SoundExchange

In-Depth Explanation

What is SoundExchange?

SoundExchange is an independent, non-profit collective management organization (CMO) based in the United States. While traditional PROs like ASCAP and BMI collect performance royalties for the songwriters when a song is broadcast, SoundExchange collects digital performance royalties for the recording artists and the owners of the Master Recording (usually the record label).

These specific types of royalties are known internationally as Neighboring Rights.

Before 1995, recording artists and labels in the U.S. received absolutely zero performance royalties when their songs were played on the radio. The Digital Performance Right in Sound Recordings Act of 1995 finally granted copyright owners of sound recordings the right to be paid, but only for digital, non-interactive transmissions. SoundExchange was created in 2003 specifically to administer these new digital royalties.

Who Pays SoundExchange?

SoundExchange issues statutory licenses to, and collects royalties from, "non-interactive" digital broadcasters. Non-interactive means the listener cannot choose the specific song they want to hear next (unlike Spotify or Apple Music, which are interactive and pay labels directly).

Entities that pay SoundExchange include:

• Satellite Radio: SiriusXM.
• Internet Radio: Pandora (free tier), iHeartRadio, and thousands of online webcasters.
• Cable TV Music Channels: Music Choice, Music in the Air (the channels you find in the upper 800s on your cable box).

Crucial Note: U.S. terrestrial (AM/FM) radio stations still do not pay SoundExchange or any master recording royalty due to intense lobbying by the broadcast industry.

How SoundExchange Divides the Money

By law, the money collected by SoundExchange must be distributed according to a very specific, non-negotiable formula:

1. 50% to the Sound Recording Copyright Owner: Usually the record label, or the independent artist if they are self-released.
2. 45% to the Featured Artist(s): The primary performer(s) credited on the track.
3. 5% to a Non-Featured Artists Fund: This is sent to a joint fund administered by SAG-AFTRA and the AFM unions to pay the session musicians and backup singers who played on the track but aren't credited as the main artist.

Why Independent Artists Must Register Directly

This 45/50 split is incredibly important for signed artists. The 45% Featured Artist share is paid directly to the artist by SoundExchange. It bypasses the record label completely. Therefore, the label cannot use this money to recoup an Advance. It is a protected stream of income.

If you are an independent, self-released artist, you actually wear two hats: you are the Featured Artist and the Copyright Owner. Therefore, you are entitled to 95% of the royalties (both the 45% and the 50% shares).

However, you will only receive the money if you register for both sides of the royalty on the SoundExchange portal.

SoundExchange vs. Digital Distributors

A massive misconception among independent artists is thinking: "My distributor (DistroKid/TuneCore) collects all my royalties, so I don't need to sign up for SoundExchange."

This is false. Digital distributors collect mechanical royalties from downloads and interactive streams (Spotify/Apple). They do not collect non-interactive digital performance royalties from Pandora or SiriusXM.

If your music is being played on digital radio and you are not registered directly with SoundExchange (or using a specialized Neighboring Rights administrator), your money is sitting in a vault waiting to be claimed. After three years, unclaimed SoundExchange royalties expire and are distributed to other artists.