What Are Digital Performance Royalties? SoundExchange Explained
Although the U.S. does not recognize traditional neighboring rights for terrestrial broadcasts, it does recognize a limited digital public performance right for sound recordings. This right was created under the Digital Performance Right in Sound Recordings Act of 1995 and later expanded by the Digital Millennium Copyright Act (DMCA). Under this legal framework, artists and master recording owners are entitled to royalties when their recordings are publicly performed through certain digital audio transmissions. These royalties are often referred to as digital performance royalties, or “digital transmission royalties”.
Who Collects Digital Performance Royalties?
Digital performance royalties in the United States are primarily collected and distributed by SoundExchange. SoundExchange is a nonprofit collective rights management organization created in 2003 and designated by the U.S. government as the official entity responsible for collecting and distributing digital performance royalties for sound recordings under statutory licenses. SoundExchange performs several functions:
collects royalties from digital broadcasters
processes reporting data regarding music usage
allocates royalties to the appropriate rights holders
distributes payments to artists and sound recording copyright owners.
Who get Paid Digital Performance Royalties?
These royalties are typically distributed according to the following statutory allocation:
50% to the sound recording copyright owner (often a record label)
45% to the featured performing artist
5% to non-featured musicians and vocalists (via union funds).
The way these royalties are split often depends on underlying contracts between artists, labels, and collaborators. (If you’d like to learn more about how verbal music agreements can lead to disputes in court, read this article).
Who does SoundExchange Collect From?
SoundExchange collects royalties from digital audio services operating under statutory licenses, including:
• internet radio services
• satellite radio
• digital cable radio channels
• webcasting platforms
• certain music services delivered through television providers.
Examples include services such as:
Pandora (radio-style streaming)
SiriusXM
internet radio broadcasters
webcasters operating under statutory licenses.
These services transmit recordings to listeners but do not allow listeners to choose specific songs on demand. Also, it’s important to note that SoundExchange does not collect royalties from views on YouTube. (If you’d like to learn more about how to calculate music royalties using YouTube views, read this article).
What is Non-Interactive?
A critical distinction in U.S. copyright law is the difference between non-interactive streaming and interactive streaming. Non-interactive services function like traditional radio:
the listener does not select the exact song
the service programs music playlists or stations
songs are streamed to a broad audience simultaneously.
Examples include internet radio, satellite radio, and algorithmic radio stations. These services operate under a statutory license, meaning they can use recordings without negotiating directly with every copyright owner, provided they pay royalties established by the Copyright Royalty Board. In these cases, SoundExchange collects the digital performance royalties and distributes them to artists and master owners.
What is Interactive?
Interactive services allow listeners to choose specific songs on demand. Examples include Spotify and Apple Music. These services do not operate under the SoundExchange statutory license for sound recordings. Instead, they negotiate direct licensing agreements with record labels and distributors. As a result:
royalties from these services are paid directly to labels or distributors
artists are paid according to their recording agreements
SoundExchange does not collect these payments.
However, interactive streaming platforms do generate royalties for compositions, including performance royalties (paid through PROs), and mechanical royalties (collected through the Mechanical Licensing Collective).
Are Digital Performance Royalties also known as “Neighboring Rights”?
One of the most misunderstood concepts in music royalties is the idea of neighboring rights, particularly in the United States. In most countries, neighboring rights represent the public performance right for sound recordings. While songwriters and publishers receive performance royalties when a composition is publicly performed, neighboring rights ensure that recording artists and master owners are also compensated when the sound recording itself is broadcast or performed publicly. However, the legal framework in the United States differs significantly from most of the world.
Strictly speaking, traditional neighboring rights do not exist in the United States. In most countries, when a song is played on terrestrial radio, television broadcasts, or public venues (bars, restaurants, clubs) both of the following are paid:
performance royalties to songwriters and publishers (composition rights)
neighboring rights royalties to artists and record labels (sound recording rights)
In the United States, however, terrestrial radio stations are only required to pay performance royalties for the composition. Recording artists and record labels do not receive royalties when their recordings are played on traditional AM/FM radio or in most public venues. This places the United States among a small group of countries that do not recognize a full terrestrial public performance right for sound recordings.
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