A Year After the Webcasting Royalty Decision - No Settlement, Appeal Briefs Filed
A full year ago, the Copyright Royalty Board released its decision setting royalties for the use of sound recordings by Internet Radio webcasters (see various posts on the subject here). As an article this week in the Boston Globe sets out, despite much talk of a post-decision settlement to lower the royalties set by the CRB that many Internet Radio operators claim will put their stations out of business, no such settlement has yet been announced. And, in a week that brought about the transfer of the operations of one of the largest webcaster's operations to a traditional radio company (as CBS took over operations of AOL's Internet Radio service), appeals of the decision were filed with the US Court of Appeals for the District of Columbia. A busy week, but still no resolution of the Internet radio controversy.
Four separate appeals briefs were submitted to the Court. One was a combined brief of the large Webcasters (represented by DiMA, the Digital Media Association) and the Small Webcasters(Accuradio, Radioio, Digitally Imported Radio, Radio Paradise), another was submitted by several commercial broadcast groups (Bonneville, the NAB and the National Religious Broadcasters Association) and a third by several noncommercial groups (including college broadcasters, NPR, and noncommercial religious broadcasters). A final brief was submitted by Royalty Logic, a company that wants to become an alternative to SoundExchange as the collection agent for performers. These briefs will be answered by the Department of Justice (defending the CRB and its decision before the Court) and SoundExchange. The briefing process will continue for several months, with an oral argument to follow, quite possibly not until the Fall. Thus, a decision in the case may well not be reached until 2009.
The briefs filed by the parties raised a number of issues about the CRB decision including the following:
- The failure of the CRB to even address the proposal for broadcasters to pay a flat fee for streaming, similar to the flat fee that they pay to ASCAP and BMI
- The failure of the Board to adopt a flat fee for noncommercial stations, similar to that which had previously been negotiated between SoundExchange and NPR
- The determination by the Board that the Small Commercial Webcasters were not really concerned about a percentage of revenue royalty, despite consistent testimony that the fee was necessary to their survival
- The adoption of a $500 per channel minimum fee in spite of the lack of evidence that this fee in any way reflected SoundExchange's costs of collection.
- The determination of the royalty rate using a model derived from on-demand services, even though the model used an adjustment factor between the two types of services was abandoned by SoundExchange in the Satellite Radio proceeding, and despite the fact that there was an agreement between the record companies and Yahoo for certain streaming with limited amount of interactivity that provided an analogy much closer to the non-interactive streaming at issue here, that was never mentioned by the Board (though a similar Yahoo deal formed the basis of the royalty decision in 2002).
- The decision by the CRB that it had to adopt a proposal that was advanced by the parties, and could not split the difference by adopting a rate that it derived from the totality of the evidence - resulting in the Board essentially adopting the SoundExchange proposal.
While the appeal process progresses, the Boston Globe article made clear that the negotiations about a voluntary settlement are also still dragging on without any resolution. The Court briefs had been delayed for two weeks in expectation that a settlement between SoundExchange and certain noncommercial webcasters might be reached, thereby obviating the need for the preparation of the briefs for those parties. Yet the two weeks went by, and no settlement was reached.
The AOL-CBS deal may well reflect the determination by many Internet-only webcasters that they cannot make a business out of webcasting under the current economic conditions. Note that the Globe article also mentions the efforts made by other webcasters, such as Live 365, to reduce their streaming in order to reduce their royalty obligations. Rumors are that other Internet radio companies are also limiting their audiences, as appears evident by the Average Quarter Hour listening of Yahoo! which, according to Arbitron measurements, have decreased from over 300,000 to approximately 220,000 between May and June and December, the last numbers available on the Arbitron website.
Without an adjustment in the royalties, the promise of Internet radio, to provide diverse sources of programming to the public, may well have come to an end. If even the largest of Internet radio companies are either abandoning the business or limiting their streams, how will small start-up companies deliver music to the public? Will the predictions of the Globe article, that terrestrial broadcasters will be the only services that can survive in this environment, come to pass? Will the record companies, that have contended that Internet (and terrestrial radio) do not provide promotional benefits to music, get their wish and end up having to promote their music in secret? Over the next few months, these questions may well be answered.
Even with the $500 minimum per channel fee, is it not possible for small streamers to simply limit the number of connections to what they can afford? Per-stream payment seems a logical solution, where the listener pays the licensing cost.
Music Performance on the Internet is not free, it's not terrestrial radio.
As I said above, some streamers are indeed limiting their streams so as to reduce their liability. But by doing so, they are also reducing their revenue opportunites as a lower audience means less advertising money. You can't achieve profitability by constantly lowering your audience. Instead, a rational royalty must be achieved that will allow the Internet Radio companies to grow audience and grow revenues. A royalty based on a percentage of revenue allows the copyright holders to share in that revenue increase.
Agreed that a percentage of revenue is the best solution. Internet Broadcasters may have an unreasonable expectation of profit. Maybe the Internet just won't support hundreds of thousands of streaming jukeboxes?
I don't understand why there is even any debate. The only fair plan for all parties is a royalty system based on a percentage of revenues. Why was anything else ever considered, allowed or even discussed?
While a percentage of revenue rate was put forward as the proposed rate by commercial webcasters, SoundExchange suggested a rate based on music use (actually, they suggested the higher of a percentage of revenue or a rate based on a per song per listener metric). The Copyright Royalty Board rejected the webcasters' plan, and adopted that of SoundExchange finding that a percentage of revenue plan was too difficult to administer (especially for webcasters with significant non-webcasting revenues - which revenues would count?) and that a revenue based on usage was fairer to the artists, as they would be paid for what was played. The failure to adopt a percentage of revenue royalty is the principal point raised on appeal by the Small Commercial Webcasters
Concerning Mr. Irwin's comments, particular aspects of the DMCA itself need to be reexamined.
As has been written elsewhere, the DMCA imposed solely on Internet radio the dubious "willing seller and willing buyer" standard. While terrestrial radio was exempted from having to remit performance rights royalties, satellite radio was accorded the older and fairer 801(b)(1) standard.
Indeed, the Copyright Royalty Board rejected SoundExchange's appeal of the rates the CRB had set for satellite radio. The basis for the CRB's decision was, in part, predicated on the 801(b)(1) standard's being applied to satellite radio.
The latter criterion for determining royalty rates takes into consideration a number of variables:
(A) To maximize the availability of creative works to the public;
(B) To afford the copyright owner a fair return for his creative work and the copyright user a fair income under existing economic conditions;
(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication;
(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.
Due process includes crafting laws that do not make unreasonable and arbitrary distinctions. As more and more of the media are broadcasting over the Internet, the distinctions created in
the DMCA make less sense and seem ever more arbitrary. Those distinctions need to be reconsidered either by Congress' enacting the Internet Radio Equality Act or by the courts' deciding whether questionable distinctions should be scrapped.
And, concerning Mr. Irwin's comments about charging for each stream,
respectfully, were Internet radio stations to follow his advice, I should think there would be many fewer listeners. As entertainment over the Internet becomes more ubiquitous and more easily accessible, the opportunities assumed by Mr. Irwin's recommendations become less realistic.
Finally, were the 801(b)(1) applied uniformly to all media, SoundExchange and the recording industry would realize many more benefits. Instead, by insisting on unreasonable rates and by prevailing upon the Copyright Royalty Board to adopt those rates, SoundExchange and its constituents have caused, and will cause, many Internet radio stations to cease operating, foreclosing royalty collections from defunct stations.
Imposing usurious royalties on Internet radio makes a "failed" business model a fait accompli.
Let's clarify a couple of things here. The Copyright Board is operating in a vacuum with no understanding of the real world of terrestrial and internet Radio. Their proposals are so off the wall it is laughable and, as this article points out, they're apparently unwilling to consider any outside input. They just ignore it. Thus the lawsuits. Sound Exchange, which was originally intended to be strictly a collection agency has now become a political animal controlled by the record companies, who can't control their own product so they're looking for new revenue sources to make up what they've lost. Internet and Terrestrial Radio are the targets of these foreign controlled companies. It is utterly ridiculous for an internet station and/or website to limit the number of people who can listen. The consumer is the big loser.
I think it is instructive that when SoundExchange appealed the CRB's decision mandating royalty rates it set for satellite radio, the CRB ruled against SoundExchange's arguments and upheld its earlier decision.
However, one disagrees with the CRB's decision concerning Internet radio, had the DMCA mandated that the same standard (801(b)(1)) apply to Internet radio as well as to satellite radio, I think that the CRB would not have imposed the rates it imposed on Internet radio. At the least, it would have been hard pressed to justify the decision it rendered where Internet radio is concerned.
It is well to resolve the difficulty at its source, I think. Part of that is to be found in the discriminatory effects of the DMCA and the unrealistic standard ("willing seller and willing buyer") it unfairly imposed upon Internet radio at the outset.
I think it's interesting, no ridiculous, that so much effort and consternation is directed toward negotiating royalties for sound recordings (by the CRB) and performance rights (by the ASCAP court) yet nothing is being done to stop the real problem which is rampant theft via peer to peer networks. Why isn't an equal effort being expended to get a legislative mandate to filter out all illegal copyrighted material flowing through ISPs? This is the REAL problem.
Wyly: The horse is long out of the barn...in fact, the REAL problem is the record companies resistance to the digital age from the beginning.
These "brains" have not reconceived their business model, moving from physical product to a non-tangible, digital form.
Another part of the REAL problem is backing up the claim the record companies are truly supporting the artists. Some big names might sing the cartel's line, but tragic stories abound about how singers and performers have been and are being, cheated out of fair payment for thier work. Supporters have to take up collections for artist retirement and health benefit programs. The cartel has no real commitment to the artists; they have a commitment to themselves.
Here's another facet of the REAL problem. Let's use the example of bricklayers who cemented the foundation of a local drug store. Built the walls out of cinder block, etc. They were paid for that job. Then let's say these workers some time later make this claim: We laid the brickwork that this store has used as a platform for selling products and making millions of dollars in the process.
Now these people say "we want an extra "performance royalty" of the store's gross sales. After all, the store is successful and we expect their revenue to keep growing."
Does this about sum up the cartel's claim?