SoundExchange Hits $1 Billion In Digital Royalties

We've come a long way since Napster.

Today SoundExchange, the Washington D.C.-based non-profit that collects digital royalties from services like Pandora, is announcing that it just hit $1 billion in artist payments. The milestone is a sign of just how much (and how quickly) the music industry has evolved--from iTunes to Pandora to Spotify--since SoundExchange launched a decade ago. And SoundExchange is rapidly growing, distributing $108.6 million in the first quarter of 2012--its biggest quarter ever.

Essentially, SoundExchange acts as the middle man between artists and the satellite and Internet streaming services that play their music. (This, as the New York Times notes, does not always go smoothly--Sirius XM is suing SoundExchange over antitrust issues.) The organization does not take a cut of its royalty collections, except for operating and administrative costs. For many labels, SoundExchange is the No. 2 source of digital revenue behind only iTunes.

Much of the non-profit's time is spent tracking down rights holders to alert them of unclaimed royalties. "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," president Michael Huppe told Fast Company recently. "We see people, call them up, and say, 'Hey! We have money for you!' Maybe we sound like a Nigerian bank scam?" Tens of millions of dollars have yet to be claimed.

Still, while $1 billion may sound like a large figure, it's still relatively low when spread across such a massive industry. Roughly 90% of the checks SoundExchange distributed in 2011 were for less than $5,000, which is why Huppe is hoping to raise the rates it charges to music companies such as Pandora. The digital services it collects from, meanwhile, are fighting to reduce those rates.

"We're fans of paying royalties," Pandora cofounder Tim Westergren said recently. "We think performers should be compensated, but this massive uneven structure doesn't make sense, and needs to be fixed."

[Image: Flickr user Andrew Wong]

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