UMG bypassing SoundExchange

Photo Credit: SoundExchange

A new report suggests Universal Music Group is changing how it pays royalties on online radio and non-interactive streaming—which includes Pandora.

Complete Music Update reports that the new policy went into effect last year without any communication, leading some managers to criticize the change. Many Universal-signed artists may also be unaware that their Pandora income is now calculated differently than it had been in the past.

Pandora has a direct licensing arrangement with Universal Music and other labels, established in 2010 as Pandora was a rising star in the industry. During the setup of those direct deals, the labels allowed the performer’s share of Pandora income to be paid through SoundExchange at industry-standard rates. Now CMU reports that Universal is treating income generated via Pandora like standard streaming income—which changes the rate performers receive.

Pandora and other personalized radio services can use a compulsory license in the United States to access recordings. The rates paid out under the compulsory license are set by the Copyright Royalty Board, with SoundExchange administering the license. Under that arrangement, 50% is paid to whoever owns the copyright, while 50% flows to performers—artists and session musicians. For non-US artists, a local collection society distributes those performer payments.

Universal Music has decided to drop the arrangement of paying through SoundExchange, instead paying those royalties to artists itself. The company is seemingly employing contractual streaming rates rather than the industry-standard 45%. It’s unclear why Universal Music decided to make this change—as it hasn’t been officially communicated in the first place.

It’s worth pointing out that the changes Universal has made to how it pays out royalties also impacts recoupment. Record labels can recoup advances and upfront costs from an artists’ royalties. However, payments made through a collection society like SoundExchange are not impacted by recoupment. The change makes it so UMG can access those royalty payments for recoupment.

CMU says “Universal will still pay Pandora royalties through to artists who are unrecouped for a period of two years.” That means after two years, many artists will see a revenue stream cut off entirely.