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How Artists Get Paid for Internet Radio: An interview with Mike Huppe, President of SoundExchange (Part 1 of 2)

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I had a chance to talk to Mike Huppe, President of SoundExchange, about how artists get paid for the public performance of their recordings. This interview is available as a podcast at Arts+Labs Innovation Central.

Background: This is an important distinction that is frequently lost on the public -- when you hear a recording of a song, there are actually two distinct copyrights involved, the song (also called a "musical work") and the recording of the song. When recordings are played on terrestrial radio, the writer of the song gets a royalty and the performer of the song on the recording gets nothing (neither does the record company). Almost every other country in the world besides the U.S. recognizes a performance right for recordings so that the artist does get paid for radio or internet airplay. U.S. law changed in 1995 to pay a royalty for digital transmissions of certain kinds (satellite and Internet radio), and SoundExchange collects those royalties. If you are a featured artist or sound recording owner you can register at www.soundexchange.com.

Tell us a little about SoundExchange. I think a lot of people still aren't really sure what SoundExchange does, so perhaps you can explain how the digital performance royalty for sound recordings in the U.S. came to exist and what is involved.

Huppe: SoundExchange has been collecting performance royalties for sound recordings since 1995. To give a little background, most people in the U.S. are aware of entities like ASCAP, BMI and SESAC. For decades those groups have collected performance royalties for musical works [or songs] -- the actual musical notes and lyrics that a songwriter creates. Until 1995, the sound recording side of the business, meaning the recording most people would recognize on the radio or on the internet, did not have performance rights in this country.

In 1995, for the first time ever in the U.S., the Congress established a performance royalty and a compulsory license for the sound recording for certain types of digital transmissions. SoundExchange was entrusted with the collection and payment of those performance royalties. We administer a compulsory license under the U.S. Copyright law, which means if a service like Pandora or iHeart Radio wants to stream a sound recording digitally, they can either obtain individual licenses from 5,000 rights owners or take advantage of a government license. According to federal law, that service would then simply file a two-page paper with the Copyright Office, meet the terms of the statutes, and then send their royalties and data every month to SoundExchange.

Just to give some perspective, how much money has SoundExchange distributed?

Huppe: To date, SoundExchange has distributed more than $900 million in total. In 2011, SoundExchange distributed more than $292 million in royalties -- that's enormous growth since our first distribution of $20 million.

We've had tremendous growth over the past 3-4 years as a result of a variety of factors which include an increase in the rates in 2006-2007 and a radical shift in the way people consume music. More and more people are accessing music through digital devices, mobile devices and through streaming content rather than downloading it. We've seen explosive growth, over 1,000 percent in the past five years.

I still run into artists who have never heard of SoundExchange, what do you do to encourage artists and sound recording owners to register?

Huppe: That's a great question and you are absolutely right. SoundExchange's name recognition and brand is certainly more recognizable now than it was 10 years ago, but you are correct there are people who don't know who we are or confuse us with some of the other performance rights organizations, not recognizing that these other groups collect for a completely different right -- for the song instead of the actual sound recording.

We do a lot in our effort to reach artists and rights owners. Every month, we get reports from people that we've never heard of, and who have never heard of us. Outreach is an ongoing effort, but the money comes to us, and it's our job to find and ensure these individuals to sign up.

On first impression, we sometimes hear from those that haven't registered that SoundExchange royalties "sound too good to be true." Understandable, but we have a dedicated team of staff who are focused solely on tracking down performers and labels to get them to claim their money. We try to track and contact them through a variety of methods to get them to register, including: regularly placing ads in print and online news outlets; targeting individuals via social media channels like Twitter, Facebook and YouTube; speaking on panels; sponsoring events or exhibiting at tradeshows. We host regular "how to register" webinars; and have even coordinated with music conferences, like at SXSW, where we put up large banners and hand out flyers with band names asking them to register.

In addition, we've partnered with various industry organizations such as MySpace, CD Baby, Harry Fox Agency, among others to match their lists against ours and conduct email, mail campaigns -- all with the message: "Do any of you know these people? If so, can you please contact them?" We are perfectly open to those third-parties doing the branding and getting the benefit of finding money -- we just want to ensure the creative community gets paid for their work. We executed over 60 matches last year (more than one a week) resulting in tens of thousands of emails to various folks sharing that SoundExchange has money for them. We are quite confident that we are doing more than our fair share of reaching out and contacting those we owe money to, because it's the right thing to do.

The real reward is when we register that individual or band where the money truly makes a difference. Nearly 90 percent of the 60,659 checks SoundExchange sent out last year (2011) were for less than $5,000. We often hear from artists who express gratitude that we found them or those who might have registered with us, and forgot until they receive a check in their mailbox.

Continued in Part 2