Michael Huppe, President/CEO of SoundExchange, was in Nashville last week to present the organization’s Digital Radio Award (over one billion streams) to Chris Tomlin during the 47th Annual Gospel Music Assoc. Dove Awards. Huppe’s schedule also presented the chance to discuss the organization’s growing role in the streaming marketplace.
SoundExchange was named and entrusted by the U.S. Copyright Royalty Board in 2003 to track, collect and distribute digital performance royalties for sound recordings from non-interactive sources. This includes satellite radio, cable TV music channels and Internet radio such as Pandora and iHeart. By law they distribute 50% to labels, 45% to artists and 5% to non-featured artists such as session players and backup musicians.
Huppe joined SoundExchange in 2007 as its General Counsel and about four years later stepped up to run the collections entity. In addition to actively boosting distributions and protecting the rights of creators, Huppe has been innovative in developing the non-profit’s data and technology resources and pushing for industry-wide technology standards. SoundExchange Direct, an online dashboard that recently launched, now offers artists and labels access to review their payment details plus find out which services are playing their music and how often.
Huppe, a Harvard Law School graduate, is proud to point out that SoundExchange has distributed over $3.5 billion since its inception. It doesn’t take long to see that his enthusiasm and belief in the rights of creators is genuine. During the following interview, held at the Omni Hotel in Nashville, we covered a variety of topics such as what Huppe calls the AM/FM Artist Loophole, the DMCA Safe “Ocean,” internet enabled auto dashboards and the organization’s new ISRC online searchable database. Read On…
NEKST: Do you expect SoundExchange’s distribution growth will continue?
Mike Huppe: We’ve had unbelievable double digit growth for the past 7 or 8 years which won’t continue forever, but we are on track to have another up year in 2016. We paid out about $803 million last year and should be in the mid-$800s this year. It will naturally level out as we get bigger and the market matures.
NEKST: You collect from satellite and cable radio, simulcast terrestrial streams, and webcasters like Pandora and/or iHeart, but not on-demand services like Spotify, is that correct?
Michael Huppe: You named the bulk of our statutory collections, which comes through the government license in section 114 of the copyright act. However, we also administer another 10-15 deals outside of the statutory license where a record label does a direct deal with iHeart or Pandora, for example. We get unbelievable amounts of data and payments from 2,800 services and part of our job is cleaning it up, correcting errors, resolving ownership conflicts and then paying it out to over 130,000 accounts. We are one of the only entities that pays monthly. Approximately 90% of our royalties are out the door within 45 days of receipt which is almost unheard of in our world. Many of the entities and processes in our business are struggling to adjust because they were built decades ago during an analog time. I like to describe us as digital natives. Our platforms were designed from the ground up to process data from thousands of services and pay royalties to tens of thousands of accounts in a digital environment. It’s completely scalable, mostly cloud based and uses open source solutions to keep costs down. We are evolving into a technology and music company that offers a variety of services to the industry.
NEKST: So you process two kinds of data? Usage and rights ownership?
Michael Huppe: Actually there are three kinds of data. One is definitely usage—what is played and at what levels. The second is repertoire. We get usage data in from a service, but must assign it to a recording. Finally, simply knowing the recording doesn’t tell you who to pay. So the third piece is rights management data. Our new ISRC database relates mostly to the latter two data types. Most services don’t report ISRC codes to us even though we wish they would. They aren’t required to do so. In building the ISRC and our repertoire database we asked rights owners to send us their data. Thousands do that including all the biggest labels [globally]. As you can imagine there are overlaps, multiple people claiming the same recording, but the vast majority of issues get worked out as a result of our processes. Imagine, we sent a man to the moon five decades ago, but sometimes we still don’t know who wrote a song or owns a recording. Helping to clear up repertoire and rights issues is an important benefit we bring to the industry.
NEKST: How does the ISRC database work?
Michael Huppe: Labels get a block of ISRC numbers and assign them internally. But there was no place that collected all of the codes that people assigned. That’s what our database solves and why ISRC has the potential to be a very valuable tool. It can help people track down who owns what and where to pay the money. The goal is to help reduce the friction from data and ownership/rights issues that are a drag on the ability of artists, songwriters, publishers and record labels to do what they do. So publishing this ISRC database is us putting our money where our mouth is. Some people might have kept a resource like that close and tried to capitalize on it, but that’s not our philosophy. We are a non-profit created by the industry for the industry, so any recovery we make just lowers our costs on everything else.
I’ve begun calling the DMCA “Safe Harbor” provision, “Safe Oceans” because some companies fill their coffers by taking advantage of artists and not paying their fair share.
NEKST: How do you see the current streaming landscape?
Michael Huppe: Overall the new entries and competition reflect a flourishing market which is a positive development for everyone, including the consumer. The market is sending a signal that streaming is how people want to consume music. We discuss on-demand vs. non-interactive services, but the average consumer probably just sees different ways to get their music. Some want to create and share playlists and know what their friends are streaming right now. Others want to be served up a specifically curated list or lean back and have a stream directed to them. The beauty of online is that the choice is infinite. Whatever your musical itch, the internet can scratch it. But there are places where people are still able to get music that isn’t valued properly. Terrestrial radio is a good example. Nobody makes more money from recorded music than terrestrial radio—$16-$17 billion dollars a year. Artists and labels participate zero in that [they do pay publishers/songwriters]. In other cases, platforms pay less than they should because the law allows a below market rate or they are taking advantage of DMCA loopholes. I’ve begun calling the DMCA “Safe Harbor” provision, “Safe Oceans” because some companies fill their coffers by taking advantage of artists and not paying their fair share. So to whatever extent we drive people to platforms that are paying fairly, that’s a positive for the industry.
NEKST: Explain what you call the AM/FM Artist loophole?
Michael Huppe: Sales used to be 98% of revenue and everything was driven to push sales. You went on tour, got on the radio, did promo spots—all to sell records. Now labels and artists must focus on all revenue streams—sales is just one of those and a declining component. What perhaps used to be “promotional” to drive sales has now become a consumption event. The Titans are on radio in Nashville and the FM station helps promote the team, drives merch sales and probably makes TV ratings higher. But at the same time no one would ever dispute that you need to go to the NFL to get the rights to play it. Or if I wrote a book and you wanted to make a movie out of it, it is almost guaranteed I’ll sell more books. Your movie is promoting my book, right? But no one would question that you have to come to me to get movie rights. Why is music on the radio different? I’ve never understood. Yes, radio promotes individual acts to some extent, but that’s never been a reason to take someone else’s creative work for free, without their permission.
People are willing to spend their disposable income because music is an amazing value proposition.
NEKST: Increasing US paid streaming subscribers beyond the current 22 million is vital to grow the overall revenue pool. Will that involve competitive pricing like Amazon’s new $7.99 offering?
Michael Huppe: The number of paid subscribers will continue to grow and a well developed market will have price differentiation depending upon functionality. SiriusXM has seen regular upticks in its sub levels and beaten expectations in the last few years. People are willing to spend their disposable income because music is an amazing value proposition. Also the ad-supported market represents an opportunity that needs to be properly monetized. There are lots of ways to pay—with money, with your time, perhaps with data. Our job isn’t to pick business models or tell companies how to run their business, we are here to make sure rights owners are paid fairly.
NEKST: Will the new Apple/Android auto dashboards change listening habits?
Michael Huppe: A lot of listening happens in the car so the dashboard is important music industry real estate. New and old services will be fighting for penetration. However, the average car is 12 years old so this transition will happen slowly. And if you deliver online content to cars you must also factor in economic layers such as data plan costs. Overall, however, the transition should increase streaming usage.
NEKST: Are there other potential dashboard benefits?
Michael Huppe: Having internet in the dash opens enormous one-to-one potential, especially with respect to advertising. Terrestrial radio is about shotgunning to a demographic and hoping that some of the right people will hear your message. However, the Internet offers great precision and rich potential to match advertisers and consumers more perfectly.
NEKST: If you had a magic wand could you simplify some of the royalty complexities?
Michael Huppe: It is beyond dispute that the method for getting clearances and licensing doesn’t work as efficiently as it could. Not a week goes by when someone doesn’t talk about the need for centralization of metadata. It would help make business deals more efficient. When you talk to the tech services you hear them bemoan the number of places they have to go to get rights to all the tracks they use. There’s sound recording owners, publishers, co-publishers, a whole list. And by the way this concept doesn’t just apply to the music industry. Look at the airline industry. If American Airlines cancels your flight, magically and even though they are competitors, they issue you a ticket on United Airlines and you walk down to the gate and get on that plane. There are clear competitive benefits to having a centralized database. Even our anti-trust laws allow us to work as a whole industry if it is pro-competitive and makes things more efficient.