SoundExchange, Part II

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This is Celia Hirschman with On the Beat for KCRW.

Last Wednesday, I dug into the operational politics of the music royalty organization, SoundExchange. In an odd coincidence of timing, John Simpson, the Executive Director announced on Friday he would be stepping down from office. More on that story as it develops.

Top officials of SoundExchange proudly tout their intention to negotiate and collect streaming music royalties from a variety of different outlets, with speed and transparency for artists. As they explain it, the agency is on the front lines of a musician's protection service. While I don't think they are bad guys, I do think the organization is fundamentally flawed in how it interprets its business.

While SoundExchange collects royalties from streaming media sites, it does not treat all streaming transmissions equally. The organization sees itself as the arbiter of copyright negotiation, forcing certain webcasters and stations to pay the highest market rate possible and asking little or nothing of others.

Consider the 24 hour multi-channel radio model. Sirius will pay SoundExchange one royalty rate for the streaming rights of a song. Music Choice will pay another, while Pandora will pay a completely different rate for that same song. And MySpace Music – it won't pay a royalty at all.

The reason for the disparity is not simple. Congress, with the help of SoundExchange has drafted very complex rules on the subject, which you can read at my website on KCRW.

SoundExchange argues that it takes a lot of money to keep the Sirius satellite in the sky. And Music Choice by Sound Exchange standards is really background so it shouldn't pay a lot. But Pandora, the website with millions of free online-radio stations, should pay a much higher royalty rate. The theory there is that because more people listen actively to Pandora, the songs presented are more valuable. But in a surprising comparison, MySpace is exempt from all SoundExchange royalty rates!

The reasoning here is that MySpace is considered an “interactive” site, and as such is exempt from royalty calculation. While MySpace can earn millions from advertisers, it is not required to pay royalties for streaming music.

The “free pass” given to MySpace underscores my gravest concerns. It's a little like letting the wolves into the henhouse. MySpace is owned by Rupert Murdoch. The major labels made deals with him to put up their artists' music and take a percentage of the advertising revenue. This MySpace revenue does not need to be distributed to artists – it can stay with the record labels. So while there's no performance royalty paid for artists on MySpace, the labels still earn revenue income from the advertisers.

SoundExchange is perpetuating a selective royalty rate system, whereby the artist receives far less than they should and the major labels get the most they can. It's a business, just not a great one for the artists.

This is Celia Hirschman with On the Beat for KCRW.