The Internet radio game is rigged and the Recording Industry Association of America (RIAA) has rigged it in their favor.
There has been an understandable public outcry against the RIAA’s attempts to more than triple the sound recording copyright royalties on Internet radio. (See Save Internet Radio from Corporate Money Grab) One solution proposed by Webcasters is to just not play RIAA-member songs under the assumption that then they don’t have to pay the royalty to the RIAA’s collection body, SoundExchange; Webcasters would then just pay the independent artist the royalty.
This sounds just and fair because it is. However, the RIAA is not about being just and fair. The game is rigged and the RIAA has rigged it in their favor. The strategy of playing only non-RIAA songs won't work though because the RIAA has secured the right to collect royalties on all songs regardless of who controls the copyright. RIAA operates under the assumption that they will collect the royalties for the "sound recording copyright" and that the artists who own their own copyright will go to SoundExchange to collect at a later date.
Look at the information on SoundExchange.com (RIAA created SoundExchange) and see how it works. The RIAA has secured legal authority to administer a compulsory license that covers all recorded music.
"The recent U.S. Copyright Office ruling regarding webcasting designated SoundExchange to collect and distribute to all nonmembers as well as its members. The Librarian of Congress issued his decision with rates and terms to govern the compulsory license for webcasters (Internet-only radio) and simulcastors (retransmissions)." (http://soundexchange.com/faq.html#b4)
"SRCOs (sound recording copyright owners) are subject to a compulsory license for the use of their music...SoundExchange was established to administer the collection and distribution of royalties from such compulsory licenses taken by noninteractive streaming services that use satellite, cable or Internet methods of distribution."
SoundExchange (the RIAA) considers any digital performance of a song as falling under their compulsory license. If any artist records a song, SoundExchange has the right to collect royalties for its performance on Internet radio. Artists can offer to download their music for free, but they cannot offer their songs to Internet radio for free. (http://soundexchange.com/faq.html#a7)
So how it works is that SoundExchange collects money through compulsory royalties from Webcasters and holds onto the money. If a label or artist wants their share of the money, they must become a member of SoundExchange and pay a fee to collect their royalties (http://soundexchange.com/faq.html#b6). But, and this is a big "but," you only get royalties if you own the sound recording copyright. If you are signed to a major label, chances are you don’t. Even if you do own the copyright to your own recording of your own song, SoundExchange will collect Internet radio royalties for your song even if you don’t want them to do so.
Go to the SoundExchange site: http://plays.soundexchange.com/... and take a look at the hundreds of indie labels for whom SoundExchange claims they have collected royalties. Enter some of those label names on http://www.riaaradar.com/... and notice how few are actually members of the RIAA. Contact the label and ask if they are a member of RIAA and they almost certainly aren’t and may not even be aware that SoundExchange is collecting royalty fees on their music.
And what exactly is SoundExchange doing with the money they have collected for those hundreds of labels that must have thousands of songs???