Producers: how to get paid by SoundExchange with a Letter of Direction

When a track plays on Pandora, SiriusXM or a webcaster in the US, it earns a royalty for the sound recording, and SoundExchange collects it. The law splits that money in fixed shares: under 17 U.S.C. § 114(g)(2), 50% goes to the copyright owner (usually the label), 45% to the featured artist, and 2.5% each to funds for non-featured musicians and non-featured vocalists.

Producers aren't on that list. Under SoundExchange's own policy, producers get paid one way: the artist signs over part of the 45%. (For the wider statutory background, see our Music Modernization Act explainer.)

What is a Letter of Direction?

A Letter of Direction (LOD) is an instruction from the featured artist telling SoundExchange to pay a percentage of the artist's royalties on named recordings to a "creative participant": a producer, mixer, engineer or remixer. SoundExchange's FAQ is blunt about it: without an LOD from a registered payee, it won't pay creative participants at all.

SoundExchange had been doing this informally for years before the Music Modernization Act of 2018, whose Title III, the Allocation for Music Producers (AMP) Act, wrote the practice into law. So the brief version people often repeat, "since the MMA producers can be paid directly", is only half right. The MMA didn't invent the LOD. It made it statutory, made the producer the legal owner of that payment, and added a fallback for older recordings.

How the LOD works in practice

From SoundExchange's LOD page and its guide:

• Two documents. Part 1 is the signed letter (artist and performer legal names, effective date, payee details). Part 2 is a repertoire chart listing each track, its ISRC if available, and the percentage.
• Write a percentage of the artist's share, not "points" or fractions of a percent.
• Only the artist or their authorised signatory on file can sign. Wet signatures must match the one on file; e-signatures need the DocuSign certificate of completion or an equivalent.
• Not off the top. On "Artist A featuring Artist B", SoundExchange splits the artist share 50/50 by default. A producer needs an LOD from each artist whose half they want paid from.
• Who can be paid. Creative participants, or a company the participant solely owns. Not labels, managers, lenders or royalty-advance firms.
• Dates. You set an effective date, which can be in the past; the guide also offers a box to cover all royalties ever received for the track. Processing takes at least two weeks once the file is complete.
• Payout. Monthly by electronic payment once the balance tops $100, or quarterly over $10. SoundExchange's FAQ puts its admin rate at 4–6%.
• Tax. Since 1 January 2020 SoundExchange withholds and reports producer payments itself, so artists no longer issue 1099s to producers. Without a taxpayer ID you face backup withholding; the FAQ says non-US registrants who don't file a W-8BEN face 30% withholding. That date matches the statute's delayed effective date for the clause that treats the producer as owner of the payment, which looks like the reason for the change.

One catch: if the artist's royalties on a track go into dispute, or the artist withdraws from SoundExchange, payments to the producer stop too.

The pre-1995 fallback: the 2% rule

For recordings fixed before 1 November 1995, § 114(g)(6) lets a producer, mixer or engineer get paid even when the artist never signs. It is narrow. The claimant must:

1. have a written contract with the label or the artist that entitles them to royalties paid out of the artist's royalties, and have made a creative contribution;
2. certify under penalty of perjury that they tried for at least 120 days to get an LOD, and the artist neither agreed nor refused in writing, and send a true copy of the contract;
3. wait while SoundExchange spends at least 120 days trying to notify the artist;
4. receive no written objection from the artist by 10 business days before the first payment.

If all that holds, the producer gets 2% of all receipts for that recording (after SoundExchange's costs), taken out of the artist's 45%. If several people qualify, they split the 2% equally. An artist can object later and payments stop within 10 business days, though money already paid stays paid.

A worked example

Say a track earns $10,000 in SoundExchange receipts in a year, before admin costs (made-up numbers for illustration).

• Label: $5,000. Featured artist: $4,500. Non-featured funds: $250 each.
• Recorded in 2019, LOD at 20% of the artist share: producer $900, artist $3,600.
• Recorded in 2019, no LOD: producer $0. There is no default.
• Recorded in 1991, producer qualifies under the 2% rule: producer $200, artist $4,300. If the mixer qualifies too, $100 each.

How do you pick the percentage? The statute and SoundExchange leave that to the parties. One sensible approach is to mirror your record deal: if your points on record royalties are a fifth of the artist's, ask for 20% of the artist's SoundExchange share. Whatever you choose, write it down as a percentage of the artist's share.

What to put in a producer agreement

• An obligation on the artist to sign a SoundExchange LOD at a stated percentage of the featured artist share, within a fixed number of days of release.
• An effective date of the first release, or "all royalties received", so nothing is lost while paperwork drags.
• ISRCs for every track, so the repertoire chart matches what SoundExchange has.
• One LOD per featured artist on collaborations.
• Payment to you or a company you solely own, and your W-9 or W-8BEN on file.
• For catalogue from before November 1995: keep the signed contract. It is your evidence for the 2% claim.

What we think

The LOD fixed a real problem: producers no longer depend on an artist remembering to forward a cheque, and SoundExchange now handles the tax. But the system still runs on the artist's signature. For anything recorded after 1995 there is no default, so producers who don't get an LOD earn nothing from SoundExchange, however clear their contract. The 2% fallback shows Congress could write a default. It just limited it to old recordings and made it a flat 2%, whatever the producer's contract says.

The winners are producers with good paperwork and artists who want a clean, auditable way to pay collaborators. The losers are bedroom producers on handshake deals, especially outside the US, who may never learn that this money exists. That makes the fix a habit, not a lobbying campaign: put the LOD in the agreement, file it on release day with the ISRCs, and check your SoundExchange statement the next quarter. Artists should welcome it too. An LOD replaces a chore with a form, and credits a collaborator in a way the payments trail can prove.