ESTABLISHMENT OF THE
"SOUND RECORDING SPECIAL PAYMENTS FUND"

The Sound Recording Special Payments Fund (the "SRSPF") was established in 1964 by the American Federation of Musicians (the "AFM") and recording companies employing musicians represented by the AFM, under a collective bargaining agreement known as the Phonograph Record Labor Agreement (the predecessor to the current Sound Recording Labor Agreement).

The origin of the SRSPF began many years earlier, however, when the AFM's historical commitment to establish residual payments on the sales of phonograph records resulted in a new provision in the 1960 Phonograph Record Labor Agreement that required the parties "to use their best efforts to evolve an equitable plan for [residual] . . . payments to musicians." In the subsequent Phonograph Record Labor Agreement, which began in 1964, the parties established the obligation of the record companies to contribute a percentage of their revenues on record sales into a fund for distribution to musicians. The SRSPF was created to implement and administer this provision of the 1964 agreement.

Over the years, as a result of ongoing collective bargaining, the percentage of revenues on record sales contributed by the record companies has changed, along with the formula for distributing the monies to musicians. The basic structure and operation of the SRSPF has nevertheless remained relatively unchanged for over 40 years.

Payments to the SRSPF are made twice a year by the recording companies that are parties to the Sound Recording Labor Agreement (the "SRLA"). Payments are also made to the SRSPF by the recording companies when, as a result of compliance audits, they agree that prior year obligations to the SRSPF were underpaid. The provisions for recording company payments to the SRSPF, along with the provisions for how those payments are to be distributed to musicians, are described in detail in the Sound Recording Special Payments Fund Agreement, which is incorporated into the SRLA.

Under these two agreements, each record company is required to pay to the SRSPF a portion of its revenues on sales of all sound recordings produced by the company and recorded in the U.S. or Canada, or recorded elsewhere using AFM musicians. Payments are required on all revenues generated on sales of these recordings, whether the configuration is physical (e.g. CD, record or tape) or non-physical, as in the case of digital downloads, for a period of ten years, beginning with the calendar year in which the recording is released. The payments average about $0.03 per physical unit sold and $0.005 per song downloaded.

On or about August 1st of each year, the SRSPF distributes to eligible musicians the total of recording company payments received, whether the payments are based on the companies' current revenues or prior years' revenue as the result of compliance audit claims, interest income and any other payments (e.g. insurance proceeds) received through the end of April 30 (the SRSPF fiscal year), less its operating expenses. A musician is eligible for a distribution in each of the five years following any year in which he or she was paid wages under the SRLA from a recording company that is actively engaged in producing and selling sound recordings for profit. Each musician's distribution payment is calculated based on the formula in the SRSPF Agreement. The formula provides each musician with a portion of the total distribution that is equivalent to the ratio of the musician's "adjusted scale wages" to the "adjusted scale wages" of all eligible musicians. The term "adjusted scale wages" generally means the scale wages reported under the SRLA for the calendar year before the date of distribution (the "distribution year"), plus 80% of the scale wages reported in the second year before the distribution year, plus 60% of the scale wages reported in the third year before the distribution year, plus 40% of the scale wages reported in the fourth year before the distribution year, plus 20% of the scale wages reported in the fifth year before the distribution year.

As an example, if a musician's adjusted scale wages were $1,000 in each of the five years preceding the distribution year and the total of all musicians' adjusted scale wages was $10,000,000 in each of the five prior years, and the current year's distribution was $12,000,000, the musician's distribution payment would equal $1,200, as calculated below:

In cases where the SRSPF does not have a musician's address or cannot confirm the accuracy of an available address by the August 1 distribution date, the SRSPF will issue the musician a replacement distribution check as soon as the new address is provided to the SRSPF and can be verified. Direct deposit is not available for re-issuance of primary distribution payments.

In cases where a musician's distribution payment is calculated at an amount that is less than $25, it shall be regarded as "de minimis" and shall be placed in a reserve fund, to be paid to the musician only if, when added to the musician's distribution amount in either or both of the two following years, the cumulative amount is $25 or greater. Any such cumulative amounts that are under $25 and remain undistributed by the end of the third fiscal year shall be redeposited to the SRSPF's general account for distribution to all eligible musicians as part of the next annual distribution.

If a musician who is entitled to a distribution cannot be located or has not cashed an outstanding distribution check after the SRSPF has tried to find the musician or have the musician cash the check, the distribution amount is held on behalf of the musician until the end of the third fiscal year that ends in the third calendar year following the calendar year in which the distribution first came due. If the musician has still not claimed the amount by the end of the third fiscal year, it will be forfeited by the musician and added to the SRSPF's general account for distribution to all eligible musicians as part of the next annual distribution (e.g. On April 30, 2005, all outstanding funds that were due to musicians from the fiscal year ended April 30, 2002 were reallocated to the distribution for 2005, and were distributed to all eligible musicians on August 1, 2005).

The official rules governing operation of the SRSPF are set forth in the Sound Recording Labor Agreement and the Sound Recording Special Payments Fund Agreement. The terms of these Agreements will control in the event of any inconsistency between those terms and any provisions described on this website.

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