How does a collecting society split royalties?

Posted on 26 Sep 2013 |

Hannah Boothby, Soundreef

Most artists are very careful to prevent their music from being downloaded for free – so how come they still aren’t paid when it is played? Artists, record labels and publishers usually ask collecting societies to arrange for their music to be licensed, and to collect royalties on it, but most have never actually been paid when their music has been used as background music, even if they’re quite well known. So what does a collecting society actually do with royalties, and why don’t they pay artists more?

What is a collecting society?

Collecting societies – or performing rights organisations (PROs) in the US and Canada – are organisations that gather royalties for artists, record labels and publishers when their songs are used. For more about collecting societies, see our previous blog post.  

What are royalties?

When an artist writes a song, they automatically have certain rights in relation to it, such as composition rights and sound recording rights. Despite what artists are often told, they can do anything they like with these rights – they own them in the same way that they own their instruments, and don’t have to sell them or give them away if they don’t want to! For more about different types of royalties, see our previous blog post.

How does a collecting society know how much to pay an artist?

If a collecting society knows how many times a song has been played, it can work out exactly how much an artist should be paid, so that the artist can be paid every time the song is played (pay per play). Unfortunately, this is rarely possible. Collecting societies usually ask music users (such as businesses who play music in the background) to pay an annual licence fee which covers every song they play (a blanket licence). While this seems more convenient for everyone, it doesn’t work very well in practice.

For example, let’s say a Bob’s Store pays his local collecting society a blanket license fee for the right to play music to create a nice environment for his customers. He then fills his iPod with hundreds of tracks to play in his store, and plays his favourite local band over and over again. Because the collecting society can’t keep track of what Bob has on his iPod, or how many times he plays each song, they must resort to sampling.

Sampling is a way of estimating how much each song is played and therefore how much the collecting society should pay the artist. To sample, the collecting society asks a small number of music users (such as Bob’s friend John, who owns the takeaway next door) to tell them which songs they’re playing and how much they’re playing them. They plug John’s data into a formula, and use this to work out how much to pay each artist. And it gets even worse that this: some collecting societies even split royalties based on a past year’s sales, or other obscure formulae.

But Bob plays different music to John!

If Bob’s Store is chosen for sampling, his favourite band might actually get more royalties – but if all the stores chosen are playing other music, Bob’s favourite band might not get any royalties at all. Because sampling tends to favour more well-known bands, non-mainstream artists tend to get overlooked – even if they have a strong local or cult following. The collecting society doesn’t have a way of working out how much Bob’s favourite band should get paid – and often this means that bands get little or no royalties when their music is used in the background unless they are worldwide stars.

What if Bob uses an in-store radio company?

An in-store radio company chooses music for stores, providing playlists and the hardware or software to broadcast them. This means that it is possible to find out what music has been played in a store. However, this information often isn’t used by collecting societies, so it isn’t factored into the way royalties are calculated, leading to unfair payments to artists.There are now plenty of ways of using technology to analyse music usage in different segments of the market, but collecting societies seem very slow to adopt these, even though they could provide much greater transparency and fairness for their artists.

How is Soundreef different?

Most collecting societies still rely on outdated business models and royalty distribution procedures, even though technology and internet tools should have made these obsolete. Soundreef takes advantage of new ways of tracking the music our artists, labels and publishers submit, so that we can pay them fairly every time their songs are played. As well as tracking where and when songs is played via our internet radio, we ask in-store radio companies to provide us with their log files, so that we can pay royalties when they use our artists’ music as well.

If you’re a Soundreef member, you can check up on where and when your music is being played at any time of the day or night via the Soundreef website – just like you check your bank balance online. For more about Soundreef, see our previous blog post.

What does Soundreef do with the money it collects?

We pay our right holders 50%, and we keep 50%. Most of the money we keep pays for internet development and innovation, helping us to update our systems (about 20%). Our next biggest costs are selling Soundreef licenses to the stores who play our artists’ music (about 15%) and the lawyers that we use to help us deal with collecting societies (about 10%). The remaining 5% goes on other expenses. We’re hoping to increase the royalties we pay to right holders as the market matures and our legal fees decrease.  

If I join Soundreef, what happens to the royalties I should be getting from my collecting society?

When you join Soundreef, we tell your local collecting society that we’ll be managing your royalties for background music, so the collecting society no longer needs to do this. This worries some artists, who think that this means that they’ll lose out on royalties for background music that they would otherwise have got from the collecting society – but most have never made a penny from this kind of royalty from their collecting society anyway, so it makes no difference! And this isn’t just what we hear from independent artists – most established bands and mid-size labels and publishers have never been paid for background music.

Collecting societies aren’t paying you the money you deserve for certain types of royalties. They need to change their rules, and make sure they look for new and alternative ways of tracking which music is played. Make the most of your music: to get the royalties you’re due, register with Soundreef at http://registration.soundreef.com/, or find out more at http://www.soundreef.com/en/faq.