The alphabet soup of organizations that collect royalties for playing music has never been easy to keep straight, and today royalty issues sometimes seem even more daunting with new players like GMR (see our articles here, here and here) and arguments over issues like fractional licensing that only a music lawyer could love (see our articles here and here). But there are certain basics that broadcasters and other companies that are streaming need to know. Based on several questions that I received in the last few weeks, I’ve been surprised that one of the issues that still seems to be a source of confusion is the need to pay SoundExchange when streaming music online or through mobile apps. For the last 20 years, since the adoption of the Digital Millennium Copyright Act, anyone digitally transmitting noninteractive music programming must pay SoundExchange in addition to ASCAP, BMI and SESAC (and more recently GMR) for the rights to play recorded music – unless the service doing the digital transmission has directly secured the rights to play those songs from the copyright holders of the recordings – usually the record labels. Why is there this additional payment on top of ASCAP, BMI and SESAC?

SoundExchange represents the recording artists and record labels for the royalties for the performance of the recording of a song (a “sound recording” or a “master recording”). ASCAP, BMI, SESAC and GMR by contrast represent the songwriters who wrote the song (not the performers) and their publishing companies. When you play music on your over-the-air radio signal, you only pay for the public performance rights to the underlying musical composition or “musical work” as it is often referred to in the music licensing world – the words and music of the song. This money goes to the songwriters and their publishing companies (the publishing companies usually holding the copyright to the musical composition). But, in the digital world, for the last 20 years, anyone who streams music, in addition to paying the songwriters, must pay the performers who recorded the songs and the copyright holders in the sound recordings (usually the labels). That is the royalty that SoundExchange collects.

Why all the confusion? Some stations may have focused on the recent statements by organizations like RMLC made in other contexts (see our post here, the organization that represents commercial radio in negotiating with ASCAP, BMI and SESAC and the one that is trying to bring GMR into similar industry-wide negotiations, currently through litigation). Some of the statements about recently determined ASCAP and SESAC royalties (see our stories on the ASCAP settlement and the SESAC arbitration) included a reference that these royalties cover streaming. But those statements only mean that these royalty decisions cover the digital transmission (i.e. the streaming) of the musical compositions that these organizations represent. ASCAP, BMI, SESAC and GMR are all owed royalties for the streaming of the songs written by the composers that they represent, just as they are owed royalties for the over-the-air play of songs written by their composers. The royalties paid for the use of musical compositions in simulcasts of a broadcaster’s over-the-air programming are all bundled with the over-the-air royalties that broadcasters pay for their over-the-air radio use of music. So you pay once and get the rights to perform the compositions on the air and on your stream.

But broadcasters do not pay an over-the-air royalty for the use of the copyright in the sound recording. SoundExchange, performers and record labels have suggested that broadcasters should pay royalties for their over-the-air play of the sound recordings, but thus far Congress has not imposed such an obligation (that it the broadcast performance royalty or “performance tax” which has been so controversial in recent years – see our articles under this heading for more information on that debate). Unless and until Congress does impose such a royalty, SoundExchange collects only for the streaming of these recordings (and other digital performances like those by digital satellite radio and digital cable radio). As SoundExchange has staffed up over recent years, they have had more resources to devote to enforcement. And more broadcasters, even small ones in very small broadcast markets that have not streamed in the past, now seem to be providing music online. Because of the confluence of more stations beginning to stream with the greater enforcement resources of SoundExchange, it seems like there have been more stations getting letter from SoundExchange asking for royalties, and more questions to attorneys like me asking if these demands were “for real.” They are – and if you are streaming, you need to pay.

How much? SoundExchange charges on a per song, per listener basis. For each song heard by one listener, you pay $.0017 (less than 1/5 of a penny per song per listener). Thus a station needs to track how many songs are played, and how many listeners were listening each time the song was played. If the station is streaming with any of the major streaming service providers, these companies are able to track that information by synchronizing their computation of the number of listeners at any given time with the songs that are being played as listed in a station’s music scheduling software. There is an exemption for reporting the details of the songs being played that applies only to very small webcasters – but for commercial stations, the recordkeeping exception applies only to those stations that only need to pay the minimum $500 per year royalty. That minimum royalty works out to a station that averages about a single listener on a 24/7/365 basis. How much any other station pays is purely dependent on how many listeners the station has and how many songs the station plays.

SoundExchange does not send bills. It relies on the station (or other streaming company) to find them, register with them, count the tracks that the streaming company plays and the number of listeners to each of those tracks, and to pay monthly what they owe. Details are on SoundExchange’s website here.

These are obviously complicated issues – but ones to which all stations must pay attention to avoid being surprised by a demand for accrued and unpaid (and unanticipated) royalty obligations and the penalties that can come from late payments.