Online Radio RoyaltiesThere are a few different types of radio royalties.  There are royalties that are tracked through ASCAP and BMI, which cover songwriting and publishing fees.  Everybody who broadcasts a song is required to pay these fees.  Then, there are the performing rights royalties tracked through SoundExchange:

“SoundExchange is a non-profit performance rights organization that collects statutory royalties from satellite radio (such as SIRIUS XM), internet radio, cable TV music channels and similar platforms for streaming sound recordings.  The Copyright Royalty Board, which is appointed by The U.S. Library of Congress, has entrusted SoundExchange as the sole entity in the United States to collect and distribute these digital performance royalties on behalf of featured recording artists, master rights owners (like record labels), and independent artists who record and own their masters.”

Radio Royalties Are High and Low at the Same Time

The royalties paid to SoundExchange are charged at $0.0019 per song, per play.  So, every time you turn on Pandora, each song you play costs them .19 cents in royalties, even if you skip that song fairly quickly.  That, among licensing restrictions, is why Pandora only lets you skip 6 songs per hour.

Last year, Pandora paid nearly $30 million dollars in SoundExchange and other royalties.  Sounds like a lot, right?

Let’s do the math.  Pandora paid $30M in royalties and has approximately 700,000 songs in their catalog.  That is a whopping $42.85 per song paid to SoundExchange.  Now, take into consideration that SoundExchange has its own expenses, and that that money is split between everybody who performed on that song.  So, each of the 4 members in your band walks away with $10.71 minus the SE fees.  That’s your annual royalty check, and that’s if your song played the average amount of times a Pandora song gets played, which is apparently 22,552 times.

Let’s do another math exercise.  Let’s say your song got played one million times.  That’s a lot, right?  Damn right that’s a lot.  That’s 44 times more than the average.  How much do you earn?  $1900.  Is that a lot?  Maybe to a starving artist, but what’s worth more – the $1900 or the exposure to one million listeners?

Online Radio Royalties are Slowing Growth

Last year, in the fourth quarter, Pandora was finally profitable for the first time in the company’s existence, primarily because it’s been held back by royalty costs since day one.  Meanwhile, these royalties barely put any money in the hands of each individual performer.  Yet the Unions lobby for them because they believe artists should be compensated for their works, and of course they should.  But at the end of the day, what serves artists better, a check for $10.71 or giving a company like Pandora the financial flexibility and resources to invest in growing their audience and exposing more people to a wider variety of music?  Simply put, with royalties for AC/DC costing the same as yours, I’m afraid it will be AC/DC who is Shook All Night Long, not you.

Why We’re Not Playing That Game

earbits plans to offer high quality commercial free radio to listeners.  It’s what they want.  But, in order to do this effectively, we have to ask our independent artists to forfeit their SoundExchange royalties.  We simply can’t afford to operate this business with those fees.  And, since we’re working directly with the artists, asking them to agree to those terms on an individual basis is much easier than working with labels and unions.  The result will be that we’ll be able to expose new artists to a massive audience and help them leverage that exposure to turn listeners into fans, fans into sales, and sales into something meaningful.

What’s further, earlier today I picked up on this article, indicating that SoundExchange has over $200 million in unpaid royalties sitting in the bank.  Since they really have to rely on artists to provide them with current information about their performances, their address, etc, actually paying artists these royalties is very difficult.  It’s costing radio services like Pandora millions, but then sitting in the bank going unpaid to artists.

We definitely get our fair share of artists who don’t understand why we won’t be paying royalties.  It’s just like I said in my article Some of Something is Better Than All of Nothing – What’s more important at this early stage of growing your audience, a check for $10.71 per band member, or exposure to 22,552 new people?

Joey Flores
CEO, earbits.com
[email protected]
LinkedIn http://www.linkedin.com/in/joeyjflores
Twitter: @earbits

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