What Does Sound Exchange Do?

I’ve described how a song contains two different legal elements: 1) the underlying song or composition; and 2) the recorded performance of the song.  Whenever a song is performed a royalty is owed to the songwriter (or the songwriter’s publisher) for the use of the underlying song or composition.  ASCAP and BMI collect and administer that royalty.

So how does a recording artist get paid when the record performance gets played?  Traditionally, when a sound recording gets played on the radio or in a business, no royalty is owed for the use of the sound recording.  That is, the sound recording artist (the band) and its label do not get paid for the use (playing) of the sound recording.  Only the songwriter gets paid a royalty for the use of the composition.

However, the Digital Performance in Sound Recordings Act of 1995 and the Digital Millennium Copyright Act of 1998 granted a performance right for sound recordings.   But it only applies to digital transmissions – internet and satellite radio must pay the sound recording owner (label or band) for the performance of the sound recording.

Sound Exchange is a private, non-profit organization authorized to administer and collect the performance royalty for digital plays of the sound recording.  Sound Exchange issues licenses to internet and satellite radio and collects a fee.  Sound Exchange monitors play of songs on internet and satellite radio.  Sound Exchange then pays the sound recording copyright owner (label), the performing artist (the band), and even featured performers, a royalty based on the number of plays a song receives.  And although the royalty rate is fractional, many plays can add up to significant revenue.

Because the performance right for sound recordings only applies to digital transmission, traditional radio and businesses do not have to pay a royalty for use of the sound recordings they play.  This was traditionally seen as good promotion for the artist.  But most songs receive the majority of its play on traditional radio and in retail, restaurants, bars and clubs.  A major war is going on in Congress between record labels and artists against corporate radio over the Performance Rights Act, which would apply the royalty for use of the sound recordings to traditional radio and others.

Next time:  What is an ISRC and an ISWC?