The $1 Billion Waiting For Artists Who Know Where to Look

Before touching down in Austin to perform at the annual South by Southwest music bacchanal this year, folk-pop duo Lily & Madeleine received a curious email from their manager. It said that, while at the festival, the two artists should make sure to go talk to a small industry group that was waiting to hand over thousands of dollars.

What sounded like a scam at first — not just to the duo, but to most of the musicians who’ve gotten the same message for the past few years at SXSW — was actually a legitimate notice, sent on behalf of SoundExchange, a non-profit rights management organization designated by the U.S. Congress to collect royalties from certain types of digital music services. In 2018, it paid out nearly $1 billion to rights-holders. But most artists, especially newer ones, are not aware of the back-end intricacies that lead to these payouts, or SoundExchange’s existence in the first place. Like others who have benefited from similar surprise checks, Lily & Madeleine were at first shocked, and then simply elated.

“When we first started making music, I knew we’d get royalties from streams and sales,” Lily Jurkiewicz tells Rolling Stone. “But there are things like quarterly checks from our label and then there are things like registering songs you’re playing live in Europe to receive money from that. There’s so many different revenue streams you have to keep track of as a musician.” The Jurkiewicz sisters say the SoundExchange check they received from representatives at SXSW was between $10,000 and $20,000.

SoundExchange collects money from 3,100 online outlets — Pandora and SiriusXM are two of the biggest — and has no sign-up fee. So why does it need to chase artists down to give them their money?

The answer has to do with, largely, lack of knowledge. Under U.S. law, recorded music tracks get two types of copyright: one for the underlying notes-and-lyrics composition, and another for the sound recording of that composition. The two draw in separate revenue streams. While BMI, ASCAP and SESAC are performing rights organizations (or “PROs”) that deal with publisher and songwriter royalties, SoundExchange handles royalties for the performances of recordings, and it collects these performance royalties from non-interactive webcasters (example: Pandora) as well as satellite radio services (SiriusXM) and satellite and digital cable TV (channels like Digital Cable’s Music Choice or Dish’s Muzak).

But rights-holders have to register with the organization and ensure all their financial details are up to date to collect SoundExchange’s sums. To make matters more confusing, SoundExchange does not handle royalty distribution for on-demand streaming services like Spotify and Apple Music, which pay rights-holders directly via deals between the tech companies and the major labels. It is also legally bound to not reveal the amount of money it owes an artist over the phone, which often makes artists all the more suspicious at first.

So for the last few years, SoundExchange has been setting up camp at big music events such as SXSW and cross-referencing the talent lineups with its lists of artists who either haven’t registered properly, have forgotten to fill in details like their tax ID, or otherwise haven’t been able to collect the money they are owed. “One band last year that we met at SXSW — we gave them a mid-sized check, and they had been on the verge of hanging it up and abandoning the creative pursuit, and they used the money to make a new record,” SoundExchange CEO Michael Huppe tells Rolling Stone. “A few years ago, we had a chunk of money for a blues artist who had passed away, and when we finally found his widow, she said they were about to foreclose on her house. Another artist said that our royalty check helped buy winter coats for her kids. It’s especially touching when someone’s been down on their luck.”

“We do this every day of the year,” says Linda Bloss-Baum, SoundExchange’s senior director of artist and industry relations, who manages a half-dozen team of people dedicated to distributing all the royalties that come through the group to their proper rights-holders. “Any time there is a significant amount of unmatched money, actually, we go on social media and somewhat stalk artists down to tell them, ‘Hey, we have money for you.’ It’s the best job.”

When the blockbuster musical A Star Is Born released a soundtrack last year, SoundExchange executives realized that while Lady Gaga has been a recording and performing musician for many years, her co-star/co-artist Bradley Cooper probably did not have a SoundExchange account. They got in touch with Cooper’s team to file the proper paperwork early on so that Pandora and SiriusXM streams of the smash hit “Shallow” could translate into dollar amounts in his bank account.

Cooper is not the typical example — most new artists are not already multimillionaire Hollywood successes — but his rapid ascent to the top of the music charts represents a trend that all music industry organizations now have to grapple with: New artists come onto the scene much faster, and in much higher volume, than ever before, thanks to the streaming era’s buffet-style business model. Without one centralized system that manages digital music metadata and copyright paperwork, the sheer amount of music coming in means some dollars will slip, unclaimed, through the cracks, unless individual organizations are extremely diligent with their book-keeping. If an artist’s royalties are not able to be released within three years, SoundExchange redistributes the money among other artists.

“There are a lot of people entering the ecosystem through nontraditional means, and we’re now at the point in the digital world where something like 100,000 albums are released every year,” Huppe says. “We’ve been working more proactively — we will proactively look at the charts for the career first-timers, the hot new artists, and reach out to them before they even have a dime in our system,” Bloss-Baum says. But she adds that “there are tremendously more tracks coming in with each passing year.” The $952.8 million that SoundExchange paid out last year is a 46 percent increase over its $652 million payout in 2017; continued escalation of both music production and music streaming are likely to push the figure even higher for 2019.