SoundExchange and the Right That Terrestrial Radio Still Does Not Pay

The Right That Congress Created, and the Gap It Left Open

In 1995, Congress passed the Digital Performance in Sound Recordings Act, establishing for the first time a federal performance right in sound recordings for certain digital transmissions. Before that statute, US copyright law recognised the right of a songwriter to collect when a song was broadcast — that right flowed through performing-rights organisations — but the owner of the recording itself, typically a label or a distributor, received nothing from radio airplay. The 1995 act cracked that door open, and its successor, the Digital Millennium Copyright Act of 1998, pushed it wider, extending the right to webcasters and creating the compulsory-licensing framework that governs internet radio today.

What Congress did not do in either bill was disturb the status of over-the-air AM and FM broadcasting. The terrestrial-radio exemption, encoded in 17 U.S.C. § 114(d)(1)(A), states that the new performance right does not apply to non-subscription broadcast transmissions. In plain terms: a station licensed by the FCC and broadcasting over the air pays nothing to the owner of the recording it plays, no matter how many times it plays it or how many listeners hear it. That exemption was not an oversight. The National Association of Broadcasters lobbied for it explicitly, and Congress granted it.

The result is a structural asymmetry. A terrestrial FM station and a simultaneous webcast of the same station are legally different animals the moment the same song leaves the studio. The over-the-air signal carries no performance-royalty obligation. The stream does. An iHeartMedia station broadcasting to a city and streaming the same feed to listeners on its app is, in the same instant, exempt from the right for one transmission and liable for it on the other.

SoundExchange: Statutory Collector in a Compulsory System

SoundExchange is the non-profit organisation designated by the Copyright Royalty Board as the sole statutory agent for collecting and distributing digital audio performance royalties in the United States. It does not negotiate rates — the CRB sets those in multi-year proceedings under a formal evidentiary process — but it administers collection from every service required to pay, and distributes the proceeds on a split mandated by statute: 50 percent to the rights holder (usually the label), 45 percent to the featured artist, and 5 percent to a fund for non-featured musicians and vocalists.

The categories of service that must pay include internet radio, satellite radio (Sirius XM operates under a separate statutory licence with rates set by the CRB), cable music services, and certain on-demand platforms at the non-interactive end of the statutory window. What they share is the digital transmission of sound recordings to listeners who did not choose the individual track in advance — or did not choose it in a way that takes the service outside the statutory licence and into direct negotiation.

Terrestrial radio is absent from that list not because it transmits differently in any technical sense — the audio chain from a microphone through a console and into a transmitter is largely the same whether the outgoing signal is analogue FM or a compressed internet stream — but because Congress drew a deliberate line at the point of over-the-air broadcast. The logic offered at the time was promotional: labels benefited from radio exposure, and the relationship was therefore reciprocal in ways that rendered a royalty unnecessary. That argument has been contested ever since by recording artists and their advocates, and it underlies legislative efforts including the American Music Fairness Act, which was reintroduced in Congress in 2023 and would, if enacted, close the exemption for commercial broadcasters above a revenue threshold.

The Asymmetry in Practice

The arithmetic of the asymmetry sharpens when applied to the scale of large broadcast groups. iHeartMedia, which operates more than 850 AM and FM stations across the United States, simulcasts the majority of those stations online. Its terrestrial transmissions generate no sound-recording royalty obligation. Its streams do, at rates the CRB has set through successive proceedings — Web IV, covering 2016 through 2020, and Web V, covering 2021 through 2025. The per-performance rate under Web V for non-subscription services was set at levels SoundExchange characterised as meaningful but which commercial webcasters and their trade groups challenged in the federal appellate courts as too high. iHeartMedia pays SoundExchange for the streamed portion of its audience; for the far larger terrestrial audience, it pays nothing to the recording's rights holder.

Audacy, which filed for Chapter 11 bankruptcy protection in January 2024, operated under the same dual structure. Its debt load — accumulated from the acquisition years when the company was still branded as Entercom and before that as CBS Radio — had no bearing on its statutory position: terrestrial transmissions remained exempt throughout.

The contrast is starker still for a pure-play internet station. SomaFM, operating from San Francisco without a single terrestrial frequency, pays SoundExchange for every performance it streams. Radio Paradise, the listener-supported service that began in Paradise, California, does the same. Neither has ever broadcast a signal that fell under the terrestrial exemption. Their entire royalty liability is digital, and their entire audience is reached through the mechanism that Congress chose to make pay.

The BBC's international internet streams, TuneIn as an aggregator passing through streams from licensed stations, and any foreign broadcaster whose feed reaches a US listener via the internet — all sit within the digital framework and outside the exemption. The exemption is territorial and medium-specific: it attaches to the FCC licence and to the over-the-air signal, not to the content or to the broadcaster's identity.

The argument for reforming or eliminating the exemption rests on a simple premise: the recording-rights holder's economic interest in compensation does not change based on the physics of transmission. A listener hearing a track on FM and a listener hearing the same track on a stream are equally the audience for which the recording was made. The argument against reform — or at least against rapid reform — focuses on the financial exposure for smaller commercial stations that operate on thin margins and have built their business models around royalty-free terrestrial airplay for decades. That tension, unresolved since 1995, remains the central fault line in US broadcast music policy.