Broadcast Law Blog

We have written much on the Copyright Royalty Board decision on Internet Radio Royalties, and have received many questions and comments on the decision.  To try to put all of the answers in one place, we have put together a comprehensive memo on the decision.  The entire memo can be found here. 

In the memo, we provide a background of the case, a summary of the decision, a discussion of what comes next, and answers to some commonly asked questions.  Those questions follow here, but for a full understanding of the case, we urge you to read the complete memo. 

 To whom does the decision apply? The Board’s decision covers only non-interactive webcasters operating pursuant to the statutory license. Essentially, a webcaster covered by this decision is one that operates like a radio station – where no listener can dictate which artists or songs he or she will hear (some limited degree of consumer influence is permitted, but a webcaster must comply with the restrictions set out in the Copyright statute). These restrictions forbid prior notification to the listeners of when any specific song will play, and restrict the number of songs by a specific artist that can be played. For more information on these restrictions, see our memo on Internet Radio – The Basics of Music Royalty Obligations.

Does the decision cover broadcasters who stream on the Internet? Yes, the decision does cover the Internet transmissions of the over-the-air content of broadcast stations.

Do the fees apply to broadcasters for their over-the-air signals? No. The royalties are paid only by digital services.

Do HD radio stations pay the fee? No, the law that adopted these fees specifically exempted over-the-air digital transmissions by radio stations.

Do I need to rely on the statutory license if I stream music on the Internet? You do not need to use the statutory license. However, if you do not rely on the statutory license, you need to obtain permission to stream the music you play from each and every copyright holder for every sound recording you play. If you are playing music exclusively from one label, that may be easy. But if you are playing a diverse collection of music from many different record labels, you would have to receive permission from each label for the use of its music – which may be a very large undertaking.

Do webcasters in other countries pay these fees? A royalty that compensates the owner of a sound recording is in effect in many other countries – both for digital services and for over-the-air radio. However, in most countries, the amount of the royalty that is paid to the performers is much closer to that paid to the composers.

I pay ASCAP, BMI and SESAC royalties? Do I have to pay these fees too? Yes. ASCAP, BMI and SESAC fees go to the copyright holders of the composition – the songwriters and their publishing companies. The SoundExchange fees go to copyright holders in the performance of the music – usually the record companies – and to the actual performers of the music.

Does the decision cover subscription as well as nonsubscription streams? Yes. As long as the service is not interactive and otherwise meets the requirements of the statute, whether the service is subscription or ad supported, the royalties will be paid.

Is satellite radio covered by this decision? No, there is a separate proceeding to determine the SoundExchange royalties that will be paid by satellite radio. That case is currently being heard by the CRB.

Do other digital services pay these fees? Yes. The CRB has just initiated a proceeding to determine the rates for Business Establishment Services (e.g. digital background music providers). Radio delivered by digital cable also is subject to SoundExchange fees – also to be decided in a different proceeding. Digital music services provided over a digital cell phone would also be subject to the royalty – and services similar to Internet radio delivered by cell phone are probably subject to the royalty established by the current proceeding.

Who receives these fees? The royalties are paid to SoundExchange – a nonprofit corporation with a Board made up of representatives of artists and the record companies. The royalties go to the copyright holders in sound recordings and the performers on those recordings. The copyright holder is usually the record label. Royalties are split 50/50 between the copyright hold and the performers – and the artist royalties are further divided 45 percent to the featured artist and 5 percent to any background musicians featured on the recording.

Can I avoid the fees by moving my operation off shore? The royalties cover transmissions made to U.S. residents. So an off-shore service streaming to U.S. residents would technically be liable for the royalties. SoundExchange is negotiating with local performing rights associations in other countries to set up reciprocal collection arrangements – though only a few such arrangements are currently in place. However, when the royalties were first established in 2002, many off shore webcasters cut off their stream to U.S. audiences for fear of incurring royalty obligations. Similarly, as these royalties only cover transmissions to U.S. residents, some U.S. webcasters have cut off their service to overseas listeners.

Will I get a bill from SoundExchange? No. A webcasting service needs to compute the royalties and file a monthly report of use with the necessary fees. The reports are due 45 days after the end of each calendar month. Services also need to register with the Copyright Office to notify the Office that the service is relying on the statutory license. More details can be found in our advisory on The Basics of Music Royalty Obligations.

When do the payments become effective? The ruling is effective immediately, even though there may be an appeal. Thus, while the statute is not completely clear, it appears that services need to start paying the rates on a going forward basis starting with the royalties due for March, which are paid 45 days after the end of the month (May 15). However, it appears that any “true-up” for royalties due for the period from Jan. 1, 2006 through March 1, 2007 will be paid when any appeal is finally resolved.

Again, for more information concerning the decision, read the entire memo, here. 

Can I use independent music artists and songs? And how old must something be before it becomes public domain?

The statutory royalty collected by SoundExchange covers all recorded music -whether on a major label or an independent label. That's was the idea of the statutory license - a one stop shop for a webcaster to get all necessary clearances for the music necessary to operate their stream. It may be easier to get royalty waivers from some independent labels but, without such waivers, you do need to pay a royalty.

As for how old a song must be before no additional royalties are necessary, there is langauge in the Copyright laws that suggests that pre-1972 music is exempt from the royalties. While it has not been tested in court, I have heard from some SoundExchange personnel that they think that they could claim that a remastered recording of a pre-1972 track creates a new copyright on which a royalty should be paid.

I'm always interested in the comparative law side of these issues. My understanding of webcasting rules in the EU, for example, is that the locus of the tax is where it is transmitted from, not to whom (and this is to capture the generally more artist-friendly laws in the EU, which include performance rights for all media). So I'll be curious how SoundExchange will execute reciprocal agreements if the nexus is different (good lawyer fodder, tho!)

Also, if anyone has a link for a web site that aggregates the rules or royalty rates by country, kindly post here or write me directly.

Michael Weisman, JD, LLM

I don't know where there are specific comparisons of foreign rates. RAIN did publish some quite some time ago and, as I recall, all were based on a percentage of revenue. There has been much talk in academic circles and elsewhere of adopting a system that taxed equipment and ISPs, including discussion in Canada.

A friend was wondering if this decision will impact what music college stations can play, as they seem to operate under different royalty rules than for-profit stations (at least in broadcasting). Also, would music released under a Creative Commons license allow a station to stay in existence without having to pay these royalties?

Thanks,

mike

Follow the link above to the complete memo as posted on our firm's website. That explains the rates for noncommercial entities, including college radio. These stations essentially pay a flat annual fee of $500, unless their listening exceeds a certain threshhold. Once that limit has been exceeded, the noncommercial entities pay at commercial rates.

As our memo also explains, having permission for the use of music from the performer or the party holding the copyright in the performance can reduce the royalty. So if artists make their recorded performances available for use without royalties, and they own all rights to the performances, an Internet Radio service using that music would not have to pay a royalty on such songs.