Our Clash of The Music Titans series has been documenting the ongoing drama between ASCAP, BMI, SoundExchange, record labels and the U.S. Government; in their efforts to pay fair royalty rates to musicians. In today’s installment, we’ll answer the question: “How exactly do I get paid if my music is streamed on Pandora?”
The short answer is…SoundExchange, a non-profit organization formed in 2000 who was virtually knighted by the U.S. Library of Congress in 2003 to be the sole administrator of royalties due whenever your music is used in a “non-interactive” * fashion. As you can imagine, this is a huge new market. SoundExchange has so far paid $5 billion in royalties to musicians and record labels.
The deftness with which SoundExchange’s executive team maneuvered themselves into the flow of money should be a case-study for all MBA students.
“Non-interactive” means your song was included in a Pandora station or Spotify playlist wherein the end-user did NOT specifically go in and select your song.
As publishers, we’ve worked closely with both SoundExchange and the traditional PROs (ASCAP, PRS, BMI, etc.). The differences are interesting. Here’s what we’ve noticed so far:
1) The Government Hasn’t Handcuffed SoundExchange for Being a Monopoly…Yet
In the 1940’s, the U.S. Government brought an anti-trust suit against ASCAP because it looked too much like a monopoly. As a result, ASCAP and BMI must allow the music they control to be used at whatever terms Pandora offers. It’s hard to understate how much this has constricted these organizations from getting more money from Spotify, etc.
SoundExchange, on the other hand, has no such restrictions. Perhaps in time, monopoly concerns will arise. But for the immediate future, SoundExchange appears to have the blessing of Congress to sue Pandora for whatever share of Pandora’s revenue it wants. To us, this feels reminiscent of Fannie Mae; a publicly traded company who – prior to the Great Recession – had Congress’ blessing to exert huge control over the consumer loan market.
2) SoundExchange and ASCAP/BMI Collect Different Types of Royalties
If you’re an independent artist recording an album in your home studio, the following distinction is just academic, but it’s worth understanding.
Traditional PROs (Performing Rights Organizations) consider themselves the protector of a song’s fundamental compositional elements. That is, the melody as it would appear on a score or the lyrics as they would appear in a notebook. In 1938, that made complete sense. On any given night, George Gershwin’s “Summertime” was being interpreted hundreds of different ways on hundreds of different stages. Nothing was being recorded. It was all about the song’s underlying structure.
But in 2018, anyone who’s built a track in Logic or ProTools can attest that written notes on a page aren’t really a thing anymore (in a future blog, we’ll talk about how much that sucks).
SoundExchange had the good fortune of writing their constitution post-Napster. Therefore, their jurisdiction is not the underlying composition, but the sound recording of that composition – the actual recording that has been mixed, mastered, published, and financed by the record label.
From an intellectual property standpoint, SoundExchange is the hip mega-church poking fun at Catholics.
3) The Writer/Publisher Split Is Basically the Same…But With Some Twists
Whereas BMI and ASCAP consider song ownership an even split between “author” and “publisher”, SoundExchange considers it a split between a “featured artist” and a “rights holder”.
To visualize the difference, imagine Mozart’s agent anxiously standing by while the maestro finishes his Requiem. In ASCAP’s eyes, Mozart is the “author” (50%), his agent is the “publisher” (50%). As soon as Amadeus hands over the score (and dies per the movie Amadeus), the publisher runs off to the opera house to negotiate a deal and earn his half. That’s the ASCAP model.
Now for the SoundExchange model. Let’s say that same Mozart symphony – now in the public domain – is being recorded by the Foo Fighters (as if). In SoundExchange’s eyes, the Foo Fighters are the “featured artist” (45%). As soon as the track is finished, a rep from RCA Records will upload the track to Apple Music and spend a bunch of marketing dollars around it. The label, RCA Records, is the “rights holder” (50%).
Where does that other 5% from the featured artist half go, you ask? That sliver of the pie goes to a general fund for the SAG (Screen Actors Guild) and AFM (American Federation of Musicians).
You heard us correctly. A portion of the Foo Fighter’s royalties will go to Carrot Top.
4) ASCAP/BMI Carry Decades of Baggage. SoundExchange Does Not
We’ve heard horrors stories about ASCAP representatives wandering into bars in the middle of nowhere and shutting down the jukebox until a payment is made. Legally, they’re justified in doing that. And surely, performing rights publishers are grateful for the check. But Karma can be a bitch.
Working with ASCAP often feels like visiting the DMV. Their web interface for filing direct source licenses is clunky. They don’t answer the phone. And their mafioso bullying tactics have now been adopted by foreign subsidiaries.
Alternatively, SoundExchange is the new kid on the block. When we called to do research for this blog, a cheerful service rep answered the phone. Their website is modern. Their collection efforts are focused on giant streaming services rather than mom n’ pop shops.
5) SoundExchange Makes It Easier for Musicians to Share a Piece of Their Pie
This is so cool. SoundExchange recently introduced a feature to their members called a Letter of Direction.
Say you’re a Featured Artist on a recording. By that we mean, you’re not the label. Rather, you’re a key member of the band who recorded the song. While you were laying down that incredible bass line, your best friend and fellow bass player happened to be in the room. You feel their presence “inspired” you.
With a Letter of Direction, you can easily cut your friend in on 2% of your royalties…just as a gesture. With ASCAP, the red tape on something like that would be virtually impossible.
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In conclusion, if there’s any possibility at all that your music will be included in a Pandora stream or Spotify stream, register yourself and your music with SoundExchange. It’s sure to be the fastest-growing source of music royalties and you’ll want to get on this train now…while SoundExchange is still willing to take your call.
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Mike Bielenberg is a professional musician and co-founder of http://www.musicrevolution.com, a production music marketplace with over 50,000 tracks online where media producers, video producers, filmmakers, game developers, businesses and other music buyers can license high-quality, affordable royalty-free music from an online community of musicians. mbielenberg@musicrevolution.com. 
