Source tells Billboard major labels have promised not to shut artists out of royalties in direct deals

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Issue Date: 
May 17 2013 - 12:20pm

From Issue:

Billboard cites "a source" and reports:

"Major labels have made a commitment with SoundExchange to pay half of royalties from a statutory service in the event they have negotiated a direct deal. In other words, a major label with a direct deal with Pandora would still pay to SoundExchange the 50% of royalties afforded to artists under the statutory license. The label would not keep 100% of royalties and pay artists a royalty -- after recoupment -- as it does with royalties from purchases and non-statutory services."

Earlier this week (here) we discussed the fact that sound recording copyright owners are only legally required to split U.S. Internet radio royalties 50/50 with performers when the webcaster operates under the "statutory" webcast licenses (those are the deals which cover all recorded copyright music, with royalties payable to SoundExchange). In other words, copyright owners striking "marketplace" deals directly with webcasters (which is perfectly legal to do) are not under the 50/50 split requirement, and only need compensate performers under the terms of the individual artist/label contract.

This fact led some to speculate that direct license deals could benefit webcasters and copyright owners (labels) alike, to the detriment of artists. For example, a label and operator could negotiate a deal which pays the label just 67% of what it would have under the statutory. The webcaster gets a one-third discount, and the label earns more than the 50% of the statutory royalty.

Industry expert David Touve most recently examined this situation in light of Apple's direct label negotiations for its updcoming streaming radio service. He wrote, "it didn’t take a rocket scientist to anticipate that direct licenses for an iRadio service could get negotiated at rates below the webcaster rates formally established through the Copyright Royalty Board (CRB) or published Settlement agreement." Read more here.

Satellite radio operator SiriusXM and broadcasters like Clear Channel and Entercom have forged direct webcast royalty deals with several independent labels over the past months. Billboard says its source "does not know if independent labels have made a similar commitment with SoundExchange."

Read Billboard's story here.

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