[UPDATED] SoundExchange Sues Music Choice For Underpayment

[Updated, 4:25 p.m.]

Sam Harper, VP of Communications, offered the following statement on behalf of SoundExchange to MusicRow:

“The only stunt is claiming that we hold $1.2B of unpaid royalties. This is flat wrong. We pay out 90% of royalties within 45 days of receipt and 95%+ of royalties within three years. After 3 years, the balance is refunded to all artists and rights owners we pay in the form of an admin rate refund. And at 4.7%, our administrative rate is the lowest of any comparable organization.”

[Previous story, 10:49 a.m.]

SoundExchange filed a lawsuit on April 10 against Music Choice to recover underpaid royalties between Jan. 1, 2013 through Dec. 31, 2016, but its believed to extend beyond that period.

“Music Choice’s actions reflect a persistent effort to avoid paying royalties for its use of protected sound recordings,” said SoundExchange SVP/General Counsel Colin Rushing. “Its creative accounting has cheated creators out of the royalties they are due and is inconsistent with the Copyright Royalty Board’s regulations.

“We hope this action will compel Music Choice to pay the royalties that are due to music creators and to change its practices moving forward.”

The action comes after an audit of Music Choice’s royalty statements from their range of music channel subscription services with businesses and individual subscribers. Music Choice is one of many digital music service providers relying on a statutory license to obtain the rights to use sound recordings in its BES (business establishment service). The statutory royalty rate and payment terms for a BES are set forth in CRB regulations at 37 C.F.R. Part 384. Currently, the basic royalty rate for a BES is “12.5 percent of [the] Licensee’s ‘Gross Proceeds’ derived from the use in such service of musical programs that are attributable to copyrighted recordings.”

As a result of the audit, SoundExchange discovered that Music Choice systematically underreported its “Gross Proceeds,” leading to underpayment to SoundExchange for statutory royalties related to the BES.

In response, Music Choice offered the following statement to MusicRow:

“Music Choice has always paid all royalties it is required and, in fact, paid artist royalties even before it was required by law. This suit is a stunt by SoundExchange to distract people from the appropriate concerns copyright holders have that SoundExchange is holding $1.2 Billion of paid royalties without distributing them to the appropriate copyright holders.”