SoundExchange Saw Dip in Royalty Distributions in 2017, Citing Pandora Label Deals

Michael Huppe
Charlie Gross

Michael Huppe

The agency also says it has surpassed $5 billion in distributions since its inception, a "milestone for the digital music services," says CEO Michael Huppe.

As expected, SoundExchange's gross distributions in the U.S. fell more than $225 million, or 26.2 percent, to $652 million from last year’s total of $884 million, due to Pandora switching from a compulsory license to direct deal with record labels. In making that switch, Pandora began paying its label partners directly while still paying artist royalties to SoundExchange, to make distributions to them.

In its announcement, the agency noted that over 50 major and independent labels choose SoundExchange to administer the artist royalties.

SoundExchange, an agency created to collect digital royalties from satellite, webcasting and cable music services, said that last year, its distributions since inception surpassed $5 billion, marking an "important moment for the new music economy," SoundExchange CEO Michael Huppe said in a statement. "It's a milestone for the digital music services and, of course, for the artists and rights owners, who create the music that makes those services possible."

In anticipation of Pandora making direct deals, Huppe and SoundExchange senior management diversified the company’s capabilities, including handling administration for other royalty payouts beyond the mission it was created for. As part of that, it acquired the Canadian Musical Reproduction Rights Agency (CMRRA), and launched its SXWorks operation, which Huppe says is poised to "become a leading global player administering both sound recording and music publishing rights on a multi-territorial basis."

Due to the CMRRA acquisition, overall distribution by SoundExchange companies totaled $683.1 million, which means distributions only declined $200 million last year, when other types of royalties for other licensing rights are taking into consideration. Essentially, it means the new SXWorks operations distributed about $31 million to other rights holders beyond SoundExchange's traditional client constituency.

In addition to Pandora’s switch to direct licensing, SoundExchange said that the leveling off of digital radio growth also contributed to its declining revenue base in its traditional mission. On the other hand, the recent CRB ruling in December will increase the 11.5 percent of revenue that Sirius is paying in the current year to 15.5 percent, growing increments until it hits the top amount in the final year of the 2018-2022 licensing period, which should help boost SoundExchange revenue intake and subsequent distributions.

SoundExchange notes that more than 3,100 non-interactive internet radio, satellite radio and cable television services pay digital performance royalties to music creators through the agency.

While Sound Exchange annually announces its distribution, unlike other royalty collection administrators and collection societies, it hardly ever acknowledges how much it is annually collecting. One way to see that is to access its 990 form it sends to the IRS, via the Guidestar website. The latest such filing available for viewing on that website is SoundExchange’s 2015 990 form. That year, SoundExchange reported $804 million in royalty distributions, while collecting an additional $42 million in royalties which went toward its expenses. That means total revenue collected that year was $846 million and that its administration expenses came to about 5 percent of revenue.