Satellite Radio: A “Sirius” Threat to Artists’ Body and Soul?

October 27, 2011 GS2LAW

Music Artists are facing a new threat to their royalty income, as satellite broadcaster, Sirius/XM is seeking to bypass the standard system of paying royalties. If such bypass was granted, artists and producers would suffer substantial losses, as the value of performance royalties would be lowered, potentially creating unnecessary conflict between artists and their labels.

The Surrent System:

The standard system consists of satellite radio paying sound recording performance royalties to SoundExchange, a non-profit collective specifically empowered by Congress to collect such royalties. In turn, SoundExchange pays 50% of the royalties to the artists and 50% to the copyright owner (usually a record label). Where such system is interesting lies in the fact that SoundExchange pays the artists their full 50% share, even if the artist has unrecouped royalty balances with a record label. In addition, SoundExchange may also pay producers their share, if directed to do so by the artist. The system has resulted in an important new income stream for creators of music, which is particularly welcome, as record sales figures have significantly decreased for the past years. The system also ensures fair payment to all parties.

The Serious Threat:

Sirius/XM is now seeking to use the option of direct licensing with certain independent labels instead of using the current system. The consequences for artists would be the following: instead of getting a 50% share of the sound recording performance royalties, 100% of the royalties would be paid to the record label, which in turn would pay artists at a lower rate and subject to recoupment. But labels could also suffer from direct licensing, as the lower rate could have the effect of lowering the value of performance royalties to all parties involved in the music creation process (artists, producers, and labels).

The Solution:

While labels have the discretionary power to refuse to participate in direct licensing, artists have less recourse. Their best chance to maintain the status quo remains to contact their labels and put pressure on them not to give in to direct licensing.

The future will tell if the music industry still has a soul…