Creator Uncollected Funds Continue to Grow

Five Steps To Improve Digital Music Royalty Reporting

By John Simson of Sound Exchange (appeared in Billboards Editorial February 27th)

The new digital music economy consists of fractions of pennies, multiplied by billions of transactions, to cover mechanical, master-use and performing royalties. But without a centralized database of artist and track information, performance rights organizations (PRO) have often been unable to distribute money appropriately, denying publishers, labels and artists of royalties that are rightfully theirs.

SoundExchange, the nonprofit organization tasked by the U.S. Congress to distribute digital performance rights royalties for satellite radio and Internet music streams, ended 2008 with about $40 million in royalties that it couldn't distribute due to insufficient identifying data, with another $39 million held in escrow for artists and labels who hadn't yet registered with SoundExchange. What can be done about this situation? Here are five steps that the industry can take now.
Artists and copyright holders must register to get paid by SoundExchange and other PROs. When a PRO receives performance logs from music services, it matches a performance record with the artist or copyright holder who earned the royalty and issues a royalty check. Organizations like ASCAP, BMI and SESAC only collect royalties for registered songwriters and publishers, so unregistered earning parties miss out entirely. SoundExchange, however, collects for all recording artists and master recording rights owners, even those who aren't familiar with digital performance royalties. If the earning party is one of thousands who haven't yet registered with us, we hold those funds in a marked account until they're claimed. To encourage people to register and claim those funds, we work with other services that maintain artist information, such as MySpace, SonicBids, CD Baby and ReverbNation. But tapping into other databases is only a temporary solution.

Copyright holders must include complete metadata on all tracks. It is essential that creators include all relevant metadata on each digital track they release, including, at the very least, artist or group name, copyright holder or label name, and track and album titles. Artists and labels often send out tracks with little or no metadata attached, making it very difficult, if not impossible, to determine who should be compensated. Due to insufficient metadata, millions of dollars wind up in buckets labeled as "promo only," "self-released" and "label unknown."

Music services must take responsibility for complete and accurate reporting. The digital age has allowed SoundExchange to replace traditional sample reporting with per-track reporting. Counting each track and spin is the fairest way to distribute funds, but it requires more and better data due to the sheer number of payable performances. Unfortunately, music services tend to report data they are given, rarely doing any additional research. One illustration of the slipshod data we receive from music services: Beethoven ranks among our top 25 unpaid artists, even though the composer died long before the first sound recording was made. That most likely means that orchestras performing works by Beethoven aren't being compensated for use of their recordings.
Copyright holders must register their repertoire. While SoundExchange has added staff to deal with the challenge of insufficient information surrounding performance royalties, it's imperative that copyright holders help by registering, monitoring and correcting their repertoires with relevant organizations. The United Kingdom requires copyright owners to register their entire repertoire; otherwise, they don't get paid.

SoundExchange's statutory model requires payments based on reports by services that use sound recordings. Even from services that report data consistently, SoundExchange has a 93% match rate. Given the 7 billion tracks we processed last year, the remaining 7% represents 490 million performances that need individual attention. New digital tools can fix some of these inaccuracies, but many more require manual adjustments. Rigo Starr, for example, is not a misspelled Beatles name, but an African guitarist. "Aim" is sometimes reported to identify any one of more than a dozen unrelated labels—Aim Records, AIM International, Aleho International Music, etc. Repertoire research takes up resources and delays payments.

The music community must promote the exchange of data and payments. Foreign artists played on U.S. music services accrue royalties stateside, which must be claimed by their own nation's PRO before they can be paid. At the end of 2008, SoundExchange held about $23 million for overseas artists, awaiting claims that can take years. The worldwide reach of music is an exciting prospect, but data problems will be exponentially compounded when Rigo/Ringo is reported in Chinese or Hebrew characters. Discussions among neighboring rights organizations, at MIDEM and in the classical music communities, among others, have examined methods of standardizing reporting, but we must all make this a top priority.

With these steps, and plenty of hard work, we can all do more to ensure that performance royalties find their rightful owners. We cannot let bad data stand in the way of a modernized, revenue-positive industry model.