When superstar Carrie Underwood sells CD’s or downloads, the Special Payments Fund collects.

If you’re a musician who plays on union recording sessions, you know that this August you’ll receive a check from the Sound Recording Special Payments Fund. The check is based on how many union projects you’ve recorded in the past five years and is determined by a specific payout schedule.

If you worked about the same amount last year as the prior year, you can expect this year’s check to be somewhat lower than last year. Why? Because the Special Payments Fund is supported by the record industry. CD sales have been on the wane and have been hit especially hard by the downturn in the economy.

On the other hand, more consumers are buying digital singles.

The good news is that digital singles do indeed pay into the fund, but the bad news (for now) is that they don’t pay as much as entire albums.

For example, let’s take superstar artist Carrie Underwood.

• If Carrie Underwood sells a million physical CD’s, her record label is required to pay about $30,000 into the Special Payments Fund.
• But if Carrie Underwood sells a million digital downloads of a single on iTunes or Amazon, her record label is required to pay only about $3,850.
• On the other hand, if Carrie Underwood were to sell a million digital downloads of an entire digital album with 10 songs on it, her record label would be required to pay about $38,500.

A quick glance at the statistics reveals something obvious. As consumers buy more and more digital singles – and not digital albums or physical CD’s – the Special Payment Fund suffers.

MORE MONEY

However, there’s reason to hope. First, there’s the basic fact that some new digital singles have begun to sell for $1.29 each, up from $0.99. Since record companies pay into the fund based on a percentage of prices, the Special Payments Fund earns more money when prices go up.

Secondly, there’s technology.

There are currently over 3.5 billion cell phones in the world today. As more and more of these become “smartphones” – that is, phones that can do many things, including play music – it means that there should be more consumers of digital music. Some believe that within three to five years, every cell phone in the world will be
a smartphone. This should have a dramatic impact on the future revenues of the Special Payments Fund. Next, if iTunes and Amazon can figure out how to effectively market digital albums to consumers, that could really shore up the fund. As seen by the figures above, a digital album pays much more into the fund than either a digital single or even a physical CD.

One new approach to marketing digital albums, which has had moderate success, is already being tried. Record companies are pre-releasing songs of hot artists at $0.99 each and then allowing consumers to purchase the rest of the album at a discount.

The AFM achieved contributions on digital downloads in 2005. Several years prior to that, the AFM and AFTRA won legislation requiring payment for music streamed over the Internet. Right now, the AFM and AFTRA are working to pass the Performance Rights Act, which would win musicians and vocalists royalties when their music is heard on terrestrial radio. If the AFM, together with AFTRA, are successful in getting this legislation passed, it will signal a real strength that comes from working together and will pave the way to improve the AFM’s leverage in future negotiations with the recording industry.

The future is impossible to predict, but the digital revolution may very well turn out to be a good thing for the Special Payments Fund.

Thanks to Special Payments Fund Administrator Rob DiPaola for his help with providing information for this article.