of 2013. That was actually an improvement. The balance as percent of collections ($656 million, according to the 2013 fiscal report) declined to 65.7 percent, from 76.1 percent in 2012 and 96.0 percent in 2011.

The organization had revenue of $34.8 million in 2013, with $34.3 million coming from operations and $538,000 from investments, according to its Form 990, the audited financial statements released by non-profits every year. Expenses were $34.5 million.
Salaries and other compensation grew 32 percent to $12.7 million (after growing 49.8 percent in 2012). The number of employees grew to 134 from 116. According to SoundExchange, the staff added in 2013 work in data management, repertoire management and claims.

Unclaimed royalties dipped by $25 million, to $96 million. But this balance is better appreciated as a percent of collections. These royalties, unpaid because artists and labels have not yet registered with SoundExchange, represented 14.6 percent of collections in 2013, down from 23.9 percent in 2012 and 25.1 percent in 2011. This constant decline suggests SoundExchange's efforts to locate unregistered artists and labels are working.
A small part of that decline in unclaimed royalties was the result of a $9.3-million pool release in the fourth quarter of 2013. SoundExchange is required to hold unclaimed royalties for three years. For its first pool release, which covered unclaimed royalties from 2004 to 2008, SoundExchange waited a minimum of five years before distributing the unclaimed royalties amongst its registered artists and labels. The royalties were distributed to artists and labels as a refund on administrative fees.
Data has continued to be a problem as Internet and satellite radio have boomed in recent years, however. Royalties unpaid due to problems related to data -- an inability to match the song played with the correct artist and label based on information provided by the digital service -- has remained essentially flat: from 3.2 percent of collections in 2011 to 3.0 percent in 2012 and 2.9 percent in 2013. 3.2 percent of collections equals $21 million in royalties that was at the time unpaid to artists and labels due to data issues.
Some of these data issues would be mitigated if all labels and digital services used ISRC codes, an identification that's unique to each recording and commonly used in rights administration. To that end, SoundExchange has asked the Copyright Royalty Board to make use of ISRC codes a requirement of digital services "where available and feasible, as well as the album title and marketing label" in their usage reports.

The National Association of Broadcasters and Radio Music License Committee oppose the use of ISRC in reporting to SoundExchange, saying this added reporting requirement "will only increase the burden and make compliance even less reasonable." Sirius XM, however, accepts SoundExchange's proposal (it believes errors in usage reports need to be corrected in order to reduce payments to SoundExchange "on account of directly licensed material and pre-1972 recordings.")
The figures released Wednesday have importance because digital radio is so important. SoundExchange collects and distributes royalties from most non-interactive digital music services for their performance of sound recordings. Pandora, Sirius XM, Music Choice, iHeartRadio and hundreds of webcasters pay artists and labels via SoundExchange. An exception is iTunes Radio, which has directly negotiated deals with labels. On-demand services such as YouTube and Spotify instead pay negotiated royalties directly to labels, due to their on-demand features. Royalties related to the performance of musical works are paid to ASCAP, BMI and SESAC.