Keeping the Music Alive

2012 Annual Review

KEEPING THE MUSIC ALIVE Increase in annual digital royalties we’ve paid to recording artists and 362% record labels since 2008 “It’s an exciting time in the music industry, and new services and innovation mean consumers have more MOVING MUSIC access to music than ever before. Our 2012 results reflect the growing strength of digital music listenership and FORWARD are proof of our growing contribution to the industry,” Michael Huppe, President & CEO Who We Are SoundExchange collects and distributes digital radio performance royalties on behalf of its more than 90,000 recording artist accounts and 28,000 rights holder accounts. The organization administers the statutory license that 2,000+ non-interac- SoundExchange helps tive digital radio services, (such as satellite As a result of our ongoing technology and STRATEGIC PROCESS: enhancements, along with outreach efforts, in the music and creative radio, Internet radio and cable TV music IT’S OUR PRIVILEGE TO SERVE THE MUSIC INDUSTRY community thrive in the channels) leverage to stream any 2012 we registered more than 20,000 new commercially available digital age. We’re the premier It was a year of progress, both operationally individuals, representing both industry sound recording. digital performance rights and financially. Throughout the year, we newcomers and established artists and labels. focused on a number of initiatives to enhance organization in the world, with a To continue to meet the needs of our our processes and to ensure more money in the mission to support, protect and propel the music industry forward. ever-growing base of artists and labels, this hands of the creators of music. We introduced this mission in 2012 to guide our daily approach year we rolled out an enhanced customer toward serving the creative community. We do this by: And as digital music listenership expands relations program with a clear objective: to 2,000+ meet every question and every inquiry with • Advancing creative growth: In 2012, we announced more than rapidly worldwide, we now work with more Digital music platforms in the U.S. using than 2,000 digital music services to exceptional care, efficiency and integrity. the statutory license for their digital $1 billion in digital royalties delivered to the creators of music. administer the statutory license for their use of sound recording rights (administered Also this year, we added resources to assist in • Being a trusted resource: We’re an independent nonprofit at the sound recordings. We see no end to the digital through SoundExchange) in 2012. maximizing royalties for recording artists and radio industry’s growth. As such, in late 2011, intersection of music and technology. Our board reflects our diverse record labels. In 2012, we began development we began augmenting our in-house technology interests—artists, major labels, independent labels, unions and of a repertoire database by ingesting rights capabilities to improve data quality and artist representatives. We unite all behind the singular cause of owner-provided metadata into our system. By enhance our core business foundation—our supporting the value of music. sourcing repertoire metadata (the information royalty distribution platform. These efforts that makes it possible to identify the owner of • Delivering exceptional service: We have the privilege of serving continued into 2012, and will remain a focus a particular track of music) directly from the the music industry. Every customer, every question, and every for our organization throughout the next several rights owner, we can ensure for proper payment that comes through our organization is met with care, years as the growth of digital radio continues. payment of sound recordings. efficiency and integrity. In addition to our ongoing outreach to artists In addition, we made significant and labels, we teamed up with third-party enhancements to allow for the collection and organizations like BandPage, CD Baby, distribution of international royalties among American Federation of Musicians (AFM) our members. We established a new policy to and the Screen Actors Guild and American maximize royalties paid out to our members, Federation of Television and Radio Artists and at year-end 2012, have 27 agreements 28,000+ (SAG-AFTRA) to identify and notify artists and 90,000 in place for exchanging digital performance rights owners not yet registered with us about RECORD LABEL/ PERFORMER potential unclaimed royalties. royalties with our foreign counterparts. RIGHTS OWNER ACCOUNTS ACCOUNTS

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These investments and accomplishments greatly reduced digital performance royalty aided in a milestone achievement: We reached rates. We also received tremendous support for $1 billion in digital performance royalties paid delivering the message that the bill would be to the creators of music and those who support anything but fair to recording artists and labels them. Our total for digital royalty payments when we delivered the message directly to in 2012 was $462 million, a 58 percent Congress in November 2012. We anticipate increase over 2011. we will be calling on you again for support again in 2013. Our growth is a remarkable achievement. GOING FORWARD: But as far as we have come, there is so WE CONTINUE TO DRIVE INDUSTRY much more that we can do to move the AWARENESS AND EDUCATION music industry forward. We were also relentless in our efforts to We look forward to reporting back to you increase industry awareness. In 2012, we on our 2013 achievements. demonstrated our commitment to advancing Michael Huppe creative growth and protecting the long-term President and CEO value of music. SoundExchange led the charge in opposing the Internet Radio Fairness Act (IRFA), a bill that put royalty payments at risk. We helped mobilize the music community by sponsoring an open letter featuring more than 130 artists in opposition to the Congressional bill that would have “It’s an exciting time in the music industry, and new services and innovation mean consumers have more MOVING MUSIC access to music than ever before. Our 2012 results reflect the growing strength of digital music listenership and FORWARD are proof of our growing contribution to the industry,” Michael Huppe, President & CEO Who We Are SoundExchange collects and distributes digital radio performance royalties on behalf of its more than 90,000 recording artist accounts and 28,000 rights holder accounts. The organization administers the statutory license that 2,000+ non-interac- SoundExchange helps tive digital radio services, (such as satellite As a result of our ongoing technology and STRATEGIC PROCESS: enhancements, along with outreach efforts, in the music and creative radio, Internet radio and cable TV music IT’S OUR PRIVILEGE TO SERVE THE MUSIC INDUSTRY community thrive in the channels) leverage to stream any 2012 we registered more than 20,000 new commercially available digital age. We’re the premier It was a year of progress, both operationally individuals, representing both industry sound recording. digital performance rights and financially. Throughout the year, we newcomers and established artists and labels. focused on a number of initiatives to enhance organization in the world, with a To continue to meet the needs of our our processes and to ensure more money in the mission to support, protect and propel the music industry forward. ever-growing base of artists and labels, this hands of the creators of music. We introduced this mission in 2012 to guide our daily approach year we rolled out an enhanced customer toward serving the creative community. We do this by: And as digital music listenership expands relations program with a clear objective: to 2,000+ meet every question and every inquiry with • Advancing creative growth: In 2012, we announced more than rapidly worldwide, we now work with more Digital music platforms in the U.S. using than 2,000 digital music services to exceptional care, efficiency and integrity. the statutory license for their digital $1 billion in digital royalties delivered to the creators of music. administer the statutory license for their use of sound recording rights (administered Also this year, we added resources to assist in • Being a trusted resource: We’re an independent nonprofit at the sound recordings. We see no end to the digital through SoundExchange) in 2012. maximizing royalties for recording artists and radio industry’s growth. As such, in late 2011, intersection of music and technology. Our board reflects our diverse record labels. In 2012, we began development we began augmenting our in-house technology interests—artists, major labels, independent labels, unions and of a repertoire database by ingesting rights capabilities to improve data quality and artist representatives. We unite all behind the singular cause of owner-provided metadata into our system. By enhance our core business foundation—our supporting the value of music. sourcing repertoire metadata (the information royalty distribution platform. These efforts that makes it possible to identify the owner of • Delivering exceptional service: We have the privilege of serving continued into 2012, and will remain a focus a particular track of music) directly from the the music industry. Every customer, every question, and every for our organization throughout the next several rights owner, we can ensure for proper payment that comes through our organization is met with care, years as the growth of digital radio continues. payment of sound recordings. efficiency and integrity. In addition to our ongoing outreach to artists In addition, we made significant and labels, we teamed up with third-party enhancements to allow for the collection and organizations like BandPage, CD Baby, distribution of international royalties among American Federation of Musicians (AFM) our members. We established a new policy to and the Screen Actors Guild and American maximize royalties paid out to our members, Federation of Television and Radio Artists and at year-end 2012, have 27 agreements 28,000+ (SAG-AFTRA) to identify and notify artists and 90,000 in place for exchanging digital performance rights owners not yet registered with us about RECORD LABEL/ PERFORMER potential unclaimed royalties. royalties with our foreign counterparts. RIGHTS OWNER ACCOUNTS ACCOUNTS

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4 5 As a result of our ongoing technology and STRATEGIC PROCESS: enhancements, along with outreach efforts, in IT’S OUR PRIVILEGE TO SERVE THE MUSIC INDUSTRY 2012 we registered more than 20,000 new It was a year of progress, both operationally individuals, representing both industry and financially. Throughout the year, we newcomers and established artists and labels. focused on a number of initiatives to enhance To continue to meet the needs of our our processes and to ensure more money in the ever-growing base of artists and labels, this hands of the creators of music. year we rolled out an enhanced customer And as digital music listenership expands relations program with a clear objective: to rapidly worldwide, we now work with more meet every question and every inquiry with than 2,000 digital music services to exceptional care, efficiency and integrity. administer the statutory license for their use of Also this year, we added resources to assist in sound recordings. We see no end to the digital maximizing royalties for recording artists and radio industry’s growth. As such, in late 2011, record labels. In 2012, we began development we began augmenting our in-house technology of a repertoire database by ingesting rights capabilities to improve data quality and owner-provided metadata into our system. By enhance our core business foundation—our sourcing repertoire metadata (the information royalty distribution platform. These efforts that makes it possible to identify the owner of continued into 2012, and will remain a focus a particular track of music) directly from the for our organization throughout the next several rights owner, we can ensure for proper years as the growth of digital radio continues. payment of sound recordings. In addition to our ongoing outreach to artists In addition, we made significant and labels, we teamed up with third-party enhancements to allow for the collection and organizations like BandPage, CD Baby, distribution of international royalties among American Federation of Musicians (AFM) our members. We established a new policy to and the Screen Actors Guild and American maximize royalties paid out to our members, Federation of Television and Radio Artists and at year-end 2012, have 27 agreements (SAG-AFTRA) to identify and notify artists and rights owners not yet registered with us about in place for exchanging digital performance potential unclaimed royalties. royalties with our foreign counterparts.

4 5 WORKING WITH SOUNDEXCHANGE COPYRIGHT ROYALTY BOARD SETS RATES & TERMS

+ ER S VI D BROADCASTERS REPORT DIGITAL MUSIC TRACKS PLAYED VICE PR O

SEE R 21 Million 100+ Million INDUSTRY AMPLIFIED

2, 00 0 SOUNDEXCHANGE RECEIVES PLAYLISTS 21 100 Listen to Satellite Radio Americans listen to in U.S. and Canada Internet Radio in U.S. The numbers tell the story. In 2012, 40 percent of Americans listened to audio on digital devices—a number that is projected to double by 2015 1– and more than 20 million Americans subscribed to satellite radio. In 2011, 34 percent of Americans (or 89 million people) said they listened to either streaming of AM/FM stations, Internet-only services, such as Pandora, or both in the previous month. 2

1. Source PEW Center 2012 2. Source: Arbitron 2012

PLAYLIST DATA AT A

101110 D

AT A “Thank you, thank you, thank you for all of your hard work! … All of YOU have made an

001111 D CRUNCH SoundExchange helps enable digital music ED 010101 ED impact in my life, we need the money and without you advocating and collecting it—for all 101110 DATA services by simplifying the royalty collection and TC H payment process. Tens of millions of lines of data TC H artists—what would we do without you? Be blessed, for you are making a REAL difference.” NM A MA processed each month. U DATA FILTER Rob Levit, Founding Director, Creating Communities

Outreach 28,000 90,000 to Artists rights owner payable performer & label accounts accounts Artist/ Label Registers for FREE with SoundExchange Additional 34% Data Work Share of Americans who listen to streaming radio

INTERNATIONAL ROYALTIES

Members can receive performance royalties from organizations in other countries for the use of their sound recordings.

4.9% Admin Rate 2012 40% Share of Americans who listen to audio on digital devices* * Pew Center 2012

Featured Rights ROYALTIES PAID TO DATE Artists to registered artists & labels from SoundExchange. Owners (45%) (50%) 2005 $1 BILLION $20 M 2012 Non-featured At the end of 2012 $462 M Artists (5%)

6 7 WORKING WITH SOUNDEXCHANGE COPYRIGHT ROYALTY BOARD SETS RATES & TERMS

+ ER S VI D BROADCASTERS REPORT DIGITAL MUSIC TRACKS PLAYED VICE PR O

SEE R 21 Million 100+ Million INDUSTRY AMPLIFIED

1. Source PEW Center 2012 2. Source: Arbitron 2012

PLAYLIST DATA AT A

101110 D

AT A “Thank you, thank you, thank you for all of your hard work! … All of YOU have made an

INTERNATIONAL ROYALTIES

Members can receive performance royalties from organizations in other countries for the use of their sound recordings.

4.9% Admin Rate 2012 40% Share of Americans who listen to audio on digital devices* * Pew Center 2012

Featured Rights ROYALTIES PAID TO DATE Artists to registered artists & labels from SoundExchange. Owners (45%) (50%) 2005 $1 BILLION $20 M 2012 Non-featured At the end of 2012 $462 M Artists (5%)

6 7 SOUND PRINCIPLES: MUSIC IS OUR PASSION AND OUR PURPOSE

In November 2012, SOUNDEXCHANGE FIGHTS FOR SoundExchange President FAIRNESS, AND FOR THE VALUE and CEO Michael Huppe AND FUTURE OF MUSIC. testified before Congress SoundExchange about the need for fights for royalty structures In 2012, we spoke out against the so-called fair compensation that recognize the vital role “Internet Radio Fairness Act,” introduced for performers and labels. of the creators of music in by Utah Representative Jason Chaffetz. He put a spotlight on digital services. If passed, the bill would have been anything the bill’s fundamental but fair to the creators of music; it would flaws, including: have substantially reduced the royalty fees Internet radio pays to artists and • The law requires the webcasting rates be labels for use of their sound recordings. set under a “willing buyer, willing seller” SoundExchange believes that digital radio standard—or the fair market value of a is good for listeners and creators, but we sound recording. If passed, the Internet believe with equal passion that webcasters Radio Fairness Act would change the rate and broadcasters should pay fair market to a less than fair market value, potentially value for the music their services depend on. much less. As part of our effort to defeat this bill, • Despite claiming the need for rate “parity,” we worked with the musicFIRST Coalition the bill ignored the most glaring inequity and its member organizations to create of all—AM/FM broadcasters still pay an open letter featuring signatures of 130 nothing in performance royalties to artists (including Billy Joel, Britney Spears, recording artists and record labels. This Maroon 5 and Rihanna) that directly is an inequity we have been advocating opposed the bill. The ad was featured in against for years. Billboard and Politico with media coverage in Entertainment Weekly, Adweek, We believe in digital radio and its future, Vanity Fair and more. but there is no reason that webcasters and broadcasters should pay less than fair market value when the music that we all enjoy are the main content of a digital radio service. We expect to continue in our efforts to protect the long-term value of music in the years to come.

8 9 SOUND PRINCIPLES: MUSIC IS OUR PASSION AND OUR PURPOSE

8 9 IT’S ABOUT THE MUSIC: “If you only understood how much of a life saver this check is and what you do with SoundExchange is PUTTING ROYALTIES IN such a blessing for artists like me. I’m over here stressing how to pay bills and you always come thru. POCKETS OF ARTISTS & LABELS I truly appreciate it.” Talib Kweli Greene

The music industry is a major contributor to BRINGING MORE ARTISTS AND agreements allow us to collect money from them + the digital economy. Digital music revenues, when our members’ music is played 20 at one-third of industry income globally LABELS INTO THE FOLD in their territory. They send your royalties and more than 50 percent in the U.S, are to us. We send it to you, without any Our greatest honor is the trust that the music signiﬁcantly higher than the digital revenues administrative charge. industry gives us every day. We are proud to of other creative industries, such as ﬁlms, be a trusted resource to our registrants and We are focused on expanding our visibility books and newspapers. 3 the industry. SoundExchange takes great around the globe and increased the number Thousands of American recording artists and care to ensure that digital royalties are of international agreements in 2012 with record labels rely on royalties collected for distributed correctly, transparently and foreign counterparts to 27 worldwide. SoundExchange has them by SoundExchange. We are proud to accurately. One way we try to achieve this We executed numerous foreign collection 20+ international agreements help support music creators and we are is by reaching out to recording artists and agreements with societies in countries around passionate about protecting and enhancing record labels owed royalties. In the last the world, including: Brazil, France, Germany, this essential revenue stream. three years alone, we registered more than Spain, the United Kingdom, and many others. 30,000 artists and labels and our ranks keep growing—hundreds of artists and rights ZERO INTERNATIONAL ROYALTY COLLECTION ADMIN FEE holders register each month. Starting with royalties collected in 2012, MEMBERSHIP ALSO HAS INTERNATIONAL BENEFITS we do not apply an administrative rate for 4.9% foreign royalties collected. That means any In addition to collecting U.S. royalties, we foreign royalties collected by SoundExchange Our administrative rate in 2012– have foreign collection agreements with on after Jan. 2012 collected on behalf of our One of the lowest in the world our counterparts in other countries. These members “pass-through” our company with (% of royalties that keeps 3. Source: IFPI Digital Music Report 2012 no additional deductions taken by out by us. SoundExchange running)

10 11 IT’S ABOUT THE MUSIC: “If you only understood how much of a life saver this check is and what you do with SoundExchange is PUTTING ROYALTIES IN such a blessing for artists like me. I’m over here stressing how to pay bills and you always come thru. POCKETS OF ARTISTS & LABELS I truly appreciate it.” Talib Kweli Greene

10 11 SOUNDEXCHANGE GROWTH AT A GLANCE

DIGITAL RADIO CONTINUES GROWTH SOUNDEXCHANGE PAYMENTS NUMBER OF DIGITAL RADIO SERVICES ANNUAL PAYMENTS (IN MILLIONS) More than 2,000 services currently rely on statutory license for the use of their content 2000+ $462 1850 1665 $292 1210 $252 2012 EXECUTIVE TEAM 855 946 $148 Michael Huppe – President and CEO • Jon Bender – Chief Operating Officer • $100 Scott Day – Chief Technology Officer • Colin Rushing – General Counsel • Anjula Singh – Senior Vice President, Finance and Administration • $20 $33 $36 Marie Knowles – Vice President, Communications 2007 2008 2009 2010 2011 2012 2005 2006 2007 2008 2009 2010 2011 2012 2012 BOARD MEMBERS ARTIST GROUP Jay Cooper, Artist Attorney • Kim Roberts-Hedgepath – AFTRA / Duncan Crabtree-Ireland, SAG – AFTRA • Patricia Polach / Ray Hair, American Federation of Musicians • Michael Hausman, Manager • Walter McDonough, Future of Music Coalition • Kendall Minter, SOUNDEXCHANGE HISTORICAL DATA Artist Attorney • Pat Rains, Manager • Martha Reeves, Artist • $252 Perry Resnick, Music Manager’s Forum $292 2012 2011 2010 LABEL GROUP Blended Administrative Rate 4.9% 5.3% 6.7% Andrea Finkelstein, Sony • Jeff Harleston, Universal Music Group • Total Royalties Collected $507.3M $462$377.6M $270.4M Jim Mahoney / Richard Bengloff, A2IM • Dick Huey, Toolshed • Royalties Distributed $462M $291.8M $249.2M Steve Marks, RIAA • Alasdair McMullan, Universal Music Group (EMI) • Total Administrative Expenses $25.0M $20.1M $18.4M Paul Robinson / Tucker McCrady, Warner Music Group • Cary Sherman, RIAA • Royalties to be Distributed (GAAP basis)* $386.1M $363.0M $301.3M Tom Silverman, Tommy Boy Records • Darius Van Arman, Dead Oceans, Jagjaguwar, Secretly Canadian Number of Employees 97 72 55

*Royalties to be distributed (GAAP basis) includes estimates for collection not yet received (accrued royalties), uncashed checks, money undistributed due to junk data supplied, as well as unregistered artists and rights owners

12 13 SOUNDEXCHANGE GROWTH AT A GLANCE

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