Making money from streaming music online
John Simson, executive director, artist & label relations, SoundExchange
SoundExchange includes some 2,100 record labels and 270 recording companies including the Big Five labels--BMG Entertainment, EMI Recorded Music, Sony Music Group, Warner Music Group and Universal Music Group. It will not be used to collect royalties or fees from download sites such as Napster, which is embroiled in a court fight with the Recording Industry Association of America (RIAA) over piracy allegations.
According to John Simson, SoundExchange's director of artists and label relations, record companies will receive 50 percent of the money collected from Net distributors, musicians will get 45 percent, and nonfeatured artists such as back-up singers will get 5 percent.
Simson predicts SoundExchange will collect approximately $10 million in its first year. But "as the Internet develops and as Webcasting develops, we're hoping to see dramatic increases in that revenue," he said.
Anytime a song is played over the airwaves or streamed online, record labels are entitled to royalties under the Digital Performance Rights Act of 1995 and the Digital Millennium Copyright Act.
In addition, SoundExchange could tap a new source of revenue if it gets a favorable ruling from the U.S. Copyright Office regarding radio stations that stream music on the Internet.
Radio stations have long been exempt from labels' royalty fees for playing music on the airwaves. They have paid royalties directly to artists through rights clearinghouses such as the American Society of Composers, Authors and Publishers (ASCAP), and Broadcast Music Inc. (BMI).
"Broadcasters have always noted that by playing music on the radio they generate revenue for the record companies," said Dennis Wharton, a spokesman for the National Association of Broadcasters (NAB).
Recently, however, the RIAA filed a petition with the Copyright Office insisting that the exemption does not extend to streaming music online.
"The radio stations are claiming an exemption, and we're explaining that when they're streaming like other Webcasters they need to pay the statutory rate that will be set," Simson said.
As many as 4,000 radio stations that stream music may be subject to these fees. Representatives from the NAB say such costs could debilitate many stations.
"I think it could potentially cripple the streaming of radio over the Internet, depending how much the fees are," said Wharton. "We feel that this law states radio stations are exempt not only in the analog era but also the digital era."
The U.S. Copyright Office, part of the Library of Congress, is expected to issue a decision on the debate by the end of the year.
In the meantime, SoundExchange will continue to collect fees from voluntary agreements with Webcasters and from subscription music services.
"What (SoundExchange) really brings is organization to the system," Simson said.