A Lesson in Royalty

We’re not much for royalty here in the U.S. ever since we fought that war to get away from it. But we should be more receptive to royalties, those small, but deserved payments that belong to the rightful owners of digital content.

If the excuse has been that it’s too difficult to track, that excuse is now dead. Thanks in part to the efforts of SoundExchange Inc. and Acumen Solutions Inc., which built a platform that handles the complex microtransactional accounting necessary for distributing performance royalties, performers and record labels are now getting paid their share for the streaming of their digital music.

This oversight hasn’t caused much hand-wringing among service providers, but maybe it should. Not only is it the proper way to conduct business, but service providers might discover something along the way that can help them with their own difficulties in devising ways to slice the pie with third-party content providers. Besides, flat rate is not the answer.

“At some point, telecom service providers have to compensate the owners of the content moving across their networks and devices. As this market matures, people are going to start asking for it,” said Barrie Kessler, chief operating officer at SoundExchange.

Andy Schoka, managing director of communications and media at Acumen Solutions, which is not a software vendor but a consultant and technology partner, said that when streaming first became prevalent, many companies plugged their ears and tried to ignore the issue. “Now more are owning up to their legal obligation to pay for content,” he said.

Kessler and Schoka are here to say it can be done. Performance royalty payments can get very complex, even more complex than inter-carrier compensation. Yet, the royalty clearinghouse these companies built is extremely accurate and efficient, Kessler said.

SoundExchange is a not-for-profit company created for this single purpose. It has processed 3.5 billion performances for royalty payments since September of 2001. The company’s first distribution then was only 1,000 royalty checks. Until that time there had never been a payment to artists and record labels for the use of their sound recordings under a performance royalty. That distribution totaled about $6 million for royalties going back several years. Last year they distributed $150 million.