Music licensing and royalties took center stage this past week as 40-year-old music services company DMX won a groundbreaking case against two performing rights organizations and SoundExchange hit the $1 billion-in-royalties-paid mark. And some entrepreneurs are emerging that will help independent artists find new and more efficient ways to make money from their music merchandise packages in the changing industry climate.

DMX Case Win:  A Challenge to PRO Licensing Structures

A court ruling in favor of long-standing services company DMX will likely help ease the process of music promotion and make licensing more transparent and set the stage for more direct licensing between commercial music providers and the music industry. A press release issued last week detailed the outcome of a case between DMX – a 40-year-old suite of services that includes music services, strategies and promotions, music licensing and others (and has a partnership with Pandora) – and two major performance rights organizations (PROs), ASCAP and BMI. The ruling will reset fee structures and take some market control over PROs when it comes to determining copyright owners’ earnings.

For many years, ASCAP, BMI and the smaller  SESAC have had little competition when it comes to licensing compositions for public performance. In 2006, DMX began to provide direct licensing services in order to streamline the process of directly compensating publishers who were using their services and save them money. This practice also gave publishers greater control over their work, allowing them to negotiate and license their music directly with commercial music providers such as DMX and Muzak. This case determined that this new licensing structure is a viable option for publishers and other artists.

Chris Harrison, Global Director of Content/Licensing for Mood Media, the company that owns DMX said this was a landmark decision for publishers, composers and authors:  “We have effectively loosened the middle man’s grip on licensing and associated performance rights fees. After decades of imbalance, the playing field is at last fair and consistent.”

The court ruling also provides more incentive for authors, composers and publishers to license music directly, as they will be able to gain more exposure through commercial music channels. Payments of royalties through direct licensing will also be more dependable, as entities will be required to pay consistently and on time and provide transparent details about how licenses dictate music can be used.

DMX began offering new fee structures after a court ruling in 2010. However, the most recent decision solidifies these structures and will allow DMX and other companies like it to continue to offer options to rights holders and music users. Harrison added, “We’re happy that we can continue to provide quality music programming and services to our clients at affordable and competitive rates. We’re also excited about what this means for our ability to curate great music from even more artists and share that with our clients and customers.”

SoundExchange:  $1 Billion in Earnings for Artists

Non-profit digital PRO SoundExchange announced on Monday that it had earned $1 billion in digital royalties for artists and labels since it started up in 2003. The organization collects royalties from streaming music providers such as Sirius XM, Pandora and other music channels and passes them along to signed and unsigned artists. In a business where digital releases are starting to surpass physical releases and artists need to actively stay on top of all revenue streams to earn an income, SoundExchange is becoming increasingly important.

SoundExchange’s president Michael Huppe marked the achievement by saying, “This milestone reflects the fact that the digital music industry  is evolving and will continue to grow … We’re optimistic about where the music industry is headed and see opportunity for SoundExchange to help both creators and digital music services thrive.”

More than one-tenth of the $1 billion paid out by the organization in the last year has been given to artists in the past few months. SoundExchange distributed $108.6 million in royalties during Quarter One of 2012, which was the first time this amount was over $100 million in one quarter since its inception. Huppe chalks this success up to a focus on data management and the fact that technology platforms are getting more sophisticated as time progresses.

The U.S. Copyright Office officially named SoundExchange the only administrative entity for the collection of digital royalties. Despite its ongoing efforts, there are still tens of millions of dollars in digital royalties still unclaimed, which is partially due to the fact that artists are skeptical when the organization contacts them that it is a real service.

All musicians and copyright holders can sign up for SoundExchange. Anyone who wants to collect royalties needs to send in a W-8 or W-9 form and a government-issued ID via email, snail mail or fax. More information can be found here.

Merch Entrepreneurs Helping DIY Artists Earn More

The now tired, old conversation about how technology is changing the music industry and how all artists have to take more control over their own careers has caused many music business entrepreneurs to shift focus from talking about what artists no longer have, to the new opportunities they have to earn a living. And according to an article by freelance journalist Natalie Burg published this past week in the blog for creative professionals Concentrate, one of the emerging markets for music startups is merchandise distribution.

One company that has emerged is the merchandising logistics startup Whiplash. According to founder Sean Hurley, “When the label system sort of collapsed a bit, bands were trying to reach their fans directly … Selling digitally is how you get the music out there, but if you have shirts or posters, how do you get out those things that are value added that fans do want?”

For years artists of all sizes have relied on merch to supplement their income as part of live shows and tours. However, many artists feel overwhelmed by the logistics of shipping posters, t-shirts or other products from their websites, packing hundreds of items and shipping them out to fans. While it also provides services for other “small brands,” Whiplash has noted that its services are particularly well-suited to the ever-changing music industry.

The company was actually the first of its kind in the music business. While living in Seattle, Hurley struck up a friendship with Modest Mouse and eventually became the band’s tour manager. Once his tenure was over and he moved to Michigan, he was approached by frontman Isaac Brock to help run the online store for his label Glacial Pace Recordings. He teamed up with tech entrepreneur James Marks to help get the store running, and eventually launched Whiplash in 2009 with him and technology advisor Mark Dickson.

Together, they started to drum up other clients in the music industry, like record label and art company Ghostly International.  They now handle 50 different clients and  expanded to a 3,000-square-foot warehouse in May, proving that today’s artists and labels have a huge need to seek personalized help when it comes to selling and earning a living off their merch. According to Hurley, “It doesn’t feel like we’re exclusively music, but I guess it is a big part of our thing … We’re banking even more on that type of client too.”

Because it has been such a hit with independent musicians, Whiplash has been particularly focusing on finding new ways to bring services to this type of client. It recently developed a new kind of packaging that would help protect LPs during the shipping process and also has customized fulfillment software so it works more seamlessly with the wide range of website interfaces DIY artists use.

While Whiplash is the first to directly address the very unique needs of the DIY and indie musician market, its success illustrates that there is certainly space and demand in the market for other merch-fulfillment companies. And Hurley said it is more ecommerce than live shows that have made his company so viable:  “The whole landscape has changed because of Internet sales …It’s still a fairly new phenomenon.”

Neeta Ragoowansi is the Director of Artist-Label Relations for SoundExchange.  She is also an attorney, a keyboard player and the singer for an eight piece group called the Oxymorons.  Her experience as a musician, as the Assistant General Counsel for the Kennedy Center and The National Symphony Orchestra and as an advocate in the music industry were what landed her in her current position.  She explains her job educating and helping to find the thousands of artists and labels that are owed SoundExchange royalties

Music Consultant:

Tell me how SoundExchange differs from the other Performance Rights Organizations (PROs) like ASCAP, BMI and SESAC.

NR:

We are a performance rights organization, but we represent the performers and recording artists- that is, we protect the performers who go into the studio and put down the sounds- instruments or voice – onto a track. ASCAP, BMI and SESAC collect for songwriters and composer of the underlying musical work – the notes and lyrics on paper. So if you’re a songwriter or composer, sign-up with one of those. If you’re a recording artist, and put your talent down in a sound recording, sign up with SoundExchange. You can be a member of one of the three songwriter PROs AND SoundExchange – and you probably should be. It’s in no way a conflict. PROs help to collect and distribute the royalties that accrue when others publicly perform your copyrighted work. When you talk about music, you have two copyrights involved: the songwriter’s right to the music and lyrics on the page, and the musician or artist’s right to the sounds on a track – they may be the same person, but there are still two different rights. SoundExchange is the PRO that administrates the rights that come under the public performance of the sound recording. 50% of the royalty on each track goes to the performers or artists on the sound recording – 45% to the main recording artist and 5% to the session musicians and back up singers on that track, through RARoyalties.org.  The other 50% of the royalties on each track goes to the owner of the master recording, which might be a record label or an independent musician.

Music Consultant:

Does SoundExchange cover all different kinds of mediums, or are there specific types of mediums that you cover?

NR:

SoundExchange collects royalties when sound recordings are used on satellite radio (like SIRIUS-XM) , Internet radio (like Pandora), on cable TV music channels, and certain other streaming services. SoundExchange DOES NOT collect for digital downloads (like iTunes or “podcasting”) or “on-demand” and “interactive” services like YouTube or MySpace, where a user can select and immediately play the song she wants to hear. SoundExchange also does not collect for the streaming of any audiovisual work, including music videos. We also don’t collect for sound recordings used on radio, because radio doesn’t pay artists for using their work – yet.

SoundExchange is hoping that will change, and we’ve teamed up with lots of organizations and artist advocates to support a bill in Congress called the Performance Rights Act (PRA). If it passes, PRA would mean that for the first time, corporate radio would have to start paying a royalty to artists and labels for the use of their sound recordings. Radio makes almost fifteen billion dollars a year in ad revenue from music stations alone, and they don’t share any of it with the artists who create the music. They do pay composers and publishers via ASCAP, BMI and SESAC; but because of a loophole in copyright law, the creators and copyright owners of the sound recordings are not getting paid. In the rest of the world, almost every single country pays their artists this way – the US’s only company on this is China, Rwanda, North Korea, Iran. That’s not good company to be in which it comes to protecting rights. Using an artist’s work to make money and not paying them a royalty is just wrong. We’re trying to get that loophole changed, so artists and rights owners can be paid fairly.

Music Consultant:

There was no SoundExchange until ten years ago?

NR:

SoundExchange began in 2000, and became an independent nonprofit in 2003. Legislation passed in 1995 (The Digital Performance Right in Sound Recordings Act of 1995) and in 1998 (The Digital Millennium Copyright Act) finally recognized the rights of artists and copyright holders to be compensated when others use their work, and the laws set up a stream of royalties for the recording artist and sound recording copyright owner. After some negotiations to decide what those royalties would look like, SoundExchange started collecting, and made its first distribution in 2001. We distributed $4 million that year. In 2009 we distributed $147 million.

Music Consultant:

There’s a ton of money that’s unclaimed by artists. Can you estimate how much outstanding money is owed?

NR:

There are millions of dollars owed to thousands of recording artists who’ve not yet registered with SoundExchange. Because SoundExchange and the performance right are relatively young, a lot of artists don’t know they’re owed this money, or they just haven’t signed the forms. Remember, unlike ASCAP, BMI, and SESAC, who collect only for their members, SoundExchange collects royalties for everyone who’s getting played, whether they’ve ever heard of us or not. Then we have to try to track down those artists and rights holders and get them to register so we know where to send the check. We regularly partner with industry associations, services and companies like ReverbNation, CD Baby, iLike, Sonicbids, The Blues Foundation, The Folk Alliance, The Vocal Group Hall of Fame and lots of others, to help get the word out about this right and these royalties. We match their member lists against the lists of artists we have money for, and then have them send an e-mail or a letter to that unclaimed recording artist and/or indie record label. In 2009 alone, we notified more than 15,000 artists, owed more than $9 million in all. If you think there’s even a chance you might be owed money, register at SoundExchange.com. It’s always 100% free.  

Music Consultant:

So, a lot of your job right now is just an awareness campaign.

NR:

Yes, it’s a huge awareness and marketing campaign and it’s mostly about educating – outreach and education. Through conference panel, doing things exactly like this interview, talking one-on-one to artists at festivals, and making sure we get the word out every way we can. Maybe finally getting paid for their work just sounds too good to be true – sometimes artists think we’re an email scam. We find that even when artists have received emails from trusted sources (like their manager, their booking service, whatever) saying, “Hey, SoundExchange has money for you,” they don’t always believe it or do anything about it. But then they go to CMJ as a showcasing artist, for example, and get an email from CMJ saying we have money for them, and see our trade booth and see a poster with their name on it, that they finally remember the name SoundExchange and realize that this really means money for them. Sometimes it takes 3 and 4 and 5 contacts before people recognize that SoundExchange is legit, and sometimes a few more before they fill out the forms. People are just naturally skeptical, and this sounds like ‘free money,’ so it must be too good to be true. But it’s not ‘free money’ – it’s better – it’s money they’ve already earned. All an artist has to do is register with SoundExchange, and they can get paid when they get played.

Music Consultant:

At what point would you sign up for SoundExchange as an artist?

NR:

When you go into the studio to record and you come out with a recording that you release. As soon as you start sending out your recordings, you should sign up with SoundExchange. But I tell artists, anyone that’s even planning to do a recording, should go ahead and register. It usually only takes 10 to 20 minutes, and it’s free. We just need to know you exist, where you are and where we would properly send a check. In terms of recording artists, anyone that is a member of a band or featured artist in general should register with SoundExchange. There are certain housekeeping things that a musician needs to do and registering with SoundExchange is definitely one of them!

Music Consultant:

Is there any pre-requisite to sign up?

NR: There is no prerequisite other than that you are a performer on a commercially released sound recording and/or you’re the owner of the sound recording copyright (sessions musicians and back up singers on sound recordings are entitled to a royalty as well and they should go to www.raroyalties.org to claim theirs). The copyright in the sound recording is automatic, as soon as the original creative work (like the sounds made on your instrument) is fixed to a tangible medium (a CD, a digital track, MP3). You don’t have to go to the Copyright Office and register in order to claim royalties from SoundExchange.

Music Consultant: Where does this money come from?

NR:

At SoundExchange we administer the public performance royalty that derives from the non-interactive, digital transmissions of commercially released sound recordings. So when a streaming service like the ones we talked about before use a track, it generates a small royalty. At the end of the month, those services that use your track total up all the royalties they owe, and give that money to SoundExchange. They are also required to provide us with reports of use (playlists in a sense) so we know what they’ve played, and how to divide up that lump payment.   This is very different from what’s happened historically with other performance rights organizations, where they tend to pay out based on sample data – a few weeks a year to represent all of what they play.  SoundExchange strives to get what’s called census data – that is, the exact tracks they are playing, every time they play them. That’s the fairest way to pay, and so far, 95% of the royalties SoundExchange distributes have this track-level census data. How much each service pays for a track is determined by the kind of service they are, and how many listeners hear the track, under rules set by the Copyright Royalty Board at the Library of Congress. For the most part, artists get paid more the more people hear their tracks. So if you can get played on more stations, to more people, or even on SIRIUS-XM, or cable TV music channels (not the video channels, but the high-numbered radio-like channels), you’ll get paid more.

Music Consultant:

Do you have any general advice for artists?

NR:

Know all the places you can generate income from, know about all the special payment funds available to you out there, know your licensing rights/copyrights and educate yourself. Knowing licensing is the number one thing that artists can do for themselves. If you’re going to make a living, you have to know the income you can generate from various sources. Once you send a creation out into the world, it generates different streams of revenue – but it’s your responsibility to make sure they lead back to you. So, keep creating, know your licensing, go collect on that licensing and push your stuff out there in areas where you’re going to see income, such as the digital streaming of your music and recordings. And register with SoundExchange, so you can get paid when you get played!

——

Check out Soundexchange