How Sirius' Move Towards 'Direct Licensing' Is Bad For Artists

from the labels-will-receive-the-Big-Bonus-and-artists-will-receive-The-Shaft dept

When people like myself hear the term "direct" being used in relation to artists and their fans, it often conveys a better deal is being struck for the artist(s) in question. Unfortunately, Sirius' desire to ditch SoundExchange and strike "direct licensing" deals with the labels will result in a loss of revenue for nearly every artist involved. The Hypebot Blog points us in the direction of an excellent editorial written by Kristin Thomson of the Future of Music Coalition, detailing exactly how much these new licensing deals play right into the best interests of the labels (and Sirius itself):

Currently, Sirius/XM pays digital public performance royalties to SoundExchange for the music it plays; SoundExchange then distributes 50 percent of the royalties to the sound recording copyright owner (usually a label) and 45 percent to the featured performer. The non-featured performers receive the remaining 5 percent.

Under the current structure, the money doesn't pass through the record labels first; payments to performers are made directly and simultaneously, which means the performer gets his/her money for the digital performances whether they've recouped or not. And in some cases, performers are receiving checks with four or five figures on it, and the money keeps growing with each distribution.

If labels start to license to Sirius/XM directly, guess who gets all the money? The labels. Artists will no longer be paid directly and simultaneously via SoundExchange. Instead, their money would be passed through their label.

Perhaps the most beneficial aspect of the current agreement with SoundExchange is that it gives unrecouped artists (and that's most of them) an ability to earn money from their music, rather than just seeing the royalties disappear into the labels' opaque accounting system. On top of that, royalty rates paid to artists (if they're recouped) could actually decrease:

How much Sirius/XM pays SoundExchange is based on a rate set by the Copyright Royalty Board with input from stakeholders, in compliance with federal statute. Currently, Sirius/XM pays 7.5 percent of its gross revenue...Then there's this. Billboard reported in August:

The question arises if the labels will pay the artist half the royalty, or 50 percent, they receive for each time a song is played, or will some labels choose to pay them their artists the regular royalty rate, which typically ranges between 15 percent and 20 percent.

Obviously, Sirius (like any business) would like to cut its costs. The labels are likely interested in doing the same thing. However, direct licensing would allow the labels to, first of all, gather all royalties up front without a simultaneous distribution to the artists and then redistribute those royalties, most likely at a much lower rate.

There's simply nothing good for artists in this new arrangement. The SoundExchange board is made up of 9 artist reps and 9 label reps, ensuring some sort of equitable treatment for everyone involved. Bypassing this setup means that all future negotiations will be between the labels and Sirius, leaving the artists without any say in the matter. Furthermore, this new setup would allow Sirius to alter its offering, aiming to compete with Rhapsody, Spotify, etc., all without positively affecting the licensing payout.

In moving to directly license masters, the company is seeking expanded licenses that will allow for more functionality. For example, it wants to allow subscribers to record programming blocks and be able to rewind and fast-forward that segment. It also is seeking to allow music to be cached locally on devices and applications that have that capability. In seeking the former, it is in effect asking for a waiver from the sound recording performance complement of the Digital Millennium Copyright Act, which limits how many times songs from an artist can be played within an hour.

That would make satellite radio much closer to on-demand services like Rhapsody, MOG or Spotify, which operate under an entirely different licensing structure. Even non-interactive services like Pandora currently pay a different rate than satellite radio. By bypassing SoundExchange, Sirius/XM could up paying an even lower fee for expanded offerings.

Clearly, Sirius would benefit the most from this new arrangement. But the labels will benefit as well, regaining control over the incoming royalty stream as well as controlling the entirety of the disbursement. This explains why the labels would be willing to accept 100% of a smaller payout, rather than 50% of a larger sum. Any way you slice it, the affected artists are on the losing end of the bargain.

While many will point out that Sirius is looking out for only its own bottom line, it would be disingenuous to place all the blame at its feet. Most labels have no desire to equitably share revenue with their artists, especially unrecouped signees. If the labels decide to follow through with this, the licensing deal will only reaffirm the status quo at the expense of the actual performers.

(Additional note: Jeff Price at the Tunecore blog makes an important point. Artists who are their own label (unsigned) will actually receive less through SoundExchange.

[I]t's causing an uproar for artists who have transferred their copyrights to labels (i.e. artists "signed" to a label), not for the millions of artists that are their own record labels. It all depends on which side of the coin you're on.

Under the current law, an artist who is also the record label (which the hundred of thousands of TuneCore Artists are) could make less money (and get paid less often) if their Sirius satellite radio payments go to SoundExchange...

[W]hat happens if you are both the lead performer AND the record label (like 95% of all TuneCore Artists)?

For the sake of conversation, assume an entity like TuneCore enters into a deal with Sirius to go direct (we have not, but bear with me so I can make the point), and the rates Sirius pays are not so low that the artist/label would make more money, not less, by getting paid directly.

As the artist is both the label and the lead performer, the artist gets MORE money then he/she would if he/she went via SoundExchange, as 5% of their money is not being given to unions. I have no idea if this TuneCore-like entity would charge an administrative fee like SoundExchange (never thought about it), but if it did, and it was less than 6.7%, the artist would make even more money. In addition, the artist would most likely get paid more quickly and more accurately then if the money went through SoundExchange.

So, all in all, SoundExchange is not a "one-size-fits-all" solution. Truly independent artists would likely see gains if direct licensing were put into place. However, artists whose music is controlled by labels would see a tremendous dropoff.)

Filed Under: licensing, music
Companies: sirius, soundexchnge