Statutory Rates Versus Direct Licenses for Digital Music Streaming

August 9, 2011

An ongoing discussion in our community has been whether the independent music label community members are better off with statutory rates available to all labels or direct licenses, which need to be negotiated individually by each label or their distributor.  This has been highlighted by certain services such as Rhapsody seeking direct licenses for non-interactive streams from music labels.  Now we have heard on an unsolicited basis from members that Sirius XM Radio is contacting A2IM music label members seeking direct licenses instead of paying the statutory royalty rate to SoundExchange as available through the compulsory license.

SoundExchange was created to protect the sound recording copyrights of artists and music labels and last year collected $250 million from non-on-demand streaming services like Pandora, Music Choice and Sirius/XM. SoundExchange is an advocate for the highest possible royalty rates for non-interactive digital music streaming services (services like Pandora, Slacker, SomaFM, etc.)  and then SoundExchange administers the collection and distribution of those royalties. SoundExchange is a not-for-profit governed by a board of artist and music label representatives.  A2IM’s President Rich Bengloff is on the board, as are two other independent label representatives and fellow A2IM members

In general statutory licenses have been good for the independent music label community as statutory licenses insure that all music label copyrights, whether those of the major labels or those of independent labels or artists, are treated equally and paid the same rate amount for each stream (play) of that music. Under direct licenses there are cases where independents have received less than equitable rates. The authority of SoundExchange to aggressively pursue the best possible statutory rates and handle all of the administration, including processing and auditing, results in having a central group to protect Indie rights as the statutory rate is working and indie labels are benefiting from having a this central voice.

Member have been calling to ask about the SoundExchange statutory license so we just want to advise our members that the Copyright Royalty Board (“CRB”) set SoundExchange rate for 2011 is 7.5% of revenues and for 2012 will be 8% of revenues and for years subsequent to 2012 SoundExchange will be seeking a rate increase over the 8% of revenues rate in the CRB rate hearing. The SoundExchange statutory license covers non-interactive streaming and does not cover interactive uses of music such as on-demand streaming, downloads of music and other consumer interactive uses, which uses typically have a higher royalty value in the market place.  It should also be noted, in addition to these rate considerations, that the effect on other revenue streams of these interactive streams has been the subject of numerous research reports; some noting interactive streams of music may in some cases have a revenue replacement effect while non-interactive digital broadcasts of music in many cases may prove to be promotional and lead to increased revenues from other sources.

At the end of the day, while the statutory rate has ensured equitable treatment for independents, each music label must determine for themselves their own promotional and commerce plans and we respect that entrepreneurial spirit. We’re just suggesting to you that before agreeing to any direct licenses please consider all factors and their effects on your music label’s results, now and in the future, and make an educated decision. If you have any general generic business questions please always feel free to contact us at A2IM.

TAGS: CRB licensing Rhapsody Sirius SoundExchange Statutory Royalties Webcasting