Recording Industry Launches SoundExchange

In a development that could ultimately hold implications for the way musicians and copyright owners are compensated for music downloads and file-sharing, the recording industry has launched SoundExchange, a servicing agent that will collect and distribute performance-rights fees on music played over formats such as Internet radio, Webcasts, digital cable, and satellite delivery.

Years in the making, SoundExchange will make its first distribution sometime next year. Once the exhaustive system to manage the administration of performance-rights royalties is fully implemented, copyright owners can expect to receive 50% of the fees, featured artists will get 45%, and nonfeatured artists will divide the remaining 5%. Before it could launch, SoundExchange had to log millions of performances to ensure that it could accurately distribute royalties. Internet radio is expected to be the largest generator of performance-rights royalties under the program.

John Simson, executive director of artist and label relations for SoundExchange, says fees paid voluntarily by digital outlets have been held in limbo while SoundExchange was being developed. Simson says he's hopeful that now that a royalties mechanism is in place, the purveyors of digital downloads and file-sharing services can build on that foundation. "It shows that we can bring some rules to the digital space," Simson says. "Hopefully, that will move into those other areas."

Jupiter Research analyst Aram Sinnreich says the creation of SoundExchange is a positive move that should have an impact on the models being developed for downloads and file-sharing. But Sinnreich says altruism is not the sole motivation behind the creation of SoundExchange. Sinnreich says that as online rights management becomes more sophisticated, allowing sites to pay royalties directly to artists and copyright owners, rights agencies such as the Recording Industry Association of America--a key force in the creation of the SoundExchange--could be left out in the cold. In other words, it was in their best interest to establish themselves as de facto agents. "Any progress toward solidifying this stuff is going to be good for all parties," he says. "But the real winner is the rights agencies who will end up entrenched in the process."

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