Who Gets Paid by SoundExchange? Understanding Featured Artist Royalties Under U.S. Copyright Law
One of the most misunderstood royalty streams in the music industry is the digital performance royalty collected by SoundExchange.
Unlike traditional publishing royalties, mechanical royalties, or performance royalties paid by ASCAP, BMI, or SESAC, SoundExchange royalties are governed by a unique statutory framework that automatically allocates payments among record labels, featured artists, and non-featured performers.
This creates an important question: Who exactly qualifies as a "featured artist" entitled to receive the 45% share of royalties under federal copyright law?
The answer has significant financial implications for artists, record labels, producers, and music companies alike.
Why Does SoundExchange Exist?
For most of the twentieth century, U.S. copyright law recognized a public performance right for musical compositions, but not for sound recordings. As a result, when a song was played on traditional radio, songwriters and publishers were entitled to receive performance royalties. Record labels and recording artists, however, generally did not receive compensation for the public performance of the sound recording itself.
That framework became increasingly problematic as digital technologies emerged. By the early 1990s, Congress recognized that new forms of digital distribution had the potential to dramatically change how music was consumed. Satellite radio, internet radio, and digital transmission technologies created concerns that sound recordings could be exploited on a large scale without compensating the performers and copyright owners whose recordings were being used.
Congress responded by passing the Digital Performance Right in Sound Recordings Act of 1995.
What Is the Digital Performance Right in Sound Recordings Act (DPRA)?
The Digital Performance Right in Sound Recordings Act ("DPRA") was enacted in 1995 to modernize U.S. copyright law for the digital age. Prior to the DPRA, U.S. copyright law did not recognize any public performance right for sound recordings. The DPRA changed that.
For the first time, copyright owners of sound recordings were granted a limited public performance right for certain digital audio transmissions. In practical terms, the law gave sound recording copyright owners the exclusive right to authorize certain digital performances of their recordings. The Act primarily targeted:
satellite radio services,
internet radio services,
digital cable music services,
webcasters,
and other digital audio transmission platforms.
The DPRA also laid the foundation for the statutory licensing system that continues to govern many digital performances today.
Why the DPRA Changed the Music Industry
The DPRA fundamentally altered how digital performances of sound recordings are monetized in the United States. Rather than requiring every digital service to negotiate individual licenses with every copyright owner, Congress created a statutory licensing system for certain non-interactive digital audio transmissions. Under this framework, eligible services may obtain a statutory license allowing them to perform sound recordings, provided they comply with statutory requirements and pay royalties at rates established by the Copyright Royalty Board.
Today, companies such as SiriusXM, Pandora Radio, internet radio stations and numerous webcasters pay royalties under this statutory framework. These royalties are generally collected and distributed by SoundExchange.
What Is SoundExchange?
SoundExchange is the nonprofit collective designated to collect and distribute digital performance royalties generated under the statutory licensing framework. When eligible digital services perform sound recordings, they submit royalty payments and performance data to SoundExchange. SoundExchange then distributes those royalties to the parties entitled to receive them under federal law.
Importantly, SoundExchange royalties are separate from:
ASCAP royalties,
BMI royalties,
SESAC royalties,
GMR royalties,
mechanical royalties,
and royalties administered by The Mechanical Licensing Collective (MLC).
They are a completely distinct revenue stream.
(If you’d like to learn more about what licenses you need to play music at live events, read this article.)
Understanding How SoundExchange Royalties Are Paid
One of the most unique aspects of the SoundExchange system is how royalties are distributed. Unlike many other royalty streams, federal law does not allow the entire royalty payment to flow exclusively to the record label or copyright owner. Instead, Congress established a mandatory allocation system. Section 114(g)(2) of the Copyright Act requires that statutory royalties be distributed as follows:
50% to the Copyright Owner of the Sound Recording - In most cases, this is the record label or other owner of the master recording.
45% Directly to the Featured Artist - This share is paid directly to the featured artist and generally does not pass through the record label.
2.5% to Non-Featured Musicians - These funds are distributed through organizations designated to represent session musicians.
2.5% to Non-Featured Vocalists - These funds are distributed through organizations designated to represent background vocalists.
Who Qualifies as a Featured Artist?
Federal law allocates 45% of statutory royalties directly to the "featured artist" on a recording. But who exactly is the featured artist? The Copyright Act does not provide a detailed definition of the term. As a result, courts have occasionally been called upon to interpret its meaning.
One of the most significant cases addressing this issue is Ithier v. Aponte-Cruz, decided by the United States Court of Appeals for the First Circuit. In that case, the court examined who qualifies as a featured artist for purposes of receiving royalties under Section 114(g)(2). The court ultimately concluded that the term "featured artist" refers to the natural persons who perform on the sound recording. The court's reasoning relied heavily on the Copyright Act's definition of the word "perform," which contemplates activities such as singing, playing instruments, reciting, or otherwise rendering the work.
In other words, the featured artist is generally the human performer whose performance is embodied in the recording—not a corporation, LLC, management company, or other business entity. This distinction can have significant implications when artists use loan-out companies or other business structures.
What About Session Musicians and Background Vocalists?
Not every performer on a recording is considered a featured artist. Federal law separately recognizes the contributions of non-featured performers. These typically include session musicians, backing musicians, background vocalists, and other supporting performers.
Rather than receiving payments directly from SoundExchange as featured artists do, these royalties are generally distributed through designated organizations that administer payments on behalf of eligible non-featured performers, or they can be generated directly via “Letters of Direction”. This ensures that a broader group of contributors participates in the royalty stream generated by digital performances.
A Practical Example
Assume a sound recording generates $100,000 in SoundExchange royalties. Under Section 114(g)(2), the royalties would generally be allocated as follows:
$50,000 to the owner of the master recording.
$45,000 to the featured artist or artists.
$2,500 to the non-featured musicians' fund.
$2,500 to the non-featured vocalists' fund.
This distribution occurs by operation of federal law. Importantly, the featured artist's share does not simply become part of the record label's revenue stream. Congress intentionally created a direct payment mechanism to ensure that featured performers receive compensation for the digital performance of their recordings.
(If you’d like to learn more about what are digital performance royalties and SoundExchange, read this article,)
Common Mistakes Artists Make
Many artists fail to maximize their SoundExchange royalties because they misunderstand how the system works. Common mistakes include:
Failing to Register with SoundExchange - If SoundExchange cannot identify or locate the appropriate recipient, royalties may remain unclaimed.
Confusing Publishing Royalties with Digital Performance Royalties - SoundExchange royalties are separate from songwriter and publishing royalties. Receiving ASCAP, BMI, SESAC, or MLC payments does not mean an artist is properly registered for SoundExchange royalties.
Assuming the Record Label Collects Everything - Federal law specifically allocates a portion of these royalties directly to featured artists.
Failing to Update Ownership Information - Changes in ownership, management, or business structure should be properly reflected in SoundExchange records.
Ignoring International Neighboring Rights - Many artists focus exclusively on domestic royalties while overlooking potentially valuable foreign neighboring rights income.
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