Sound Exchnage Financials

Glenn Peoples 12/24/12

SoundExchange had a $363 million cash balance on December 31, 2011 on its form 990, the annual reporting form for non-profits in the U.S., according to’s review of the document. That large balance consists of the usual mix of things such as accrued royalties not yet received from Internet radio services and royalties that cannot be paid because of poor data received by the reporting service.

The organization is not exactly sitting on nearly $400 million in royalties. An accrual basis balance at the end of a calendar year is simply a snapshot of moneys flowing in and out of a performing rights organization that paid its billionth dollar of revenue this year. As you will see, aspects of that balance have both improved and diminished.

The amount of money waiting to be paid to artists and sound recording owners has been a particular source of criticism for SoundExchange over the past few years. In 2010, blogs lit up with news the organization was sitting on roughly $200 million of unpaid royalties up to calendar year 2009. That balance of funds on its Form 990 of funds is now up to $363 million, or $294 million when taking into account accrued royalties that had not yet been received by the end of the year.

The balance is a collection of moneys in transit, in limbo and in doubt. Here’s how it breaks down:

— Accrued royalties that have not yet been received account for $69 million of the $363 million. SoundExchange operates on an accrual basis. Its 990 reflects royalties earned from the performance of songs by digital music services through the end of 2011 that were not received by the close of the year.

— About $151 million was already or nearly paid. About $129 million of has since been paid in 2012. Unpaid checks — most likely from a fourth quarter of 2011 distribution — account for $20 million. And $2 million was processed under a Copyright Royalty Judge’s “proxy” determination for pre-2010 royalties that were submitted without a valid report of use. The bulk of those proxy determination royalties were paid in 2010 and a residual amount was paid in 2011.

— Roughly $143 million was unpayable or not distributable because of data or payee issues. Unclaimed royalties owed to artists and sound recording owners not yet registered with SoundExchange totaled $95 million. Data issues — such as misspellings — totaled $11 million while $14 million worth of data was in process of being matched with the correct artist and copyright holder. The broad category of “Account Issues” totals $20 million. This covers things like funds previously paid that are on hold due to returned checks, deceased or defunct recipients and conflicting claims. Another $3 million is on administrative hold due to improper payment by services or audit settlements to be processed.

A few areas deserve extra attention.

Unpayable or royalties that cannot be distributed increased to $143 million in 2011 from $132 in 2010. This 8.3% increase is far less than the 16.8% increase in SoundExchange’s distribution’s from 2010 to 2011 ($250 million and $292 million, respectively). But within this bucket there is one area of continued concern.

The amounts not paid because artists and sound recording owners had not yet registered increased 58% to $95 million in 2011 from $60 million in 2010. That growth rate far outstripped the growth in SoundExchange’s distributions of 16.8% in 2011. In other words, unclaimed royalties that were not able to find their way home represented a larger share of distributions. After all the organization’s efforts to find and sign up artists and sound recording owners, and after all the media attention given to Pandora and SoundExchange, tens of millions of dollars still sits waiting to be paid.

The situation could be better when SoundExchange releases information related to its 2012 Form 990 in a year’s time. asked the organization for information related to first-time payment recipients in order to assess the progress in registrations and payments to new registrants. SoundExchange says it paid $17.2 million to 4,070 first-time recipients in 2010 and $18.3 million to 5,934 first-time recipients in 2011. Then there was a significant jump in 2012 to $24.7 million paid to 7,818 first-time recipients. That improvement isn’t reflected on the 2011 Form 990 discussed here.

Another area of improvement was the amount of royalties that was withheld due to data problems. That bucket was $14 million in 2011 and $37 million in 2010 (or $29 million in 2011 if “data being matched” is included). SoundExchange president Michael Huppe attributes the improvement to the organization’s accumulation of knowledge and experience in fixing bad data as well as the sourcing of metadata directly from record labels.

A final note on unclaimed royalties: SoundExchange has released unpaid royalties only once — in 2004 — in order to pay off some debt, according to Huppe. The royalties for which it had no valid report of use needed a judge’s approval to use a “proxy” to effectively reconstruct a representable play log so the money could be distributed to rights holders and performing artists. The unpaid royalties do not need a judge’s approval to be paid and SoundExchange can release that money after holding it three years, says Huppe.

That said, the organization says it currently has no plans to release those funds.



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