How Sirius' Move Towards 'Direct Licensing' Is Bad For Artists

from the labels-will-receive-the-Big-Bonus-and-artists-will-receive-The-Shaft dept

When people like myself hear the term “direct” being used in relation to artists and their fans, it often conveys a better deal is being struck for the artist(s) in question. Unfortunately, Sirius’ desire to ditch SoundExchange and strike “direct licensing” deals with the labels will result in a loss of revenue for nearly every artist involved. The Hypebot Blog points us in the direction of an excellent editorial written by Kristin Thomson of the Future of Music Coalition, detailing exactly how much these new licensing deals play right into the best interests of the labels (and Sirius itself):

Currently, Sirius/XM pays digital public performance royalties to SoundExchange for the music it plays; SoundExchange then distributes 50 percent of the royalties to the sound recording copyright owner (usually a label) and 45 percent to the featured performer. The non-featured performers receive the remaining 5 percent.

Under the current structure, the money doesn’t pass through the record labels first; payments to performers are made directly and simultaneously, which means the performer gets his/her money for the digital performances whether they’ve recouped or not. And in some cases, performers are receiving checks with four or five figures on it, and the money keeps growing with each distribution.

If labels start to license to Sirius/XM directly, guess who gets all the money? The labels. Artists will no longer be paid directly and simultaneously via SoundExchange. Instead, their money would be passed through their label.

Perhaps the most beneficial aspect of the current agreement with SoundExchange is that it gives unrecouped artists (and that’s most of them) an ability to earn money from their music, rather than just seeing the royalties disappear into the labels’ opaque accounting system. On top of that, royalty rates paid to artists (if they’re recouped) could actually decrease:

How much Sirius/XM pays SoundExchange is based on a rate set by the Copyright Royalty Board with input from stakeholders, in compliance with federal statute. Currently, Sirius/XM pays 7.5 percent of its gross revenue…Then there’s this. Billboard reported in August:

The question arises if the labels will pay the artist half the royalty, or 50 percent, they receive for each time a song is played, or will some labels choose to pay them their artists the regular royalty rate, which typically ranges between 15 percent and 20 percent.

Obviously, Sirius (like any business) would like to cut its costs. The labels are likely interested in doing the same thing. However, direct licensing would allow the labels to, first of all, gather all royalties up front without a simultaneous distribution to the artists and then redistribute those royalties, most likely at a much lower rate.

There’s simply nothing good for artists in this new arrangement. The SoundExchange board is made up of 9 artist reps and 9 label reps, ensuring some sort of equitable treatment for everyone involved. Bypassing this setup means that all future negotiations will be between the labels and Sirius, leaving the artists without any say in the matter. Furthermore, this new setup would allow Sirius to alter its offering, aiming to compete with Rhapsody, Spotify, etc., all without positively affecting the licensing payout.

In moving to directly license masters, the company is seeking expanded licenses that will allow for more functionality. For example, it wants to allow subscribers to record programming blocks and be able to rewind and fast-forward that segment. It also is seeking to allow music to be cached locally on devices and applications that have that capability. In seeking the former, it is in effect asking for a waiver from the sound recording performance complement of the Digital Millennium Copyright Act, which limits how many times songs from an artist can be played within an hour.

That would make satellite radio much closer to on-demand services like Rhapsody, MOG or Spotify, which operate under an entirely different licensing structure. Even non-interactive services like Pandora currently pay a different rate than satellite radio. By bypassing SoundExchange, Sirius/XM could up paying an even lower fee for expanded offerings.

Clearly, Sirius would benefit the most from this new arrangement. But the labels will benefit as well, regaining control over the incoming royalty stream as well as controlling the entirety of the disbursement. This explains why the labels would be willing to accept 100% of a smaller payout, rather than 50% of a larger sum. Any way you slice it, the affected artists are on the losing end of the bargain.

While many will point out that Sirius is looking out for only its own bottom line, it would be disingenuous to place all the blame at its feet. Most labels have no desire to equitably share revenue with their artists, especially unrecouped signees. If the labels decide to follow through with this, the licensing deal will only reaffirm the status quo at the expense of the actual performers.

(Additional note: Jeff Price at the Tunecore blog makes an important point. Artists who are their own label (unsigned) will actually receive less through SoundExchange.

[I]t’s causing an uproar for artists who have transferred their copyrights to labels (i.e. artists “signed” to a label), not for the millions of artists that are their own record labels. It all depends on which side of the coin you’re on.

Under the current law, an artist who is also the record label (which the hundred of thousands of TuneCore Artists are) could make less money (and get paid less often) if their Sirius satellite radio payments go to SoundExchange…

[W]hat happens if you are both the lead performer AND the record label (like 95% of all TuneCore Artists)?

For the sake of conversation, assume an entity like TuneCore enters into a deal with Sirius to go direct (we have not, but bear with me so I can make the point), and the rates Sirius pays are not so low that the artist/label would make more money, not less, by getting paid directly.

As the artist is both the label and the lead performer, the artist gets MORE money then he/she would if he/she went via SoundExchange, as 5% of their money is not being given to unions. I have no idea if this TuneCore-like entity would charge an administrative fee like SoundExchange (never thought about it), but if it did, and it was less than 6.7%, the artist would make even more money. In addition, the artist would most likely get paid more quickly and more accurately then if the money went through SoundExchange.

So, all in all, SoundExchange is not a “one-size-fits-all” solution. Truly independent artists would likely see gains if direct licensing were put into place. However, artists whose music is controlled by labels would see a tremendous dropoff.)

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Companies: sirius, soundexchnge

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Comments on “How Sirius' Move Towards 'Direct Licensing' Is Bad For Artists”

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Anonymous Coward says:

“How Sirius’ Move Towards ‘Direct Licensing’ Is Bad For Artists”

“So, all in all, SoundExchange is not a “one-size-fits-all” solution. Truly independent artists would likely see gains if direct licensing were put into place. However, artists whose music is controlled by labels would see a tremendous drop off.”

So which is it Masnick? Why are your headlines so totally detected from the story- if not reality itself.

PaulT (profile) says:

Re: Re:

For people able to comprehend complex arguments, both. Major label artists and those signed to a label (i.e., those who typically get more radio airtime) will lose out, independent artists will lose out. The reasons for both of these situations is spelled out clearly in the article.

Sorry if that’s too complicated for you.

Confused (profile) says:

Why are these deals so dangerous to artists now when the major labels made the exact same directl licenses with discounted rates with and others? I don’t recall the unions or other so-called “artist advocates” being up in arms about those deals, either. As David Oxenford so clearly reminded everyone earlier this week, SoundExchange and the majors loved these deals when they testified in front of Congress.

One more thing SoundExchange isn’t telling you: Back when the major labels started cutting those deals, the prospect of having the money go straight to the labels and paid under contractual royalty provisions (as the Copyright statute requires) was upsetting enough that SoundExchange decided it was capable of amending Copyright law on it’s own without having to ask Congress for permission. The result was called the “Manager’s Amendment” (ostensibly because the idea came from several artist managers on the Board) under which SoundExchange could ignore the law that limited their authority to collect and distribute royalties to the statutory licenses and start to offer the same services on the directly negotiated licenses cut by the major labels.

Now, maybe you can overlook the sheer illegality of privately amending Copyright law. And maybe you can overlook the fact that by taking over the administrative costs of collecting and distributing direct license royalties, SoundExchange, and the statutory royalty payers and payees are subsidizing the direct licenses (and freeing up the major label from having to pay those costs themselves). But now, from the horror stories that SoundExchange is spreading about the potential harm to its beloved artists by direct licenses not struck by the major labels, it has clearly introduced an element of discretion into who gets the advantage of the “Manager’s Amendment” and who doesn’t. SoundExchange, so willing to help out the majors on their deals, now appears ready to deny the exact same treatment to independent labels and their artists.

If there was any question left that SoundExchange is nothing but a tool of the major labels, and that the so-called “artist representatives” on the Board of Directors have completely abdicated their responsibility to the artists they purportedly represent, this sordid little episode should put those doubts to permanent rest.

Capitalist Lion Tamer (profile) says:

Re: Re:

Thanks for this comment, which serves to balance out this piece much in the way that the quotes from Tunecore were intended to.

It could very well be (and I don’t really have any reason to believe otherwise) that the labels have used SoundExchange as a tool to slowly bleed internet and satellite radio to the point that they’re willing (forced) to deal directly with the labels in hopes of reducing their outlay.

The one saving grace (again, in my opinion) is that SoundExchange was paying artists a percentage directly, rather than filtering it through the labels, where for most artists, this would mean seeing nothing at all, or at the very least, a greatly reduced royalty rate.

If Sirius opts for dealing directly with the labels (and artists who are their own labels), then perhaps indies and artists without a label will see a jump in their earnings. However, this puts the onus on Sirius to manage its own royalty payouts, something it has no experience with. And this still leaves artists signed to major labels out in the cold, short a valuable revenue stream.

There’s probably no solution that works out for everyone, especially when most of the action is still controlled by the major labels who have spent years tilting the playing field in their direction.

[Note to trolls: THIS is how you present your viewpoint. Bring plenty of facts, clear wording, a link or two and some very well thought out statements. Read and re-read this comment and most importantly, learn from it. Until you can approach this level, you’re going to be marginalized as “contrarian” at best, and “troll” at worst.]

Killercool (profile) says:

Cost-cutting measure? Really?

That’s interesting. Because, frankly, Sirius/XM has now “cost-cut” themselves right out of my life.

First, they raised their rates by 75c-$1 per unit, because licensing rates went up. Price for 2 units, no premium “adult” channels, went up to $26.75 USD.

Next, they effectively raised rates again, by removing functionality from accounts. They now charge for their extremely limited, and (for me) useless, online listening/radio thing. To the order of ~$6/month. I dropped it, because it was pretty much only music (no comedy, no old-time radio, no book-on-tape).

Now, with my receipt of a “love letter” informing me of another rate hike (to the tune of $1-1.54/unit), I am no longer willing to pay for their service. Especially since XM has so many commercials now, that, if not for their periodic commercials saying that they are XM/Sirius, I can’t tell the difference between XM and terrestrial radio.

Coupled with this story, I’m not just disappointed at the rising cost of an already expensive service. I’m angry they have the gall to raise their rates while shafting the actual artists at the same time. Indie artists are great, but XM plays little to no indie music, so the vast majority of artists they play (greater than 90%, I think) are now going to get a significant pay cut.

Killercool (profile) says:

Re: Re: Re: Cost-cutting measure? Really?

Also: Way to miss the point of my last paragraph. As this article says, they are no longer going to be using SoundExchange, which paid artists 45% of revenue directly. Only indie artists and “recouped” artists will get anything from Sirius.

AND their licensing rates will be lower.

AND the monthly cost of their service is going up.

Ninja (profile) says:


I think it depends on the label. I believe there are labels that properly distribute royalties out there. Not the big ones for sure but…

And the recouping issue is pretty gray if you ask me. We’ve seen some magical accounting maneuvers used by the labels to make a 1 million sales musician yield losses. So I can see how it’s bad both to the unrecouped artist and for the independent ones since they aren’t gonna be that independent anymore.

Would need to go to the lab and let the experiment run to actually see what’s gonna happen. I don’t hold high hopes for the labels anyway.

Richard (profile) says:

Re: Depends

I think what we see here is that economics of monopoly rents are never going to be fair. Because the system has no foundation in underlying scarcity there is no “capitalist” mechanism to make it fair and because the government has subcontracted it out to the private sector there is no democratic (socialist) mechanism either. Add to that the fact that the prospect of money for nothing naturally attracts the morally challenged and you have a pretty much guaranteed recipe for a rip-off of both consumer and artist.

Anonymous Coward says:

What I think is funny here is that SoundExchange is treated like the anti-christ, until someone tries to bypass it – then it is an artist friendly tool.

My head spins was Techdirt’s stand keep changing.

Oh, you say, it isn’t Techdirt’s stand? What about that article yesterday about Time Magazine opposing SOPA? See, by posting Tim’s comments here, it is clear now that Techdirt supports SoundExchange. WTG Mike, I knew you would come around!

PaulT (profile) says:

Re: Re:

There’s no change in the stance of the site overall. It’s just that you’re not understanding the actual arguments.

Hint: it’s possible to be for something in principle, but be against the way it’s handled and operated in reality. It’s also possible to be against something on principle, but recognise that the alternatives may be even worse. No contradiction or changing in stance required.

Besides, even you admit that the articles have different authors. If Tim posts one opinion and Mike posts another, that’s reflective of different authors having different opinions, not an overall change in Techdirt’s stance.

Actually, you admitted that Mike actually allows opinions to be posted that don’t match his, then implied that this means Mike’s own opinions have changed. You’re really not very good at reading and making logical conclusions, are you?

Capitalist Lion Tamer (profile) says:

Re: Re:

My head spins was Techdirt’s stand keep changing.

As far as I can tell, Techdirt’s stand hasn’t changed. This is my post and my stance on this particular issue. SoundExchange is not a perfect system. In fact, almost everything about it (like the rates it charges, especially considering the rates have no basis in… well, pretty much anything, actually) is pretty terrible.

But, SoundExchange provides one of the few opportunities for unrecouped artists to make money and for others to make a higher royalty rate than would be likely be allowed by their labels.

If your head is spinning from one change (and not even a site-wide change), perhaps you should go lay down and consider a less mobile existence.

btrussell (profile) says:

Re: Re: Re:

They are supposed to be non-profit, but I have seen what some of these people working for non-profits make. No wonder there is no profit.

This is the problem with getting a new PC and wanting to start fresh with links, you don’t have your old links!

Unrelated, Free arcade racing game for MS PC

Michael says:

'Direct Licensing' is bad for artists signed to a major label

That an artist would even consider signing with a major label in this day and age is the height of ignorance. If the labels have no problem putting the majority of their signed acts in a financial hole, attempting to lower their royalty rates by 39% and never wanting to relinquish control of their recorded works, what makes any rational person assume that they’ll distribute the royalties from direct licensing fair and square?

Anonymous Coward says:

I think this is CORRECTING a problem that has existed in the way royalties were being paid. Mike, you are fully aware of how the system works. Labels provide services for these artists, expensive services. Services like marketing, promotion, mastering, etc… The artists are indebted to the label for these expenses, once these expenses are recouped through licensing revenue, the profit sharing starts. You don’t really expect anyone to front a bunch of money to turn someone into a star and not be repaid, do you?

Atrists have a choice, if they do not want to be bound to a contract, don’t sign. If they need the promotion, guidance, or marketing power of a large label, they must be prepared to repay those expenses.

The way Sirus was licensing the music before was circumventing the payment structure to which the artist and the label agreed. I really don’t care if the labels go out of business or not, but when you sign a contract you are bound to the terms of that contract. These artists shouldn’t be whining they should be happy that this wasn’t corrected early.

Capitalist Lion Tamer (profile) says:

Re: Re:

I’m going to tee off on you, AC, because there’s nothing worse than a label apologist (and I know, you’ll claim otherwise because of your “I don’t really care if the labels go out of business” line) who keeps touting the CONTRACT as being something honorable that unrecouped artists should live up to. The implication is that unrecouped artists do not deserve to earn a living from their music simply because they failed to retain a lawyer. (Not that it would do much good. The lawyer would probably advise them not to sign the contract. Labels aren’t known for equitable negotiations.)

You say the artists are indebted to the labels for various expenses, including marketing, promotion, mastering, etc. True enough, but it’s the labels that decide how much of these services they get. They also choose the producer and charge exorbitant fees for studio time in studios they own.

They also charge the artist for packaging and distribution. It would seem to me that if you’re in the business of selling CDs that you (the label) would bring those expenses to your own bottom line rather than saddling the artist with that. Without the artist, all you’ve got is a bunch of blank CDs, worth about a dime apiece.

You don’t really expect anyone to front a bunch of money to turn someone into a star and not be repaid, do you?

If these artists were all turned into stars, this wouldn’t be a problem. The issue is that many are just merely popular or only get an album or two out before being dropped by the label. Being merely popular won’t get you recouped. Not at the minute amount the label is willing to credit to you against your bill. It would be one thing if the artists were entitled to a more realistic share of the profits. The label always gets repaid. The artist has to try to dig out of a multi-thousand dollar hole with spare change.

Getting dropped by the label means never making a cent from your music. Your catalog belongs to them. They’ll still pay you royalties but their interest in promoting you is over. Your couch change probably exceeds the royalties being credited against the bill each month.

The labels should play it honestly and let the artists know that they’re buying $100,000 worth of lottery tickets, which the artists will have to repay out of a slim percentage of the winnings. If they hit a big enough jackpot, congrats! Recouped. If not, then just keep hoping for $100 winners, of which $5-10 MIGHT get applied to to the bill. This situation has all the likelihood of paying off for the artist that “sign this contract and I’ll make you a star” does.

Here’s where I start putting words in your mouth, but if it isn’t you specifically, it’s contract cops and label apologists like you spouting stuff like “We need these anti-piracy laws because artists deserve to get paid for their work.” Only you don’t mean the artists. You mean the labels. You mean that the gatekeepers need to keep getting theirs.

With SoundExchange, the label is already getting 50%. That’s not enough? They somehow deserve it all simply because said artist failed to “live up to the contract?” The bottom line, according to you, is that no one is entitled to anything until the label gets theirs.

You people talk about Google and ISPs living off the backs of the creatives but when it all boils down to it, you’re like the astroturfing gatekeepers over at CreativeAmerica. You’re more than happy to let the gatekeepers live off the backs of the creatives. You just don’t want any competition.

And you act as those this almighty contract had any semblance of equity. When you put a bunch of artists in the room with a bunch of entertainment lawyers, you’re assuring the worst deal possible for the artists. You act like it’s OK to make someone pay back exorbitant loans while simultaneously limiting their incoming revenue.

You say you don’t care about the labels. Maybe. But you obviously care way less about the artists without whom the label would cease to exist. Who’s living off of whom? The artists, heavily in debt and without control over a single aspect of their creative output? Or the people taking the lion’s share of the profit while pretending to be the last hope for musicians everywhere?

Anonymous Coward says:

To me, this whole discussion is overshadowed by the fact that the royalty rates that SoundExchange collects from Internet radio providers are ridiculously high, much more than satellite radio, for instance. One would speculate that they were the millstone intended to insure that Internet radio can never really take off in a big way. After all, in a world where the big record labels are trying to maintain their roles as gatekeepers of public taste, Internet radio is much too uncontrollable, and makes it way too easy for people to discover little known artists, niche genres, and nearly forgotten backlist material. One could also speculate, when it was assumed that the largest Internet radio providers would seek out direct royalty deals with the labels, was that by the time they had secured such deals with all of the big four, the terms of said deals would obligate the providers to feature mostly their material and marginalize the indies, thus reinforcing their gatekeeper role.

Anonymous Coward says:

The reason payments going to labels is bad for some artists is that *if* they don’t actually own the record company, the record company has the right to keep profits from the artist if they haven’t “recouped” yet.

For independents, they don’t actually belong to a traditional record company (which is nothing more than a corporation); I’ve incorporated my “record” company myself. All payments go the record company (which I’m the owner of).

Everyone wondering why some artists are upset don’t understand what recouping involves. For the record I’m a performing and recorded musician.

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