Broadcast Law Blog

The Internet Radio Equality Act was introduced in the House of Representatives today, proposing several actions - most significantly the nullification of the decision of the Copyright Royalty Board raising royalty rates for the use of sound recordings by Internet radio stations.  Our summary of the decision and its aftermath can be found here.  In addition to nullifying the decision of the Board, the Act does the following:

1. Changes the "willing buyer, willing seller" standard used to determine royalty rates for Internet radio to the "801(b)" standard - named after section 801(b) of the Copyright Act, which considers a variety of factors in determining royalties - factors including possible disruption to the industry of royalties, the maximization of the distribution of the copyrighted work to the public, the relative value of the contributions of the copyright holder and the service, and the determination of a fair rate of return to the copyright holder.  The 801(b) standard is the used for determining rates for satellite radio and digital cable radio.
2. Establishes an interim royalty rate for 2006-2010 of  (at the choice of the webcaster) either .33 cents per Aggregate Tuning Hour of listening or 7.5% of the service's revenues directly related to Internet radio
3. For noncommercial radio, places the royalty determination into Section 118 of the Copyright Act, which is where other noncommercial royalties (including the royalty for ASCAP and BMI for over-the-air use of musical compositions) are found, using the standards set forth in that section; and
4. Establishes a royalty for 2006-2010 for noncommercial entites at 150% of the fee that the service paid for the sound recording royalty during 2004.
5. Requires three studies to be conducted after the initiation of the next royalty proceeding, that will be submitted to the Copyright Royalty Board for their consideration in that case.  One study, by the National Telecommunications and Information Administration ("NTIA"), would study the economic impact of royalties on the competitiveness of the Internet radio marketplace.  A second, to be conducted by the FCC, would study the impact of royalties on local programming, diversity of programming (including foreign language programming), and the competitive barriers to entry into the Internet radio market.  A final study, by the Corporation for Public Broadcasting, would provide information to the CRB on the impact of the royalties on public radio operators. 

This act has been introduced in Congress, sponsored initially by Congressmen Jay Inslee of Washington (D) and Donald Manzullo of Illinois (R).  The introduction merely starts the Congressional process.  Additional sponsors will need to be gathered, the bill will need to be considered by a committee of Congress (where a "mark-up" usually occurs, allowing changes to be made before the bill is reported out of committee) , and then the bill would have to be approved by the full House.  Often, hearings will be held on the impact of the bill.  A similar process would need to occur in the Senate, and then the bill would have to be signed by the President before it becomes law.  Significant public support will need to be necessary for this process to be completed as, no doubt, the bill will be opposed by SoundExchange.  

This is but a first step toward resolving the issues that have arisen since the CRB has released its decision.  While there may questions that will arise as this bill is considered and debated, webcasters certainly welcome this first step in resolving the issues they have with the CRB decision  - both short term (the impending royalty obligations) and long term (the "willing buyer-willing seller" standard that the CRB had to use to resolve the case). 

I am pleased to see this bill was introduced into the House on such short notice.

However, I am quite concerned that a percentage of revenue option is again to be instituted (and this time, with no limitations on eligibility). Furthermore, the minimum annual fee is to be substantially reduced for those Webcasters electing the percentage of revenue option. And even more disconcerting, this minimum annual fee is to be set at a predetermined maximum (which does not take into account inflation or other economic conditions).

The Small Webcaster Settlement Act 2002 clearly did not even serve as a substantial precedent in the formulation of this proposed legislation. And that is disappointing, to say the least.

While I can appreciate this attempt to bring royalties from all digital broadcast services into parity, I believe that satellite radio and Internet radio are nonetheless two markedly different mediums and one should not serve as a royalty-setting benchmark for the other.

For example, real-time tracking and reporting of listenership is already feasible -- if not commonplace -- for virtually any Webcasting service. This is certainly not the case for satellite radio. In addition, satellite radio services must obtain an FCC license, while Internet radio does not have any technical restrictions imposed beyond the ISP usage policy. And even more importantly, the barrier-to-entry for Webcasters is essentially nil, notwithstanding the required content licensing. Meanwhile, satellite radio services must initially undertake significant market research and venture capital funding if they are expected to be commercially viable. Moreover, the technology for satellite radio is almost entirely proprietary and is not available for general consumption, while the majority of streaming audio technologies are either completely free and widely available or, in a few cases, open-source.

Allow me to pose the question: How many startup companies are currently operating their own independent satellite radio network in the United States? I rest my case.

--Randall

Randall:

I'm not really sure what your point is. You seem to be saying that a percentage of revenue should not be used - but then point to the Small Webcaster Settlement Act as a model (which was a percentage or revenue deal). You also seem to think that a percentage of revenue should not be an option for larger webcasters - even though many larger webcasters are very similar in their economics to small webcasters.

And while there are certainly differences in satellite radio and internet radio - does that mean that the royalties that are proposed in the Act are improper? They exceed what the internet radio companies pay to the composers of music, and are in line with what is paid for similar rights in other countries.

I'd be interested in the comments of others

Randall appears to be overly concerned about creating or maintaining barriers to entry for webcasting.

The beauty of Internet radio is that everybody can freely compete in this space. This includes broadcasters, satcasters, cablecasters and Randall.

It would appear that by Randall's reasoning, Ornette Coleman shouldn't have been allowed to perform because he used an inexpensive saxophone.