For the past five years, SoundExchange has been one of the music industry’s few bright spots in a transitional and contracting market. In that time, the non-profit entity which collects and distributes digital royalties for labels and artists for non-interactive transmissions (i.e. Pandora, SiriusXM and others), saw its revenue collections explode 229 percent from $270 million in 2010 to $888 million in 2015. But according to sources with knowledge of the situation, a recent shift to direct licensing will likely lead to slower growth in 2016 and a precipitous drop next year as collections could decrease by about $200 million, according to Billboard estimates.
The primary reason for this loss is that some of the major satellite, digital radio and cable music players have begun moving away from using a compulsory license for recorded music and are instead signing direct deals with record labels. Under the compulsory license, U.S. regulations say digital services must pay all royalties to SoundExchange, which disburses payments to record labels, (50 percent of royalties); recording artists (45 percent of royalties); and side musicians and singers’ unions (5 percent of royalties). Since its creation in 2003, the use of compulsory licenses have dominated the digital landscape for programmed music — until recently.