This is certainly an indicator of strong growth for internet radio and streaming services. Music royalties agency SoundExchange announced Tuesday that it ended the year collecting $292 million in royalty payments, up 17% from 2010. These royalties are paid by internet, satellite and cable TV music-only services for the right to play sound recordings, and are distributed to the owners of the sound recording rights. The payments are based upon listener hours, which means a service pays more royalties when more listeners are tuned in. Terrestrial radio is excepted from these royalties by statute, though all broadcasters are obligated to pay songwriting royalties via agencies like ASCAP and BMI.
SoundExchange also reports that 15,300 new artists, labels and rights holders were registered last year, and therefore became eligible to receive royalty payments.
I am definitely of two minds with regard to these payments, often known as “mechanical” royalties. On the one hand, I think it is only fair for musicians to be paid when services base their income on playing recorded music. But on the other hand, there are many non-commercial services that do not turn a profit, and for whom these payments can be burden. Furthermore, it is reasonable to question how much money individual artists see from these collections, since the major record companies arguably own the majority of mechanicals rights.
Even the for-profit services like SiriusXM satellite radio and Pandora have been protesting. They say that the SoundExchange fees are too high and that the terrestrial radio exemption is unfair. Last fall SiriusXM made waves by reaching out to the major labels to negotiate individual contracts that would bypass SoundExchange, in the hope of reducing its rates. Such a move is legal because SoundExchange is the default statutory collection agency for those who don’t have other agreements with rights holders. The catch with bypassing SoundExchange is that you end up with a lot of individual contracts to hammer out. The risk for artists with such arrangements is that those who own the rights to their recordings might have difficulty collecting their due royalties.
In any event, this rise in royalty payments are a strong sign that more listeners are turning to online radio and music streaming services, in addition to the more established satellite and cable providers.