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Royalties From Digital Radio Start to Add Up
After more than a decade, the royalties for Internet radio and other digital music streams are finally starting to add up.

By BEN SISARIO June 17, 2012

On Monday, SoundExchange, a nonprofit group that processes payments for online streams, will announce that it has paid $1 billion to artists and record companies since its founding in 2000, and that this year its quarterly payments exceeded $100 million.

The payments reflect the growing popularity of digital music as well as new ways for the record industry to make money as sales continue to fall.

“The way the industry is going, it is about multiple revenue streams, not just one,” Michael Huppe, SoundExchange’s president, said in an interview.

SoundExchange collects money from Sirius XM Radio, Pandora and other forms of Internet radio. For most labels and performing artists, this is the only money their recordings earn for radio play, since terrestrial radio pays only songwriters and music publishers. (“On-demand” digital services like Spotify and Rhapsody, which let users choose exactly what songs to listen to, generally pay record companies directly.)

Royalties were minimal in SoundExchange’s early days — for the year that ended in March 2004, it collected only $15.6 million — and while they have grown, they remain a relatively small part in the overall picture of music royalties. Last year, SoundExchange paid out $292 million, while in 2010 Ascap and B.M.I. paid songwriters and publishers a total of $1.64 billion, according to their annual reports.

But SoundExchange’s contribution is starting to make a difference. Jagjaguwar Records, for example, whose acts include Bon Iver and Dinosaur Jr., has made $95,000 from SoundExchange since 2007, according to its founder, Darius Van Arman, who called the service “an increasingly vital source of revenue.” He spoke in testimony last week before the United States Copyright Royalty Board, a panel of judges in Washington that sets the rates.

The billion-dollar milestone also gives some positive publicity to SoundExchange, which has been criticized for being slow to pay everyone who is owed royalties. At the end of 2010, the last date for which audited accounts are available, SoundExchange was holding $132 million, for artists who have not registered or because of complications like bad or missing data about which songs the services have played.

It also faces a challenge in the emerging trend of direct licenses between record companies and digital services. Sirius, which says it paid $200 million in recording performance royalties last year, is suing SoundExchange over its efforts to make those deals, and recently the radio giant Clear Channel Communications announced a direct deal with Big Machine, Taylor Swift’s label. Those and other deals could result in a diminished role for SoundExchange.

Mr. Huppe declined to comment on the Sirius suit but said SoundExchange’s success demonstrated its value to the music industry.

“We don’t feel particularly under assault right now,” he said.

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