SoundExchange and Letters of Direction: What Artists and Producers Need to Know

If you are a music artist or producer releasing music, then you need to understand what SoundExchange is and how it relates to your royalties. Such royalties constitute one of the most overlooked revenue streams in music today and one of the easiest to miss if you are not properly registered.

This post will break down what SoundExchange does, who gets paid, and how Letters of Direction work for producers and other creative participants.

What Is SoundExchange?

SoundExchange is a nonprofit performance rights organization (PRO) designated by the U.S. Copyright Royalty Board to collect and distribute digital performance royalties for sound recordings. These royalties are generated when your master recording is played on:

• Non-interactive digital radio (for example, Pandora)
• SiriusXM satellite radio
• Internet radio services
• Cable music channels

NOTE: These are not the same as publishing royalties. These are royalties paid to owners and performers of the sound recording, not the underlying composition.

Who Gets Paid by SoundExchange?

SoundExchange splits digital performance royalties as follows:

• 50% to the Sound Recording Copyright Owner (usually a label or independent artist who owns the master)
• 45% to Featured Artists (performers on the recording)
• 5% to Non-Featured Performers (via unions like AFM and SAG-AFTRA)

If you are:

• An independent artist who owns your masters – you may be entitled to both the owner share and featured artist share.
• A signed artist – you are still entitled to the 45% featured artist share directly from SoundExchange. Your label does not collect this portion.
• A session musician – you may receive non-featured performer payments.
• A producer – this is where Letters of Direction become critical.

Why Producers Need a Letter of Direction

As discussed above, by default, SoundExchange pays the master owner (label or independent artist) and the featured artists. Producers do not automatically receive SoundExchange royalties even if their agreement provides for “points” or royalties on the master.

To receive a share of the featured artist’s SoundExchange royalties, a producer must have:

1. A contractual right to master royalties; and
2. A properly completed and executed SoundExchange Letter of Direction

What Is a SoundExchange Letter of Direction?

A Letter of Direction or LOD is a formal document signed by the featured artist directing SoundExchange to pay a portion of their 45% featured artist share directly to the producer. In plain terms, it says: “SoundExchange, please pay X% of my featured artist royalties for this recording directly to my producer.”

Once the LOD is processed, SoundExchange pays the producer directly, rather than requiring the artist to account and pay the producer manually. This creates transparency and efficiency while reducing accounting disputes.

Why SoundExchange Matters for Independent Artists

Many independent artists own their masters, collect interactive streaming income via their distributor, and collect publishing royalties—but forget to register with SoundExchange. If you are not registered, you are leaving money unclaimed, and SoundExchange will only hold your money for approximately 3 years.

Additionally, if you agree to pay a producer royalty, a Letter of Direction can simplify your accounting and keep your professional relationships intact.

Common Mistakes to Avoid

1. Not registering at all. Unclaimed royalties can sit for about 3 years, but they are not held forever.
2. Assuming your distributor handles this. Most distributors do not automatically collect SoundExchange royalties for you as the featured artist. You must register separately.
3. Forgetting the producer Letter of Direction. If it is not filed, SoundExchange will not split payments.
4. Poor drafting in producer agreements. If your agreement vaguely says “producer gets royalties” but does not address SoundExchange specifically, disputes can arise.

Practical Steps for Artists

• Register with SoundExchange as both Featured Artist and Rights Owner (if you own your masters).
• Confirm all recordings are properly linked to your account.
• Directly address SoundExchange monies in your producer agreements.
• Use Letters of Direction where appropriate.

Practical Steps for Producers

• Ensure your agreement clearly grants SoundExchange participation.
• Confirm the Letter of Direction is signed and submitted.
• Create and maintain your own SoundExchange account.
• Monitor payments and repertoire listings.

Final Thoughts

SoundExchange royalties can be a meaningful income stream for artists in the streaming era, especially for artists with catalog depth or significant digital radio exposure. For producers, Letters of Direction are not optional formalities. They are essential to getting paid properly and directly.

Proper paperwork on the front end protects relationships and ensures everyone is compensated as intended. If you are negotiating producer agreements or structuring royalty splits, always make sure that SoundExchange is part of the conversation.