Fair Pay for Recording Artists

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Hey, everybody, welcome to The Big Stage podcast, where we talk to athletes, artists, and entertainers of all kinds. I'm your host, Adam Sansiveri, Bernstein Managing Director and Co-head of Sports and Entertainment.

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Music gives a soul to the universe, wings to the mind, flight to the imagination, and a life to everything. Beautiful words by the ancient Greek philosopher Plato. We all love music, but how often do you think of the business of music? What if I told you that the vast majority of recording artists don't even make a living wage from the music that they create? My guest today is going to discuss the business of music and his desire to level the playing field for recording artists.

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I'm so pleased to welcome the president and CEO of SoundExchange, Mr. Michael Huppe. Michael, thanks so much for joining us.

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Adam, it's a pleasure to be here. Thank you so much for bringing your time and expertise to the conversation today. I've been very excited about this one as someone who's very passionate about music and have been my whole life. Michael, you said something that I really, really liked, and I quote, I'm constantly fighting to make sure creators get paid more fairly across the board. Where does your passion to fight so hard on behalf of artists come from? Well, you know, Adam, it comes from a lot of areas. Like a lot of people listening to this podcast,

01:27 - 01:52

I grew up playing music, played a couple instruments. I listened to music of all genres. I very much have enjoyed all the concert experiences that I go to. There's really, there's nothing that can replace standing shoulder to shoulder with a bunch of friends in an awesome venue with unbelievable lighting and music thumping in your chest. Music changes everything. It makes everything better. It makes everything better in life.

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It's fun to think about all of those times in life where music was so important. Imagine if music wasn't there, right? Whether your graduation, walking down the wedding aisle, or whatever it may be. Think of that experience and take music out. So music's always been really important to me. And now that I'm in the industry, I see where a lot of the people that make this beautiful art and practice its craft aren't being rewarded for what they do.

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Yeah, I think that's well said. Music brings the emotion into life, and I think that's well captured in your comments. For those on this call who perhaps don't know what SoundExchange is, could you just give us a little overview?

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Sure.

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SoundExchange, we're a company in sort of that operates at the intersection of music and technology. We basically help make sure that creators of all types, especially record labels and recording artists, participate the way they should in the digital economy. So a lot of what we do relates to making sure that a lot of the folks you hear on digital radio or elsewhere get paid properly from these big services like Sirius XM, Pandora, and the like.

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We have grown quite a bit in recent years and we're at the point now where we pay out over a billion dollars to creators for digital streaming. And so we're a very big part of the digital music economy. That's amazing.

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And how long have you been involved, where this idea came from, give us a little bit more background. So I actually, believe it or not, the company called SoundExchange was created by the industry in order to help make this digital world work better. We're actually an entity that our board is half record label and half artists, and it includes everyone in the ecosystem from the recording side of the business. And they are there to help make sure that the whole business participates as much as possible in digital music.

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So we've been around really since for almost 20 years, going on 20 years now, and nobody knew we would grow as quickly as we did, because when we first started out, it was, you know, when there were services like Yahoo! Music, probably before you were born, Adam, you know, AOL music, and all of that. And now, of course, we all know there are tons of options for people that want to listen to digital music out there today. So I want to get a little bit more granular and talk about some of the business behind all this.

04:17 - 04:48

Let's start with AM-FM royalties and the loophole there. I learned as I was prepping for this conversation that the biggest and most profitable music platform in America is still FM radio, which has over 200 million listeners and 17 billion in annual revenue. But they have never paid a dime to creators of their music that their business is built on. And because US radio broadcasters don't pay a performance royalty to artists, American artists are also not paid abroad and lose about 200 million in annual revenue overseas.

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Why has this been allowed to continue? Well, you are absolutely right. It is a huge issue. Why has it been allowed to continue? I would say that we are victims of fate and politics and timing. You know, it is absolutely true.

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The commercial FM industry in the US, they're not just big, they are the largest distributor of music on the planet. And their primary input is the recording that they play, right? That's how they draw the crowd in order to sell the advertising. They do pay for the songs and the songwriter as they should. The songwriter is a very important part of the process and publishers. But an equally important part is the recording artist that we all listen to.

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That's their main input as a business, 17 billion dollar business that they draw the crowd with and they pay exactly zero. Name another, name another industry where their biggest input they pay zero for. And not only their biggest input, the biggest input is really the creative work of someone else.

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And the reason we're in this situation is, sort of one of the most recent times where we had a big copyright review in our country and a revision of the copyright laws was 1909. Well, guess what? There was no recording industry in 1909. The record labels, recordings had just been invented recently. Record labels didn't really come around till the 30s or 40s. And by the time we had a next big revision, the broadcasters were too powerful. There's a radio broadcaster in every single congressional district and they have a lot of political power.

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So they've been able to stop us getting this right in Congress. We're the only industrialized country that doesn't have this right. It's really a travesty. But SoundExchange, it's one of the biggest things we're fighting for is to get this this right, so that the 17 billion dollar FM radio industry just shares in their success, that we just want them to share fairly with the people on whose backs their business is built. Yeah, absolutely.

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You mentioned that they do compensate songwriters, and I think our audience could benefit to distinguish between royalties and publishing rights. I know it can get confusing for some people. Can you explain the difference between the two and what every artist maybe must know when they're thinking about negotiating the royalties and publishing rights? Sure.

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What a lot of people don't know, the music industry, any time you want to use the recording for something, whatever it may be, if you want to stream it on AM FM radio, play it in a big venue, put it into a movie soundtrack or a Hallmark card or a toy or a video game, whatever you want to do with music, there's generally two different rights involved.

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And one is the song. So it's the notes and the lyrics that goes down on tablature. That's what songwriters and composers prepare. And then when you take that song and turn it into an actual thing that you listen to a recording, that's what record companies do and what recording artists do. I often equate it to playing the game of baseball, right? To play the game of baseball, you need a ball and a bat. You need them both to play the game.

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But they're different products, different P&Ls made by different companies. They have different business models. And that's sort of how it is in the industry as well. You have songwriters and publishers and then you do the songs and the lyrics and the notes and then you have the recording artist and you typically have to get permission from both of them for most uses in the world. Now, as I just mentioned, if you happen to be the 17 billion dollar FM, US FM radio business, you don't have to worry about the recording.

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You just need to go to the songwriters. And songwriters should be paid. They're an important part of the process. It all begins with the song. So that's the difference between the two. And it's very complicated how the business is set up. So, you know, I teach a class at Georgetown Law School on Music Law and I have this graphic that I've prepared to sort of roughly describe the music industry and where all the different parties fit. And I tell them all, they're lucky it's law school and not business school, because if it were business school and you drew something that looked like the music industry,

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You'd probably fail because it's, the way it's set up was based on an old model, the old physical world and piano rolls and vinyl albums. That's an old business model that isn't the focus anymore and those same institutions are trying to work in the digital world. And it's an industry that is very difficult to get all the rights that you need to launch these big services like Spotify, because of the complexity of the rights. Working in the entertainment business for 15 years,

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and then on the advisory side for so many artists, I can't tell you how many times I've seen the artists themselves be incredibly confused about how the music business works. And we should have a world where we should have a system where artists and songwriters don't have to focus on this, because we want them creating more songs and creating more music. That's their highest, best calling. And it's what adds to our culture and our art. So we want them focused as much as possible on the creative endeavors.

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That's that's what they're there for. Couldn't agree more. Speaking of royalties, you've distributed nearly 7 billion dollars in royalties to artists. What do you think has been your biggest victory in this ongoing battle between the artist and the music industry and finding a common ground of making sure everyone's

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fairly compensated? That's a great question, I think in some ways we have a thousand little victories every day. Every month we pay out part of that billion dollars that we pay out every year. We pay a little bit every month. Not a little bit, it's actually a fairly large bit.

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And it's a lot of the working class artists and people whose lives are really changed by our payments that are the thousand, thousand little victories we have every day. The other thing I think about is I think about things on Capitol Hill, legislation on Capitol Hill that helps move us in a direction of people getting paid more fairly.

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There was a big piece of legislation recently passed called the Music Modernization Act that fixed some, but not all of the problems in the industry. And there are things that, SoundExchange itself has had great success in some of the rate proceedings we've had, where we've been able to increase the rates that creators are getting paid literally by 30 or 40 or more percent, or sometimes when we have gone after some big services who aren't doing what they're supposed to be doing.

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We recently, a couple of years ago, had 150 million dollars settlement on one of these services. So it's all these victories and all of these different places that help us get closer anyway to trying to make sure creators are compensated fairly for all they bring to our world. We're not there yet, but we're working steadily towards that goal. That's fantastic. I'm going to change direction slightly and present something that was published in the Rolling Stone magazine last month.

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The music industry has decided it wants to support Black lives. And as a result, Universal Music Group, Sony Music Group, and Warner Music Group have collectively committed nearly a quarter billion dollars to social justice and anti-racist initiatives. But many Black artists have really pushed back, and many more say if the music industry wants to support Black lives, labels and platforms can start by amending contracts, distributing royalties, diversifying boardrooms and retroactively paying back all the Black artists and their families that they've built their empires on.

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What is your take on this situation? So this is a obviously extremely complex issue, and I think that that this situation over the past couple of months has really awoken a lot of us to things we thought we understood but maybe didn't really fully understand, to be honest. I'm thrilled that our industry has committed over a quarter billion dollars already to social justice issues. And that's a good start. And you know, the industry did a lot of other things.

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We had Blackout Tuesday. A lot of us closed our offices for that and Juneteenth. And but, that's just a start. I think there's momentum on this issue, like momentum I've never seen before in the industry. And I know that speaking personally and speaking about what's happening in SoundExchange.

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It really has prompted some, as I said, an awakening in a lot of us, some hard conversations. There are things I've learned from people at our company who I've known for 15 years. There's things that I've now learned from these conversations that is just so enlightening. And I wish it hadn't taken this event to get us there. But I hope that not just at SoundExchange, but I hope that a lot of companies are starting to have these difficult conversations so we can all start to have a better perspective on one another. And the industry contributing the money is a start. But I, it's just a start.

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And there's definitely a lot more that we need to do, whether it's changing hiring practices, looking at vendor relationships, or making sure people make their voice heard at the ballot box in ways that maybe they haven't before, that, those are the types of things I think we should all be focused on. Thank you, I appreciate that perspective. Talk to us a little bit now about what's SoundExchange is working on. Is there any, anything innovative, forward looking, or particularly of interest that you're focusing your time on? Sure.

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I mean, one of the big things we already talked about is getting big FM radio to help share in the profits that creators provide to them.

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But another thing that we're doing is this initiative called the Fair Trade of Music. You mentioned this earlier, in one of your questions. But what a lot of people don't realize is American artists are discriminated against overseas because we don't have all the rights here that they have. They withhold some of the money for American artists overseas. We don't do that in this country. If there is a royalty paid for music, we pay it out to whomever deserves it, whether they're from this country or Canada or Spain or France or the UK, wherever it may be.

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So we treat all creators equally in the US. In a lot of other countries, that doesn't happen. And because the US may not have every single right that they have, they use that as an excuse to not pay US creators. And I don't have to tell you if you've ever traveled, Adam, anywhere overseas,

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American music is everywhere. It is by far the most popular music in the world. You get in a cab in Spain or go to a club in Paris or wherever it may be, you hear American music. So it's not fair that that they're collecting these royalties and not sharing them with American creators. We don't discriminate against their artists. We ask them to not discriminate against ours.

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So that's one of the, one thing that we're doing internationally, to try to improve the process. And then, closer to home, one of the things that we're doing, I won't bore you with sort of the technical details, but we're doing things on the data front to try to remove friction in the industry, the back end of the industry, if you will.

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There are certain data initiatives where, we can sit here today and you may be listening to songs on Spotify, right? You hear a great recording or an album that's released. And it may be the case that you're sitting and you're listening right now to that recording and they still aren't exactly clear on where to send the songwriter royalties. You send someone to the moon, how many decades ago, they're about to send someone to Mars, and we can't figure out who wrote a song.

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So we're trying to improve that data situation so that people get paid fairly because everyone who contributed to that work should be paid. So we're working on sort of standards, technical delivery standards, technical identifiers, really to help make the back end of this whole industry be more streamlined without getting into too much details. And everyone in the ecosystem will benefit from that the more we improve it.

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Now, that's really fascinating. I think, when folks look at the economy today and how content creation is just booming across the entire world, whether it's Netflix, and Spotify, and the list goes on and on and on, it's wild to think that there are still gaps in the system and people aren't getting paid. And it blows my mind to hear, hear you talk about the international play and not being accounted for. So I'm glad you're working on those things.

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And I'm sure a lot of artists are very thankful as well. Shifting to COVID, we obviously know this has disrupted everything and the music industry is towards the top of that list of industries that have been disrupted. Artists that are not able to tour where they used to get the majority of their revenue or their income are in a tough spot. What are some of the ways that you're finding artists be creative to generate income today or things you're seeing because of COVID? And you're exactly right.

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Artists are getting slammed by this and it shouldn't be a competition if their situation is worse than your situation. There's a lot of industries that are being devastated by COVID. So I want to say that up top.

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But I will tell you, imagine artists who tour, who went from regular to zero. Big venues or any venues of any type were the first to close. They're going to be the last to open. Local music venues, they're going to be the last to open. And even when they open, they're going to be not at full capacity because of social distancing.

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I mean, I don't, most can't even do a house concert still. So a lot of artists who were doing this for a living truly had their income decimated. For many of them, SoundExchange is really one of the only revenue streams they have left right now. So it's hard to overstate how dramatic the impact is on the music industry. And if we, one of the things that we are fighting for in SoundExchange is for, in the next round of government relief, to have some money for these venues, and especially the independent music venues.

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You have them in every city. We've all been to them. Many of them risk closing forever if they don't get relief. And I'll tell you what, if they close forever, the music industry is going to look a whole lot different when we come back, don't have to wear masks, and get together again, because we're not going to have any place to go. So it's very important to support those independent venues.

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But more to your question, you're totally right. It's, I actually did an interview with a DJ, who we know, the other, a couple of weeks ago, and he's talking about, he's actually named DJ D-Nice, and he does this thing called Club Quarantine every Friday night from his condo or house. And it's created this whole new way of him connecting with his fans and this whole new set of fans, complete with merch and all sorts of other opportunities.

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You have, you see artists doing things like trying to do the drive-in concerts, online streaming and live streaming is becoming very popular. Hopefully you've seen some of the live streaming opportunities. And again, live streaming won't ever replace standing, like I said, shoulder to shoulder with your good friends in a venue. But here's what a live streaming can do, which is just another way to have an alternate experience. You can have an interactivity in live streaming you could never have at a local venue, right, where people can be commenting or choose the setlist.

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They can do a survey and have a vote on the setlist or suggest alternative lyrics, or have virtual duets from two artists who might be in different continents. So you see artists doing things like branded face masks, limited edition pandemic t-shirts. So our artists are being really creative in how they respond, which you would expect from people that are creative. Are artists at heart.

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Yeah, we had Travis Scott's manager on the show earlier this year, and it was right after the Fortnite collab, and talk about an amazing innovation to create a stage in a virtual world that drew millions and millions and millions of people.

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It is fascinating. They already were prior to that doing concerts with 3D images of deceased parties right now. Oh, yeah, holograms. That was already in place before COVID hit. But, yeah, there have been several artists that have had very large Fortnites, some of their biggest and probably by far their biggest concerts ever in Fortnite, which imagine even dreaming that up 10 years ago.

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You would describe that to somebody, they probably would have you committed ten years ago. I think so. You're a planner at least, so I'm told and I've read that you were actually prepared for COVID. And that raises an eyebrow, I think, but, to a lot of people. But as a result, you actually prepared SoundExchange and you haven't missed a single payment for your artists. Can you tell us how you managed to prepare for this? Well, that's very nice of you to say that I'm a planner. I'm not sure anyone could have really quite prepared for the coronavirus.

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I will say that we pretty much stayed in business as usual. We saw this coming. We closed a little bit earlier than everybody else because I wanted to work out any hiccups before we did our next monthly distribution. We pay every month, a lot of entities like us around the world pay maybe once a year at best quarterly.

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Nobody else does once a month. So we did switch to remote work fairly quickly and fairly successfully. And kind of one of the things I'm proud of right now is how we were able to do that and not interrupt those payments. As I said earlier, our payments have always been important to artists, but they are now more important than ever, some of them are some of their main source of income. I think part of the reason we were able to do that is we made decisions years ago that we're benefiting from now, things like digital capabilities, remote work.

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We were in the cloud earlier than everybody else. Remember back when people were worried whether the cloud was more secure or not. And we, of course, now know it's way more secure. We went open source way before everybody else did, which is a little bit of a gamble, but now, of course, open source is the regular thing.

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So we sort of made some strategic decisions seven, eight, 10 years ago that are paying off now and allowing us to better handle this situation. Like I said it, I'm not going to sit here and say we planned for something this drastic, but we certainly are comparatively in a decent position compared to a lot of other industries that were less digital, less nimble, less agile. Well, you're certainly in an elite group of companies that have been prepared for the unexpected and navigated things brilliantly.

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So thank you. We're going to wrap things up here in a minute, Michael. But I want to ask you three quick-fire unrelated music questions just for our audience's benefit.

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Number one, do you still play the piano? I do still play the keyboard, but I try to do it when my kids are not around because they are unforgiving.

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Number two, TikTok. What are your thoughts on TikTok? They use a lot of music. Trump's trying to shut it down. Microsoft's trying to buy it. I just would love your opinion. Yeah, and the NSA is trying to watch it.

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TikTok? Well, that that could be a whole podcast. Look, any explosive cool venue that really utilizes music is great as long as they pay properly for it. I'm frustrated that I don't think they're necessarily properly paying for the music that they use. So on the business side, if we're going to have a TikTok, they have to reward creators safely.

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As an American, I'd like to make sure that it's not the security risk that everybody says that it may be. And as to Trump's thoughts on what to do with TikTok, I'll defer on this.

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Just the perfect answer. I'll answer that after November. All right. There we go. We'll have you back. And finally, last but not least, your favorite artist of all time. Oh, favorite artist. Can I give you two? You sure can. Probably Billy Joel and Elvis Costello. Oh, great ones. Oh, and Earth, Wind & Fire. Those are three very different ones. Earth, Wind & Fire, Billy Joel, and Elvis Costello.

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Which one's your favorite to play on the keyboard? Billy Joel. All right. Good answer. Good answer. Well, there we have it. Michael, thank you so much for joining us on The Big Stage. It's been a pleasure chatting with you. And I hope to talk again soon. Same here, Adam, it's been a pleasure. You have a good one. Thanks so much for our listeners for joining us. We'll see you next time. Thank you for listening. This has been The Big Stage.

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