SoundExchange, the nonprofit group that processes the royalties those companies and others pay to performers and record companies, took nearly a decade to pay out its first $1 billion, in 2012. The second billion came almost two years later, in early 2014. On Wednesday the organization will announce that it has crossed $3 billion in payments.
“When we first started, we were a rounding error on most people’s income statements,” Michael Huppe, SoundExchange’s president, said in an interview. “Now we’re one of the top accounts at most recorded music companies.”
SoundExchange, which was founded in 2000, collects money for performers and record labels whenever songs are played on digital radio. These payments — which are separate from songwriting royalties — have grown along with the popularity of online radio, and now make up a substantial part of the music industry’s revenue. The $773 million that SoundExchange paid last year is equivalent to about 16 percent of the American recording industry’s whole income of $4.9 billion, as reported by the Recording Industry Association of America.
SoundExchange, which was founded as part of the recording industry association, has been independent since 2003.
The bulk of the organization’s revenue comes from just two sources: Pandora and SiriusXM. But the organization collects royalties from thousands of digital radio outlets. After deducting its operating expenses, SoundExchange pays half its royalty income to the owners of recordings — typically record companies — as well as 45 percent to featured performers and 5 percent to a fund for backup singers and session musicians. According to SoundExchange, its administrative costs are equivalent to 4.6 percent of its revenues.
SoundExchange is in the midst of a contentious procedure for setting Internet radio royalties that is currently before the Copyright Royalty Board, a panel of federal judges in Washington who oversee the fees it collects. SoundExchange, which represents the music industry in the proceedings, wants to raise the rate that web companies pay while Pandora, iHeartMedia and others want it reduced.
According to Mr. Huppe, the difference between their proposals could amount to $4 billion to $5 billion over the five-year term being considered by the judges, which begins next year and continues through 2020. A decision by the Copyright Royalty Board is expected by December.