Musicians and Producers – Get Your SoundExchange Money in Order
By Justin M. Jacobson, Esq.

In a previous article, I explored what SoundExchange is and the types of income that this organization collects. While these royalties have always been a vital artist revenue channel, in recent years, due to the increased focus and importance of digital music distribution and streaming services, the amounts collected by this organization have drastically risen along with the potential income available for a musician from this entity. In fact, since 2003, SoundExchange has distributed “more than $9 billion in digital royalties” to music creators; however, many artists are not fully earning or receiving any of this money, including a reported “$60 million” or more in “non-featured artist” royalties that are unclaimed and owed to individual creators.

To start, SoundExchange distributes the income from each song by allocating fifty (50%) percent of the funds for the “sound recording” copyright owner, usually a record label, and providing the remaining fifty (50%) percent to the “featured” and “non-featured” artists. These individuals might include any credited or unaccredited musicians, vocalists, producers, engineers, remixers, and/or studio session players who contributed or are entitled to earn a royalty from the recording. As mentioned, in some cases, a record label is the owner of sound recording copyright in the track permitting them to receive this royalty portion; however, if an artist independently releases a song, then the musician may be the owner of the sound recording copyright in the track which provides them with this income. In addition, SoundExchange distributes the other fifty (50%) percent of the income with the “featured artist(s)” on a specific song receiving forty-five (45%) percent of the royalty amount and the remaining five (5%) percent being disbursed to the “non-featured artist(s).” For clarification, SoundExchange defines a “featured artist” as “an artist that is prominently featured on a track or album.” Conversely, they define a “non-featured artist” as “an artist who is not prominently featured on a track or album (i.e., a session musician or a back-up vocalist).”

While a party, such as an artist, producer, or record label, may be entitled to receive SoundExchange royalties, if they fail to properly register and index their works with the organization, then they will most likely not receive some or any of their earned royalties. In fact, in some cases, some musicians may be able to register with SoundExchange as both a “featured artist” as well as a “sound recording owner” to ensure that the talent receives their full royalty payment. Furthermore, if there is more than one “featured artist” on a song, then the artists typically equally split the “featured artist” royalty share unless another percentage is agreed in writing by them. Specifically, SoundExchange requires the submission of a Letter of Direction form (LOD) signed by all “featured artists” to alter the default royalty percentages. As a result, it is crucial to ensure that whenever an artist does not intend for the “featured artist” royalties to be split equally among the participating musicians on a track, then the artists must submit a letter of direction executed by all the featured artists with an accompanying “Repertoire Chart.” This document will expressly indicate how the royalties should be allocated between the parties to SoundExchange. This requirement means that all “featured artists” need to sign a SoundExchange LOD, including any other creator who is credited as a “featured” artist on the track or who may otherwise be receiving a share of the featured artist royalty. If this does not occur, then the funds will be automatically distributed equally among the credited “featured artists.”

Further complicating this royalty distribution situation is the fact that SoundExchange will not release any funds to a “featured artist” that is not a specifically listed and credited artist on the track but who may nonetheless be entitled to a contractually acquired or other “customary” royalty on the sound recording, such as a producer, mixer, or engineer. In these cases, to provide a producer or remixer with a portion of the “featured artist” royalties, SoundExchange requires the submission of a signed Letter of Direction (LOD) from all of the credited “featured artists” with an accompanying properly filled out “Repertoire Chart” listing the producer’s percentage. Specifically, this rule means that the main track “featured artist(s)” are required to execute the required LOD to authorize any third-party such as a music producer to receive a percentage of the artist’s “featured artist” royalty. If SoundExchange does not receive a properly executed LOD and “Repertoire Chart,” then the producer will be unable to receive this income. As a result, in some situations, SoundExchange may mistakenly provide the full royalty amount to the listed “featured artist(s)” and require the affected parties to re-conciliate the wrongfully paid income on the “back end” between themselves. In some situations, it is generally easy to rectify this; however, in other cases, the required artist(s) may be difficult to track down to obtain the required signed documentation and mistakenly received income. In addition, if a submitted LOD is not signed by all the appropriate parties, such as if only one of two featured artists signs the document, then the producer or engineer will be only entitled to earn a percentage of that specific musician’s share of the income, and they will not receive any income from any other featured artist’s royalty share who did not sign it.

As a result, it is crucial that a party entering into an agreement related to a sound recording ensure that the proper SoundExchange LOD and an accompanying “Repertoire Chart” is properly filled out and signed by every artist that is part of the track when the deal is initially signed. However, in practice, this rarely happens, especially with upcoming artists and music producers who may be unfamiliar with the procedures or even the need for such documents in the first place. Ultimately, while a non-credited artist hopes that a featured artist honors the “letter” of any signed agreements and will promptly execute any necessary documents to enable their co-creators to receive their percentage of the SoundExchange royalties, such as an LOD; sadly, in some situations this is not the case. In addition to insisting on proper execution of the SoundExchange LOD when a deal is the process of being finalized, it is also prudent for a creator to attempt to negotiate to include contractual language in any agreement requiring that the “featured artist(s)” warrant and agree to undertake any action “necessary to effectuate” the terms of the agreement, including but not limited to executing any and all documents required by the parties in furtherance of the “intent” of the agreement which might be a SoundExchange LOD. In addition, a musician might also attempt to insert a provision requiring that the artist account to and pay the producer or other non-credited creator any SoundExchange income that they receive and that is rightfully owed to the producer or other creator. This concession should be workable considering that the party is receiving income that they are not legally entitled to and that is wrongfully paid to them. Consequently, a creator’s failure to ensure that the appropriate procedures are adhered to when finalizing an agreement with an artist could make later attempts to rectify the situation more difficult and time consuming than if the proper documents were signed when the other deal components were being memorialized.

Overall, it is a savvy business practice to ensure that a creative party receives all the income that they are entitled to and takes care of any required paperwork when the artists are at the “negotiation table,” as once the deal is signed, it may be much more problematic and costly to obtain the required written authorization that could and should have been received at the time of signing. Since every situation is different, it is important that a musician, producer, studio session player, record label or other individual or company consult a qualified attorney to best understand their rights and obligations.

This article is not intended as legal advice, as an attorney specializing in the field should be consulted.

© 2022 Justin Jacobson Law, P.C.