Michael Huppe, CEO and President of non-profit SoundExchange, received a $300,000 raise in 2017 despite a major revenue plunge.
Executives at non-profit organizations are routinely caught paying themselves lavish salaries. Now, it looks like SoundExchange, which enjoys tax benefits as a 501(c)(6) non-profit entity, is also guilty of some questionable self-enrichment.
According to 2017 tax filing details shared with Digital Music News, SoundExchange paid more than $5.1 million to just 10 top executives, with CEO and President Michael Huppe collecting a large percentage of that amount. Huppe’s total compensation for the year 2017 topped an impressive $1.4 million, an approximate $300,000 increase over year-2016 compensation.
The figure includes a hefty base salary, bonuses, tax-deferred retirement, and various ‘nontaxable benefits’.
In total, the DC-based SoundExchange employed nearly 165 people in 2017. Outside of the top-ten executives, SoundExchange’s average annual salary is roughly $110,000.
SoundExchange, a quasi-governmental entity, was created by the Library of Congress to collect and administer statutory licenses from non-interactive streaming services. Most of that revenue has traditionally come from Pandora and SiriusXM, with Music Choice and more than 3,000 others comprising the remaining US-based collections.
As providers like Pandora and SiriusXM have grown over the years, so have SoundExchange’s collections and distributions. But 2017 marked a sharp decrease in payouts, thanks to a slowdown in digital radio’s growth and a major pullout from Pandora.
Just recently, the organization pointed to ‘consolidated gross distributions’ of $631.7 million to rights owners for 2017, which also counts payouts from recently-acquired mechanical licensing group CMRRA. Of that, $652 million came from US-based radio royalties, a drop of more than $230 million from 2016.
In 2016, payouts totaled $884 million. That’s a 26.2 percent plunge in just one year.
“The dual impact of digital radio growth leveling off coupled with direct deals entered into between rights owners and Pandora resulted in a decrease in U.S. sound recording gross distributions made by SoundExchange to $652 million in 2017,” SoundExchange explained in a statement.
Meanwhile, SoundExchange is holding more than half-a-billion dollars in unpaid funds.
According to a document shared with Billboard, SoundExchange was carrying an unpaid holding balance of $527 million in 2017, with a massive $294 million of that non-payable because of bad metadata, bad data collection, misreporting from partners, or artists who have not registered with SoundExchange.
So what’s going on with Pandora?
For the year 2017, Pandora royalties to SoundExchange tanked by $235 million, thanks to a shift by the radio streaming giant towards direct label licensing.
Prior to that shift, a top investor at Pandora candidly discussed the issues Pandora faced with SoundExchange, which included ‘impressively high administration fees’ and mismanagement of royalty funds. That helped to motivate the move, though other benefits of direct label licensing included greater content usage flexibility.
Immediately after Pandora’s transition, artists started reported monstrous drops in SoundExchange royalties. That was exacerbated by a confusing shift, both by Pandora and SoundExchange, with many artists unclear where to collect their Pandora streaming royalties.
Technically, ad-supported streams from non-label artists are still flowing through SoundExchange, though anecdotally, the transition has been chaotic.
Behind the scenes, SoundExchange is widely believed to be positioning for a wider role in the collection of mechanical licenses under the Music Modernization Act.
According to DMN sources, major publishers like Sony/ATV and Universal Music Publishing Group have designated SoundExchange to helm the Mechanical Licensing Collective, or MLC, which is being created following the MMA’s passage. That would dramatically expand the non-profit’s mission, and could result in even larger executive payouts.
No doubt that is a lot of money, but if this guy was an exec at a private firm he would no doubt make much more. What SoundsExchange can’t provide in the form of equity has to be provided in cash, it’s the only way to retain top talent for a non-profit quasi-public agency.
…from the Soundexchange PR person
That was a mic drop moment.
They need to be more aggressive with paying out the $500m on their books otherwise they’re useless
“Aggressive” unfortunately all too often means black boxing the cash. SX holds to get missing data for proper distribution.
Operating expenses (ie Michael Huppe, staff salaries and RIAA legal counsel) should reduce Copyright Holder’s share. What did the RIAA give up in the MMA? I heard it was some big compromise.
Soundexchange = one of the worst music industry scams.
One again US taxpayers paying for criminal behavior.
Where’s the federal investigation?
This malicious attack is the “Big Fat Fraud” and I hope you and DMN get sued for this libel and slander.
Michael Huppe is a scam artist.
Let’s see, Pandora was paying SoundExchange, who splits the money between the Artists and Labels. Pandora then went to the Labels with a direct deal offer promising better “exposure”. The Labels take the deal, which not only gives them that better “exposure” but allows them to collect 100% of the money and then apply the Artist’s share to the normal “recoupable” expenses. End result…..reduced payments and revenue to the Artists. Who’s the scam artist?
One problem that I kept hearing from a top Pandora investor was that SoundExchange was siphoning off huge administrative fees, plus not getting the money to the right place. Instead, giant piles of money (i.e., hundreds of millions of dollars) seemed to be sitting around unpaid, while Wall Street was hammering Pandora over its finances.
And remember, U.S. Copyright law allows for direct deals. So this obvious stink was lingering for Pandora for a long time.
The issues ultimately helped to motivate the pullout; actions have consequences I guess. Instead, Pandora at least knows what they’re paying, and not paying for salaries like Michael Huppe’s (not to mention others).
Are labels not paying their artists? Not sure about that. I think they’re actually paying out. But that (potential) problem sounds a lot better than the problem Pandora had before.
OldIndieLabelGuy above gets it. Huppe built this place from scratch and was underpaid for many years. I suspect these lies have their origin with those competing with SX for MLC work.
SX = lowest admin fee in the biz. Their 50% (label) – 45% (featured artists) – 5% (union split for background and session artists) deal for performers is the best around and has NO RECOUP unlike direct deals.
The “huge admin fees” are payments to performers Sony and Universal don’t pay in direct deals. Blame that on SX? Foolish, false, malicious.
P.S. WMG also does direct deals but they ensure performers are paid by passing the money through SX. Others do not.
Jefferson, thanks for responding, though it seems that you might be overlooking some pretty serious issues here. If $5MM+ for just 10 execs, not to mention $1.4MM for one exec, are really the “lowest admin fees in the biz” as you say, I’d hate to see the “highest admin fees in the biz”.
Remember, there are also over 150 additional SoundExchange employees making $110k annually (again, all ‘administrative fees’).
Additionally, SoundExchange is holding nearly $300MM in money that somehow cannot be matched or paid at all, or involves the many artists that mysteriously haven’t registered with this organization. That was a major frustration at Pandora; after all, why should SoundExchange hold those balances (and all the interest that it generates)?
Seems like Pandora came up with an answer to that question.
DMN has recently interviewed a distribution executive who believes he can reduce metadata errors and issues to single-digit percentages. Like 1-2%. How does a $300MM pile really make sense in that light?
Hiring the best people and paying them well is very efficient. As they say, the best value in medicine is at the Mayo Clinic — they get it right the first time. SX is the best.
Multiply any music or media attorney’s hourly rate ($500-$1,000+) times the number of hours in a year. Still think an attorney like Huppe is underpaid?
Clearly you don’t understand why labels and Pandora short artists with direct deals. I repeat: OldIndieLabelGuy above gets it. You do not.
The comment above from “Big, Fat, Fraud” mistakenly asserts that the US taxpayer foots the bill for SoundExchange. SX is funded by the admin fee that Paul and some commenters have referenced. While SoundExchange is sometimes mistaken as a quasi-governmental body, and it is true that the creation of a body to administer digital statutory royalties was part of the law that created this statutory right in the first place, it was the music industry who actually funded and created it. As I understand it, the major labels originally put up the money to create SoundExchange (they have long ago been repaid that start up funding). From its start, SoundExchange has been governed by an 18 person board of directors (9 seats belonging to labels with 6 of those controlled by major labels and 3 controlled by indies and 9 seats for artists & artist representatives). The current board can be found at https://www.soundexchange.com/about/our-team/board-of-directors/. These are the people who determine Huppe’s salary & sit atop SoundExchange’s budget and therefore the admin fee SX collects. I think some of the points raised here about whether SoundExchange’s admin fee is well spent, whether it is too high or too low, why SX is sitting on such a large amount of unpaid royalties are legitimate. I’d add another…have any of you collecting SoundExchange royalties ever been asked for input on how your representatives on the board were selected? Is there an election process? Are these lifetime appointments? I mean, as far as the major label seats go, that’s up to them but how are the artist seats determined and does that list of artist representatives appropriately reflect the artist community today?
Don’t really have a bone to pick in this one. But seems like we’re defending criminals here. Yes Americans (esp. corporate America) are paying for this unfortunately: non profits get the tax breaks real companies don’t, so who do you think pays the difference?
Plus the fact that Sound Exchange sits on half a billion of unmatched funds not to mention $300 Mil. (!) that is unaccounted for is unconscionable. This is theft and should be investigated.
One more time: The performers’ half of the money is referred to here by Paul as “administrative fees,” fees a Pandora investor told him are eliminated through direct licensing.
Let that sink in. DMN mistakes the performers’ half for admin fees. Performer payments are *not* fees in any normal sense of the word — it is money SX pays to performers that direct licensors do not (WMG direct licenses but uses SX to pay the half performers earn).
Is it too much to ask that before you excoriate SX salaries you seek evidence and compare them to other PROs in the US (ASCAP, BMI, SESAC, GMR), their law firms and the salaries the CMO member companies pay?