Since its inception, SoundExchange, the organization that collects royalty payments from digital music services like Pandora, has brought in more than $900 million—$292 million of which it collected last year alone. But how much of a cut does SoundExchange take for itself? Nothing, other than for operating and administrative costs.
SoundExchange is a non-profit that's rapidly growing to become one of the most important organizations in the music industry. For many labels, it's the No. 2 source of digital revenue only behind iTunes. And for president Michael Huppe, it's now more important than ever that organizations at the center of collecting and distributing so much artist revenue—from satellite and Internet streaming services—are non-profits, especially as Google enters the field with its acquisition of RightsFlow last month. "Believe me, there's many a day that it would be great to just have our staff vested in options," Huppe says. "But that's not what we do. We're a non-profit because we want to do the right thing, and because we're not solely driven by whatever maximizes our bottom line. You don't come to a non-profit to get rich."
Huppe's main mission is to track down rights holders and distribute royalty payments—a surprisingly difficult mission. Though registering with SoundExchange is a simple and free process, many artists have not claimed their royalties—one very famous R&B artist, says Huppe, had unclaimed royalties in the six figures just waiting to be collected. But after reaching out through myriad channels, the artist repeatedly avoided collecting his or her earnings. "You wouldn't believe what we do to find artists, and there are a lot of folks we have found, and for whatever reason, they haven't registered. I can't tell you why you wouldn't register to get free money," Huppe says. "We see people, call them up, and say, 'Hey! We have money for you!' Maybe we sound like a Nigerian bank scam?"
The organization has an outreach team devoted to delivering royalty payments, whether by contacting labels or managers, take advantage of its board members' connections, or working with other royalty payment services. At the annual SXSW festival, for example, SoundExchange gets an advanced list of the artists slated to play, and then matches the lineup against its database of unregistered artists. "We put posters all around saying, 'Hey, do any of you know these bands? Send them to our booth—we got money for them!'" Huppe says.
Still, despite the organization's efforts, tens of millions of dollars are left unclaimed—which is the exact reason why it's important for SoundExchange to operate as a non-profit. Technically, SoundExchange is only required to hold onto unclaimed funds for three years. "If after that they haven't come forward and signed up, we can release the funds to offset our costs," Huppe says. "But we've repeatedly put that ability off to give artists extra time."
Huppe believes a for-profit entity would not act so altruistically. "Imagine if we were a for-profit entity. Do you think we'd be delaying the release of money? Hell no," he says. "Imagine if we're not obligated to do this outreach, and we're a for-profit entity. Do you think we'd be spending all this money on outreach? Hell no."
So with Google's acquisition of RightsFlow, a small company that similarly processes royalty payments, SoundExchange is paying close attention to the search giant's plans. It's assumed Google will use RightsFlow to help manage royalty payments from YouTube. "I don't know what it means for the industry," Huppe says. "I certainly think the scale of Google is probably bigger than anything the RightsFlow platform has dealt with before, but it's not surprising that Google wants to get into the space."
Pandora cofounder Tim Westergren feels similarly about the acquisition. "I don't know yet [what it means]. It doesn't totally surprise me," he told Fast Company recently. "Google has danced around music for a while, and wanted to get involved in transactions in some fashion. They of course are constantly wrestling with rights and payments and ownership and so on."
SoundExchange just wants to make sure artists are getting paid.
"To the extent that we having any influence over it," Huppe says, "when Google is out there profiting off the blood, sweat, and tears of our artists and labels and rights owners, we want to make sure they're getting their fair share."
[Image: Flickr user Jon Tucker]