We Asked SoundExchange About Their Unpaid Royalty Balance. Here’s What They Said

Just recently, SoundExchange reported cumulative artist and label payouts of $1 billion (since inception).

That looks impressive, but may also be a highly-selective and misleading disclosure.  Part of the problem is that potentially hundreds of millions in royalties are sitting on SoundExchange’s books – unmatched, in dispute, or hampered by bad or missing metadata.  According to IRS tax filings from 2010, SoundExchange listed more than $305 million in ‘total liabilities and net assets/fund balances,’ of which the group says ‘just’ $132 million was actually unresolved money (the rest being unreceived, in transit, or otherwise ‘accruing’).

So how much unpaid money is piling up, right now, in 2012?  Here’s what happened when we tried asking the company, starting with president Michael Huppe.  This thread is completely unaltered, with one, recurring question highlighted.

June 18th, 2012

_________________________

From: Paul Resnikoff <[email protected]
To: Michael Huppe <[email protected]
Date: 06/18/12 8:56 AM
Subject: Latest SoundExchange Financials

 

Hi Michael,

What is the current unpaid balance owed to labels and artists at SoundExchange, ie, money being held because of inability to match, holdups related to court processes, international delays, etc.?

I noticed the New York Times reported a figure of $132 million for 2010, though IRS 990s show ‘Net Assets or Fund Balances’ of more than $305 million for that period.

Can you clarify the discrepancy, offer appropriate breakdowns, and update the figures to the present?

> Reference: NYT

“At the end of 2010, the last date for which audited accounts are available, SoundExchange was holding $132 million, for artists who have not registered or because of complications like bad or missing data about which songs the services have played.”

Thanks,

paul resnikoff > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

__________________________

 

From: Michael Huppe <[email protected]
To: Paul Resnikoff’ <[email protected]
Date: 06/18/12 12:40 PM
Subject: Re: Latest SoundExchange Financials

Paul,

I’m cc’ing our head of Communications (Marie Knowles) who can field your question. Thanks for your interest.

-Mike

—————————

Please excuse any typos. Sent from my Blackberry.

 

____________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/18/12 11:29 AM
Cc:
Subject: Your Qs

Paul,

Mike forwarded me your questions. I am at New Music Seminar trying to get our numbers emailed to me. We do have them but I don’t have with me here today. I will send to you asap.

Marie

____________________________

 

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/18/12 12:37 PM
Cc:
Subject: Re: Your Qs

Okay, should I expect later today? Thanks for the timetable.

paul resnikoff > founder > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

______________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff<[email protected]
Date: 06/18/12 5:24 PM
Cc:
Subject: Re: Your Qs

Paul,

I am juggling a few things and if not tonight tomorrow morning.

Marie

June 20th, 2012

(Still no answer)

 

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/20/12 1:24 PM
Cc:
Subject: Re: Your Qs

Hi Marie,

I’d appreciate any response you could give me?

paul resnikoff > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

______________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/20/12 6:41 PM
Cc:
Subject: RE: Your Qs

Hi Paul,

Apologies as we have had a busy week.

The $132 million in unclaimed funds mentioned in the New York Times is correct. This number represents royalties that have been processed but were still unpaid. This includes unregistered artists/labels, funds connected with bad data or no data, accounts on hold because of conflicting claims, etc. Our outreach, claims, customer service and technology teams are working daily to lower these balances.

The remaining balance posted in our 2010 990 (as of 12/31/2010) relates primarily to accruals (we operate on an accrual basis) for royalties not yet received, and to royalties in the course of being processed for distribution at that time.

I hope this is helpful.

Best,

Marie

_______________________________

 

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/20/12 7:04 PM
Cc:

Subject: RE: Your Qs

Okay, thanks Marie. A few questions on that if you don’t mind.

(i) You’ve reported cumulative payouts of $1 billion since inception, it seems effective Q1 2012 based on your public statements.

So, what was the holding balance at the time of the $1 billion mark (end of Q1)?

(ii) On the accrued explanation, to clarify, are you saying that a portion of the money reported in the 990 for 2010 was not actually collected?

paul resnikoff > founder > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

June 21st, 2012

(Still no answer)

________________________________

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/21/12 9:19 AM
Cc:
Subject: RE: Your Qs

Paul,

Just clarifying with our finance team. I’ll get back to you as soon as I can.

Best,

Marie

_____________________________

 

From: Paul Resnikoff <[email protected]>
To: Marie Farrar Knowles <[email protected]
Date: 06/21/12 10:34 AM
Cc:
Subject: RE: Your Qs

Appreciated. Thanks for the legwork, I know of course you’re busy.

 

_______________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/21/12 1:42 PM
Cc:
Subject: RE: Your Qs

Hi Paul,

Again, my apologies for the delay! In response to your questions:

(i) It’s not our policy to report our holding balance on a quarterly basis.

(ii) Correct. Because we operate on an accrual basis, a portion of the money reported for the 990 in 2010 hadn’t made its way into SoundExchange yet. (Services pay 45 days after the month ends so some of that year’s liability from the services isn’t actually paid to us until the following year but is accrued for accounting purposes.)

Hope that second part makes sense.

Many thanks.

Best,

Marie

__________________________________

 

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/21/12 3:16 PM
Cc:
Subject: RE: Your Qs

OK, so you’re willing to report Q1 payouts, but not holding balances?
What is the 2011 holding balance then?

In the second part, out of the $305 million reported in the 990s for 2010, was $185 million (the difference) not actually received?

 

June 22-24th, 2012

No responses.

_____________________

 

June 25th, 2012

 

From: Paul Resnikoff <[email protected]>
To: Michael Huppe <[email protected]
Date: 06/25/12 12:34 PM
Cc: Marie Farrar Knowles <[email protected]
Subject: Re: Latest SoundExchange Financials

 

Michael,

Over a period that stretches more than a week, I’ve been unsuccessful in finding out what SoundExchange’s unpaid holding balance is, either currently, or for 2011.

Frankly, the explanation for 2010 doesn’t really make sense to me, either. In response to a question of how to reconcile a 2010 IRS form that shows a holding balance north of $305 million against a New York Times article that shows a balance for the same year in the area of $132 million, I’ve been told that this gaping extra amount is simply based on accruals that haven’t been paid to SoundExchange. The explanation seems to be that this money has not been paid to SoundExchange, but recognized on the books, in what specific amount I cannot determine.

I hope you’ll be able to fill me in, otherwise I’d appreciate the simple courtesy of just refusing to disclose.

Thanks.

paul resnikoff > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

_______________________________

 

From: Michael Huppe <[email protected]>
To: Paul Resnikoff <[email protected]>
Date: 06/25/12 4:08 PM
Cc: Marie Farrar Knowles <[email protected]
Subject: RE: Latest SoundExchange Financials

 

Paul,

The “extra amount” you reference isn’t just money coming in the door. This amount includes funds that we had not received at that time (accruals), as well as funds that were received but in transit through our system when the calculation occurred (i.e., not yet paid out and/or uncashed checks from our Q4 distribution). These two factors are the bulk of the delta between the two numbers.

BTW, the $132 million referenced below is not just the artists/labels that had not yet registered. This number also includes complications like bad data and conflicting claims.

Thanks,

Mike

_______________________________

 

From: Paul Resnikoff <[email protected]
To: Michael Huppe <[email protected]
Date: 06/25/12 4:27 PM
Cc: Marie Farrar Knowles <[email protected]
Subject: RE: Latest SoundExchange Financials

Thanks for clarifying that aspect.

Moving to the present, if $132 million was the amount on hold for 2010, what is it now?

paul resnikoff > publisher > digital music news (digitalmusicnews.com) > 310.928.1498

 

_________________________

No response.  As part of a larger story, we reference the $132 million figure from 2010, citing Michael’s email.  SoundExchange asks us to pull it down, without answering clarifying questions.

 

______________________

June 26th, 2012

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]>
Date: 06/26/12 8:06 AM
Cc:
Subject: RE: Latest SoundExchange Financials

Paul, I would appreciate it if you would please correct your blog post, as you misrepresent Michael Huppe’s words. We very much would like to continue to provide you information, but not if it means our statements will be misconstrued.

“SoundExchange president Michael Huppe noted that $132 million of that represents unmatched royalty owners, bad data, or money tied up in royalty court battles. Huppe has so far declined to provide current holding, in-transit, or accrued balances.”

I went back through my email and nowhere does he say that unclaimed funds are “tied up in royalty court battles.”

Thanks in advance.

Best,

Marie

________________________________

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/26/12 8:21 AM
Cc:
Subject: RE: Latest SoundExchange Financials

 

Earlier SoundExchange represented that there were court negotiations particularly tied to international royalties (but potentially others as well).

Huppe pointed to “conflicting claims.”

So, there are no pending court matters?

 

__________________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/26/12 9:01 AM
Cc:
Subject: RE: Latest SoundExchange Financials

 

Hi Paul,

Conflicting claims relates to one individual claiming to be the master rightholder.

Best,

Marie

_______________________________

 

From: Paul Resnikoff <[email protected]>

To: Marie Farrar Knowles <[email protected]
Date: 06/26/12 9:06 AM
Cc:
Subject: RE: Latest SoundExchange Financials

 

So, there are no pending court matters?

 

_________________________________

 

From: Marie Farrar Knowles <[email protected]
To: Paul Resnikoff <[email protected]
Date: 06/26/12 11:44 AM
Cc:
Subject: RE: Latest SoundExchange Financials

Paul, While there are some that end up in court, many of the conflicting claims are settled without having to go to court. The royalty courts would be where the rate-setting proceedings are held. Hope that makes sense.

Best,

Marie

________________________________

 

From: Paul Resnikoff <[email protected]
To: Marie Farrar Knowles <[email protected]
Date: 06/26/12 11:52 AM
Cc:
Subject: RE: Latest SoundExchange Financials

I find Lucian Grainge to be less evasive than SoundExchange.

Okay, so back to my original question. What part of the pending and unpaid amounts are due to court claims, specifically for the 2010 amount discussed?

Also, can you share 2011 pending amounts please?

No Response.

______________________

June 27th, 2012

No Response.

 

12 Responses

  1. The Insider

    LOL,

    They aren’t gonna tell DMN nothing they don’t even know themselves!!!!!!!!!!

    “Count no one else’s money but your own”

  2. simonsays

    Transparency is for losers. Just ask:

    (1) Spotify

    (2) RIAA

    (3) UMG

    (4) Sony

    (5) Warner Music Group

    (6) EMI / Citigroup

    (7) Edgar Bronfman Jr

    (8) Grooveshark

    (9) Sound Exchange

    (10) Your Manager

    (11) Your Accountant

  3. Dave

    Another government run organization. If they were in the private sector they would have to answer your questions, or face trouble from their customers.

    Monopolies, especially government monopolies, are a bad thing!

  4. fun in bushwick

    seriously, the Harry Fox Agency (HFA) has comparable backlogs. same with the publishers themselves,ASCAP, BMI, etc.

    work for a minute in these administration type offices and you’ll see that the job is never easy, data is always dirty, and the infrastructure is dated

    • Someone who knows...

      I know all about conflicting claims but the conflicts in claims at SoundExchange are a figment of their imagination.

      The comparison is this : I’d say 1% of our publishing claims are in conflict at HFA as opposed to 99% of our master recording claims at SoundExchange.

      What they deem “conflicts” are goofs at their end, primarily in data entry.

      I am extremely critical of HFA these days but sitting on royalties like this is not one of their sins.

      This week I received the latest accounting from both of these organizations. 50% of HFA money was derived from audit recovery. I look forward to the day when SoundExchange pay out more in audit recoveries than they absorb in “overhead”.

      • fun in bushwick

        You are very fortunate. If you are looking at the aggregate, however, there is an unbelievable amount of cash in HFA’s unprocessed suspense accounts.

  5. Jon

    SoundExchange has distributed substantial amounts of money to scores of artists and SRCOs in at least one genre of which I’m personally aware. DMN occasionally mentions such matters, but always and only on the way to another entry in what increasingly appears to be an irrational vendetta against the organization. It’s starting to undercut the value ofDMN for me, whi is regrettable.

    • Mr. Ice Cream Man

      vendetta!?

      All they had to do was answer the bloke’s question

      • Visitor

        They did answer the question. It was essentially “I don’t know, you tell me.”

  6. Service Provider

    It’s worth noting that for digitial music services that pay soundexchange late there are substantial fees that compound monthly. Maybe they just need the same thing on the payout side.