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The Copyright Royalty Board makes many important decisions, yet for the last several years, there has been a cloud over its operations, as there have been questions as to whether its members were constitutionally appointed (see our articles here, here and here). Well, the question is before the Courts again – this time squarely in front of the US Court of Appeals for the District of Columbia – a Court one step below the Supreme Court. The Copyright Royalty Board sets the royalty rates to be paid by Internet radio stations for the public performance of sound recordings, and in doing so, they have made some controversial decisions over the last few years. They also set royalties for other digital non-interactive music services, including Sirius XM, music services that come with cable and satellite television services, and background music services. The Board also oversees the distribution of funds that are collected for the retransmission of distant television signals by cable systems. It also sets the rates under Section 115 of the Copyright Act for the reproductions of musical compositions made by record companies when producing musical recordings or downloads, by digital music companies in connection with on-demand music services, and by wireless carriers in selling ringtones. 

The case before the Court involves a seemingly small matter – the appeal of Intercollegiate Broadcasting Services from the CRB decision setting default rates for Internet radio services that are not covered by one of the many Webcaster Settlement Act agreements (about which we wrote here and here). IBS essentially is objecting to the fact that the Board would not lower the annual minimum royalty fee paid by some of IBS’ smaller members below $500. But, in connection with its appeal, IBS raised the issue of the constitutionality of the appointment of the Judges, and the Court this week heard an oral argument on the issue – mentioning the rate questions only in passing while concentrating on the constitutionality of the appointment of the Judges.

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ASCAP and the Radio Music Licensing Committee have reached a settlement on the amount that radio stations will pay to ASCAP for the use of music for the period through the end of 2016. The agreement was approved last week by the US District Court in the Southern District of New York acting as a “rate court” to consider those fees. We reported that a settlement had been reached in early December, and now we’ve seen the actual documents and can provide some details of this agreement between the commercial radio broadcast industry and ASCAP. It should result in significant savings for broadcasters from rates that they had been paying prior to January 1, 2010.

As we wrote in 2010 when RMLC and ASCAP were first trying to reach a deal on new rates, the biggest problem with the old rates was the payment structure. Rather than making ASCAP a partner of the broadcaster by cutting them in for a percentage of the broadcaster’s revenue, under the deal that ended in 2009, ASCAP was to receive a set fee each year from the broadcast industry.  That set fee was divided among all commercial radio stations not based on station revenues, but instead based on the market size and technical coverage of each station. So all similarly powered stations in a market paid the same ASCAP fee, whether they were big revenue producers or not.  And the agreement was entered into during a period where radio broadcasters thought that revenues would be ever-increasing, so that set fee to be paid to ASCAP increased each year. As the economy and broadcast revenues fell during the later years of the deal, while the set fee kept increasing,broadcasters were paying an ever-increasing percentage of their revenues to ASCAP – far more than would have been paid had the industry stuck to a percentage of revenue formula.

Well, the experiment is over, as the new deal returns to a traditional percentage of revenue deal. Music radio pays ASCAP 1.7% of “revenues subject to fee from radio broadcasting." Essentially, that is all the revenue that a station receives from advertising and promotions, less a 12% deduction (presumably to cover commissions and costs of collection). Barter revenues, and payments made to networks (as opposed to the stations themselves), are excluded from the gross revenue calculation. All revenues from HD programming (including any amounts received for brokered programming) is also included (at least for the time being – subject to reevaluation should HD revenues account for 25% of radio revenues by 2015). New Media revenues, if the arise exclusively from streaming your station on the Internet, are also included in this gross revenue calculation.

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The Copyright Royalty Board has just announced that it is accepting petitions to participate in the next proceeding to set the royalty rates to be paid for the ephemeral copies made by "business establishment services" in connection with any digital transmission of sound recordings.  Business establishment services are essentially background music services who provide music to businesses to be played in stores, restaurants, elevators, and other establishments.  Under the Copyright laws, businesses are not required to pay a public performance royalty under Section 114 for the use of sound recordings (they do pay ASCAP, BMI and SESAC for the public performance of musical compositions).  But the law (Section 112) does require that these services pay for the ephemeral copies made in the transmission (e.g. server copies).  In the last proceeding, settled in 2008, SoundExchange and participating services reached an agreement to pay a fee of the greater of $10,000 or 10% of revenues.  Parties who want to participate in this new proceeding to possibly adjust this rate must file a petition with the Copyright Royalty Board, showing their interest in the proceeding, by February 2.  The CRB will later this year announce a settlement window, hoping that the parties who file notices of intent to participate can work out a deal.  If no deal is reached, direct cases will be due in the fall, and a hearing will be held next year, with the rates to be set before the current rates expire at the end of 2013.

This Notice reminds webcasters that all sound recording performance rates are temporary ones, that have to be readjusted every 5 years.  Webcasters will be filing similar notices to participate in the next proceeding in January 2014, with new rates to be set before the end of 2015.  We'll write soon about the issues that are likely to come up in that proceeding.  But webcasters should be making their plans now to be ready to put on a good case as to why the current rates should be adjusted in the 2015 proceeding.

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The Copyright Office last week issued its Report to Congress on pre-1972 sound recordings (with an Executive Summary), addressing whether to bring these recordings under Federal law.  As we wrote last year when the Copyright Office solicited comments on the issues raised by this report, sound recordings (i.e. aural recordings embodied in some fixed form like a CD, record or digital file) created in the United States prior to 1972 are not protected under Federal copyright law.  Instead, any protections accorded to these sound recordings are under state laws.  Congress, at the request of a number of archivist and music library groups, asked that the Copyright Office review the issues that would be raised by bringing these sound recordings under Federal law.  Some archivists and librarians feared that, in preserving old recordings, they could run afoul of state copyright laws, and that a unified set of rules under Federal law might be easier to follow.  Why is this issue more broadly important to the music community?  For internet radio station operators, it is because the proposals to Federalize all such recordings could have an impact on digital performance royalties (as there does not appear to be any public performance right in sound recordings under state laws and, under current law, these recordings would not be covered under the SoundExchange royalties that most noninteractive services play).  The Report is also significant in that it raises questions about copyright laws dealing with user-generated content, specifically whether the DMCA safe harbor provisions protecting the operators of Internet service companies from copyright liability for the content posted by third parties apply to pre-1972 sound recordings.

This is only a report to Congress, and such reports have no binding impact.  Instead, they merely set out the position of the authors of the report from the Copyright Office.  Such reports are also cited as evidence in court cases as to what the Office believes the current state of the law to be.  The Office has written a number of reports over the years making suggestions about how copyrights should be administered and, given the complexity of copyright law and the competing interests affected by any revisions to the laws, many of their proposals have never been implemented.  This report suggests that pre-1972 sound recordings be brought under Federal laws.  Specifically, the report suggests that current copyright holders get protection for most pre-1972 works until 2067 (when state law protections are to run out under the current law, allowing the works to move into the public domain).  The protections would be accorded to works that are used by the copyright holder (sold at some reasonable price) and registered with the Copyright Office at some point after a law implementing its proposals became effective.  Works from prior to 1923 would be subject to a similar use and registration process, but would only get 25 years of additional protection.  Seemingly, protections for works that are not registered would pass into the public domain after the applicable registration period expires.  For some webcasting companies, this change could have an immediate impact.

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New ASCAP royalties are on their way to radio broadcasters. ASCAP and the Radio Music Licensing Committee (RMLC) have just announced that they have reached an agreement in principal to return to the percentage of revenue royalties that for so long were paid by radio stations to ASCAP and BMI – a system that was abandoned for a market-based flat-fee system designed to avoid having the licensing organizations as partners that shared in what stations believed would be forever rising radio revenues. Of course, soon after the deal was struck, the current economic troubles hit, radio revenues fell, and the flat fees left many stations paying multiples of what they had been paying under the prior system. A return to the percentage of revenue-based system would seem to be a very good thing. See our previous summary of this royalty controversy, here and here. 

But, as of now, we know very little about the details of the deal – other than it returns to the percentage of revenue basis and that it seemingly will include all revenues of the broadcaster – including the ASCAP royalties due for streaming, other website music uses, and mobile applications (note that these royalties cover only the fees due for the public performance of the musical composition.  In online digital applications, fees still need to be paid to SoundExchange or other rights holders for the public performance in the sound recordings - the actual recordings made by a band or singer of one of those musical compositions - see our articles here and here). The deal with ASCAP will run through 2016.  We’ll have to wait until the final deal is released before a full assessment of its impact can be judged. 

For the RMLC and the broadcasters who financially support it, a deal should limit further litigation expenses with ASCAP (as a rate court proceeding had begun) while the final details of the settlement are hammered out. Watch for those details coming at some point in the future. And, remember, the RMLC also has BMI to deal with – which also had an agreement that expired at the end of 2009. The final royalties to be paid to both of these organizations should be retroactive to the beginning of 2010, so some analysis will need to done as to whether stations have over or underpaid under the interim fees that are currently in place (see our article here) once the details of the ASCAP deal is announced, and a final resolution of the BMI royalty is reached through settlement or litigation. 

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There have been many reports about the attempts by Sirius XM Radio to license music directly from record labels, bypassing any royalty rates set by the Copyright Royalty Board.  Direct licensing would have Sirius pay the record labels or copyright holders for the rights to use music, avoiding any dealings with SoundExchange, which normally collects the royalties for the public performance of sound recordings under the statutory license.  The most recent report about Sirius' efforts was in the New York Times, here.  Sirius, like webcasters, pays royalties set by the CRB (if they cannot be negotiated among the parties) that cover the public performance of all legally released sound recordings.  While webcasters currently have royalties that are in place through 2015, the royalties for Sirius end in 2012, and are being litigated now (see our story here on the last royalties set by the CRB for Sirius).  To avoid the uncertainty of litigation, with which webcasters are very familiar, Sirius has been attempting to license music directly from the copyright holders.  This is not a new story - Rhapsody reportedly tried the same thing earlier this year, and Clear Channel tried to get royalty waivers from independent artists several years ago in exchange for more exposure for their music (see our stories, here and here).  Each time a music service suggests that it might want to license music directly to try to recognize some savings over the rates established through CRB litigation, the music community objects - see, for instance, the statements of unions AFTRA and AFM here, that of SoundExchange here, and that of A2IM (the association of independent record labels), here.  But what is really wrong with the efforts of services to negotiate lower royalties?  If you believe the testimony of SoundExchange's own witness in the Copyright Royalty Board proceedings - nothing at all.  In fact it is to be expected. 

In the CRB proceeding that was held in 2005-2006 (and from which, most of the settlements arose that now govern the royalties for sound recordings played by Internet radio stations), SoundExchange relied on a number of witnesses, including one expert, Michael Pelcovits, an economist whose model was the principal testimony relied on by the CRB in establishing the rates they determined to be reasonable.  In his written testimony, Mr. Pelcovits stated as follows:

...a rate that is set too low may have serious economic dangers.  By setting a rate too low, inefficient entry may be encouraged, and inefficient levels of production will be encouraged, which can hinder the development of an efficient market.  It is also worth noting that setting the statutory rate too high will not necessarily be harmful to the market.  If the price is too high, parties can (and are almost certain to) negotiate agreements for rates lower than the statutory standard.  Thus, a rate that is set too high is likely to "self-adjust" because of the sellers' natural incentive to meet the market. 

(Emphasis added).  The statutory rate referred to in this quote is the rate that is set by the CRB.  What this quote says is that, if that rate is set too high, then parties will naturally negotiate after-the-fact to try to find what the real market rate should be, and that such negotiations should be expected - not feared as many seem to be claiming as these attempts to cut deals come to light.  In other words, the music community seemed to favor (and expect) such negotiations, before they were against them it in their statements today. 

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Broadcasters beware - podcasts with music may be dangerous to your economic health.  In recent weeks, I've come upon more than one incident where a broadcaster was providing podcasts containing music on their website, or allowing listeners to download or stream on-demand some new, hot song.  I've even seen certain articles in the trade press advocating that stations do podcasts of their morning shows, or otherwise provide some sort of programming containing music on their websites in a manner in which the listener can listen over and over again to the same program or song.  Broadcasters need to know that they are asking for trouble when they provide services like podcasts, downloads and on-demand streams containing music without getting specific permission from copyright holders to do so, as these uses are not covered by the SoundExchange royalties paid for webcasting, nor (in most cases) by your ASCAP, BMI and SESAC royalties.  

The royalties paid to SoundExchange are for the right to publicly perform sound recordings in a noninteractive manner.  In other words, they only cover streams where the user cannot get a specific song when they want it, and where listeners do not know the order in which songs will be played.  ASCAP, BMI and SESAC (the "PROs") also cover public performances, but of the underlying musical compositions (the words and music of the song, as opposed to its recording by a particular singer or band).  By contrast, “podcasts,” ( and here I mean an on-demand program that can be downloaded onto a digital device for later replay, and which can also usually be played immediately on someone’s computer) are much like downloads - and involve a different right in music - the right to reproduce and distribute the music.  The rights of reproduction and distribution are different from the public performance right, and the permission to make reproductions and distributions are granted by different groups than are the public performance right.  SoundExchange and the PROs have nothing to do with granting this reproduction and distribution right (with the limited exception of ephemeral rights in streaming granted through the SoundExchange royalty - a concept too technical to be discussed here, and one that does not affect this warning.  But, if you are interested in these rights, you can see our article that discussed ephemeral rights in a bit more detail, here).  Podcasts, downloads and on-demand streams require a specific grant of rights from the copyright holders of the sound recordings and the musical compositions for each piece of music that is being used. 

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Just as webcasters thought that they had their royalty obligations figured out, there comes news that the already complicated world of digital media royalties may well become more complicated.  Last week, EMI, which in addition to being a record label is a significant music publishing company, has reportedly decided to withdraw portions of its publishing catalog from ASCAP - which had been licensing the public performance of these songs. The withdrawal from ASCAP applies only to "New Media" licensing.  What is the impact?  As of today, webcasters pay ASCAP, BMI and SESAC for the rights to play virtually the entire universe of "musical compositions" or "musical works" (the words and musics of the song).  By withdrawing from ASCAP, EMI will now license its musical compositions itself, adding one more place that webcasters will need to go to get all the rights necessary to play music on an Internet radio type of service.  In addition to royalties paid for the musical composition, webcasters also pay SoundExchange for public performance rights to the sound recordings (the song as recorded by a particular singer or band) - and by paying this one organization, they get rights to perform all sound recordings legally released in the US.   But any Internet radio operation needs both the musical composition (except for those compositions that have fallen into the public domain) and the sound recording performance rights cleared before they can legally play the music.

The news reports quote EMI as talking about the efficiencies that will be created by its licensing the musical compositions directly - in conjunction with the licensing of other rights - like the rights to make reproductions of its compositions, or the rights to publicly perform sound recordings to which its record label holds the copyright. But the whole idea of a performing rights organization with collective licensing is that it provides to digital music services the efficiencies offered by a one-stop shop for the purchase of rights to all a very large set of musical compositions.  Up to now, a digital music service knew that, by entering into licensing agreements with ASCAP, BMI and SESAC (the "performing rights organizations, or "PROs"), it had rights to virtually all the musical compositions that it would normally use (i.e. they received a "blanket license").  If these rights are balkanized, so that each significant publisher licenses their own music, the webcaster will have to make multiple stops to license all the music they need - which always leads to confusion.  The more places they have to go to license music, the more possibility that they will overlook a necessary rightsholder.  But there is even a bigger potential issue for webcasters - price.

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What should SoundExchange do with money that it collects for the performance of sound recordings, when it does not know what sound recordings were played by a particular service?  As we've written many times on this blog, SoundExchange collects royalties from digital music services , including satellite radio, cable radio and webcasters, for the performance of sound recordings (i.e. a recording of a song by a particular artist).  It is charged with the obligation to distribute these royalties one-half to those who hold of the copyright to the sound recording and one-half to the artists who perform on those recordings.  However, SoundExchange, according to a filing recently made with the Copyright Royalty Board, does not always know which songs were played by a particular music service.  Thus, it has had difficulty distributing all of the money it collects - currently holding $28 Million in royalties from the period 2004 to 2009 that have not been distributed.  Why?  According to SoundExchange much of the problem is that not all services report what they played and how often, and other information that is submitted is sometimes inaccurate or otherwise does not adequately identify the music that was played.  To deal with this problem, SoundExchange has asked that the Copyright Royalty Board authorize it to use proxy information to distribute these funds from 2004-2009.  The CRB has asked for comments on that proposal.  Comments are due on May 19.

What is proxy information?  Basically, SoundExchange plans to infer from the information that it does have what music was played by the services for which it has no information.  According to the SoundExchange filing, they would make these assumptions based on the type of service.  Thus, information from webcasters would be used to estimate what other webcasters were playing.  Information from background music services who did report would be used to determine what other background music services played, and so on.  The CRB, in its request for comments, asks if the proxy should be further broken down so that, for instance, noncommercial webcasters would serve as a proxy for other noncommercial webcasters, and commercial webcasters would serve as a proxy for other commercial webcasters.  The Copyright Royalty Judges are also seeking to assess whether SoundExchange has done all that it can do to get the required information, and if the proxy system is a fair way of determining distributions for the money that has not yet been awarded to rightsholders and artists. 

Does this proposal have any impact on the services themselves?  Apparently not, as SoundExchange is at this point only looking for this authority in order to distribute money collected for royalties that came in from 2004 to 2009.  It does not appear to be looking at imposing any new restrictions on webcasters or other digital music services.  Instead, it is only looking for the authority to distribute the money that it has already collected based on the information that it has available.  What should music services take away from this request?

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Last week, the Copyright Office published in the Federal Register the final decision of the Copyright Royalty Board on the statutory rates for Internet radio royalties - royalties paid by webcasters for the noninteractive streaming of sound recordings.  As we have made clear before, these are royalties that are paid in addition to the royalties paid to ASCAP, BMI and SESAC for the public performance of the musical compositions (see our memo on Using Music in Digital Media, here, that explains the difference between the sound recording and musical composition royalties).  The rates adopted by the CRB are the rates to be paid by any webcaster who has not elected alternative rates available under one of the many settlement agreements between SoundExchange and groups of webcasters, which were entered into under the Webcaster Settlement Acts.  The Final Decision corrects a few typos in the initial decision, but otherwise leaves the substantive holdings of the decision unchanged.  We described those holdings here.  While the publication of the final decision starts the clock running on filing an appeal, the new rates are unchanged from those that were in effect for 2010 for commercial webcasters who had not elected any available alternative set of rates.  Thus, these webcasters will continue to pay at the rate of $.0019 per "performance" (a performance being one listener listening to one song - e.g. if there are 100 people listening to a stream that plays 10 songs in an hour - there are 1000 performances in that hour) for the remainder of 2011.   The publication of these rates has, however, triggered a number of questions about the comparative royalties that different Internet radio services pay for streaming music on the Internet - rates summarized below.

As set out below in detail, there are significant differences in the royalties paid by different services for the 2011-2015 royalty period.  Broadcasters who are streaming their programming on the Internet pay lower per performance royalties than webcasters paying the statutory rate in the first years of the 5 year period, but higher rates at the end of the period. (See a summary of the Broadcaster royalty agreement here).  "Pureplay" webcasters, like Pandora, pay significantly lower per performance royalties than either broadcasters or those paying under the statutory rate, but are required to pay a minimum fee of 25% of the gross revenue of their entire business - ruling out these lower rates as an option for any service that has lines of business other than webcasting.  (See a summary of the Pureplay deal here).  The broadcaster deal and that which applies to the Pureplay webcasters were both arrived at pursuant to settlements reached under the two Webcaster Settlement Acts, passed in 2008 and 2009.  These allowed the groups covered by these agreements to negotiate with SoundExchange over the rates that would cover the industry for the digital noninteractive performances of sound recordings.  The statutory rates were arrived at by a decision of the Copyright Royalty Judges after litigation which took place last year. 

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Public performances, synch and master use licensing, sound recordings, musical compositions - what are all these terms, and how does a digital media company make sense of them and figure out where to go get permission to use music in their business?  These issues were discussed in a webinar that I did with my partner Rob Driscoll from our firm's New York office for the Texas Association of Broadcasters.  The slides for that presentation are available here.  A revised and updated version of our memo on the Basics of Music Licensing in the Digital Media, giving more information on many of the subjects discussed in the presentation, has also just been published, and is available here. 

During the presentation, we talked about the broadcaster's royalty deal with SoundExchange for Internet radio streaming.  Details of that settlement are here.  The performance complement waivers that are associated with that agreement are detailed here.  In the presentation, we also mentioned that stations with websites featuring user-generated content may avail themselves of a safe harbor from liability if they take certain precautions.  Website operators must register with the Copyright Office the name and contact information of a person with responsibility to receive notices from copyright holders that users have posted infringing content, and to take down any content that is in fact infringing.  The Copyright Office instructions for registration can be found here.   These materials may not answer every question, but they may start you asking the right questions as you use music in connection with your digital properties.

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The Copyright Royalty Board today released its Determination of Rates for noninteractive webcasting services for the period from 2011-2015. These rates will form the default rates for webcasters who have not opted into one of the many voluntary agreements negotiated last year under the Webcaster Settlement Act (see our summaries of the Pureplay webcaster deal here, the Broadcasters settlement here, the Small Webcasters or "microcaster" settlement here, the noncommercial webcasters settlements here, the Sirius XM settlement here, and the CPB/NPR settlement here).  The Board set the following per performance royalty rates as the default rates for webcasters who are not terrestrial broadcasters:

• 2011 - $.0019 per performance
• 2012 - $.0021 per performance
• 2013 - $.0021 per performance
• 2014 - $.0023 per performance
• 2015 - $.0023 per performance

Thus, the rates for this coming year will remain at the same level at which they are now set for 2010, and will increase slightly every other  year.  A performance is one song played to one listener. 

The decision also adopted default rates for noncommercial webcasters, setting those rates at the levels agreed to in a settlement between SoundExchange and certain noncommercial educational webcasters reached last year. Those rates establish a minimum fee of $500 for each individual channel offered by a noncommercial webcaster. If the listening on any channel exceeds 159,140 Aggregate Tuning Hours in any month, the webcaster would pay for such overage on a per performance basis at the following rates:

• 2011 - $.0017 per performance 
• 2012 - $.0020 per performance
• 2013 - $.0022 per performance
• 2014 - $.0023 per performance
• 2015 - $.0025 per performance

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The Copyright Office today announced an extension of time for the fling of comments in its inquiry into the possibe extension of Federal Copyright protection to pre-1972 sound recordings.  We provided a details of that proceeding here.  Internet radio operators and other digital music services that play significant numbers of pre-1972 sound recordings (particularly recordings first made in the United States), may want to comment in this proceeding, as the statutory royalty paid to SoundExchange currently does not appear to cover such recordings, though, should the Copyright Office recommend the extension of the law to cover the recordings, and if Congress takes actions to amend the Copyright Act as a result of this suggestion, royalty obligations could be extended to these recordings.  At the request of the RIAA, the Copyright Office has extended the deadline for comment until January 31, 2011.  Reply comments are now due on March 2, 2011.

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The big news in the music world this week is that Apple finally is able to sell digital downloads of the Beatles catalog in its iTunes music store.  For years, the copyright holders who control the Beatles master recordings have withheld permission to use the Beatles recordings on iTunes and other digital download and on-demand streaming services, seemingly afraid of diluting the value of their copyrights.  There are other bands who have had a similar reluctance to make their recordings available on-line.  While this impasse has now been broken by the biggest name among these digital holdouts, at least as to iTunes, some have asked why it is that the Beatles were never missing from Internet radio, while they were absent from these other services.  The answer is the statutory license under which Internet Radio operates.

While there have been many disputes over the royalties that have been imposed under the statutory license created by Congress which allow non-interactive digital music companies to use sound recordings to provide music to their customers, there is no question that the license has fulfilled one of its primary functions - making sure that there is access by Internet radio operators to the entire catalog of sound recordings available in the United States.  One of the principal reasons that the statutory license was created was the inherent difficulty, if not the impossibility, for a radio-like digital service operating under the sound recoding performance royalty first adopted in 1995 to secure permission from all of the copyright holders of all of the music that such services might want to use.  Thus, Congress adopted the statutory license which requires the copyright holder to make available its sound recordings to non-interactive services, in exchange for the service agreeing to pay a statutory royalty - the royalty now set by the Copyright Royalty Board.  But only non-interactive services, where listeners cannot select the songs that they hear, are covered by that statutory royalty (see our summary here of one of the cases dealing with the question of what is and what is not a non-interactive service).

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The Copyright Office has just released a Notice of Inquiry asking whether Federal protection should be extended to sound recordings recorded prior to 1972.  A sound recording is a song as recorded by a particular artist.  Sound recordings were first protected under Federal law in 1972.  Prior to that, unauthorized recordings or reproductions of an artist's recoding were policed under various state criminal and civil law.  While the Copyright Act has provided for the protection of pre-1972 sound recordings first registered in other countries, US sound recordings recorded prior to 1972, have not received Federal copyright protections.  Many have assumed that this also exempts pre-1972 sound recordings from royalty requirements under Section 114 of the Copyright Act - i.e. the royalties paid by Internet and satellite radio and other digital music providers under the statutory license.  How would a change in the law affect Internet radio operators?

That is one of the questions that is asked by the Notice of Inquiry.  Many Internet radio operators have not excluded pre-1972 recordings from royalty payments based on any exception that may exist for pre-1972 sound recordings, as the possibility has not been widely publicized.  Moreover, some copyright holders have suggested that the digitization of older songs may somehow bring pre-1972 recordings under the coverage of the Copyright Act, or that there may be state remedies that are somehow the equivalent of the Federal public performance right.  Others may just not want to go to the trouble of determining which copyrighted songs are subject to the Uruguay Round Agreements Act (making the non-US pre-1972 sound recordings subject to US Federal law).  The Copyright Office's Notice of Inquiry asks what impact the inclusion of pre-1972 sound recordings would have on many undertakings - including the archiving and restoration of sound recordings, and on the current benefits that copyright holders and others enjoy under state laws.  In addition, it asks about the benefits and issues that would arise under Section 114 of the Copyright Act - the section that sets out the statutory license under which most Internet radio companies operate.

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Dave Oxenford this week conducted a seminar on legal issues facing broadcasters in their digital media efforts.  The seminar was organized by the Michigan Association of Broadcasters, and originated before a group of broadcasters in Lansing, but was webcast live to broadcasters in ten other states.  Dave addressed a variety of legal issues for broadcasters in connection with their website operations and other digital media platforms.  These issues included a discussion of service marks and copyrights, employment matters, music on websites, the use of social media, privacy, and sponsorship disclosure.  The slides used in the Lansing presentation are available here.    During the seminar, Dave also mentioned that stations with websites featuring user-generated content, to help insulate themselves from copyright infringement that might occur in the content posted to their website by their audience, should take advantage of the registration with the Copyright Office that may provide safe harbor protection if a station follows the rules and takes down offending content when identified by a copyright holder.  The Copyright Office instructions for registration can be found here.   

One of the most common issues that arise with radio station websites is the streaming of their programming.  In August, Dave gave a presentation to the Texas Association of Broadcasters providing  a step-by-step guide to streaming issues, with a summary of the royalty rates paid by different types of streaming companies.  That summary to Internet Radio issues is available here.  Additional information about use of music on the Internet can be found in Davis Wright Tremaine's Guide to The Basics of Music Licensing in a Digital Age.   Dave also presented this seminar at the Connecticut Broadcasters Association's Annual Convention in Hartford on October 14.

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So you want to start streaming your radio station on the Internet?  Or maybe you want to start a whole new Internet radio station.  In a session at last week's Texas Association of Broadcasters Annual Convention in Austin, Dave Oxenford talked about the legal considerations starting an Internet radio station, while Chris Dusterhoff of Bryan Broadcasting in Bryan/College Station, Texas talked about some of the technical and business issues in doing so.  A copy of Dave's PowerPoint presentation from that session is available here.  The presentation addresses some of the issues that you need to consider, including the music royalties that will be required from most webcasting operations. 

In addition to the issues involved in streaming your signal on the Internet, broadcasters have a host of other legal issues that they should consider in connection with their digital presence.  Issues that arise with service marks and copyrights, with employment issues, social media, privacy and sponsorship disclosure were all addressed in Dave's presentation on the Legal Issues in the Cyber Jungle.  A copy of his PowerPoint presentation is available here.  Dave also mentioned that stations with websites featuring user-generated content, to help insulate themselves from copyright infringement that might occur in the posts from their audience members, should take advantage of the registration with the Copyright Office that may provide safe harbor protection if a station follows the rules and takes down offending content when identified by a copyright holder.  The Copyright Office instructions for registration can be found here.   Additional information about use of music on the Internet can be found in Davis Wright Tremaine's Guide to The Basics of Music Licensing in a Digital Age. 

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The debate over the proposed performance royalty (or "performance tax") on over-the-air radio is once again front page news in all of the broadcast trade press, as radio executives who make up the NAB Radio Board reportedly are making their way to Washington, DC to decide on whether to pursue a settlement with those seeking to impose the royalty.  What's on the table?  Reportedly a very low (perhaps 1% of revenue as reported in some of the trades) royalty for terrestrial radio, a royalty set in legislation for at least a several year period.  In exchange, broadcasters would get a break on streaming royalties and a push towards getting working FM chips into cell phones - a potentially big audience boost for radio operators.  But from all we have heard, this is not, by any means, a done deal.  What will happen?

We wrote just a few weeks ago about a proposed settlement and why it might or might not be a good idea, and received many comments on our post.  As was clear from the comments, many are not sure why a settlement of any sort makes sense at this point, when the NAB has so far bottled up the royalty in Congress, and where the next Congress is, at least in the eyes of many, going to be far more Republican and, in some people's eyes, a lot less likely to impose the royalty.  Proponents of a settlement respond that the royalty is not necessarily a partisan issue, with Republicans such as Senator Hatch of Utah, Congressman Issa of California, and many members of the Tennessee delegation taking strong positions in favor of the royalty.  So, just because there is a change in Congress (if it in fact occurs) does not necessarily mean that the current Performance Rights Act or some other version of the royalty proposal would be dead.  Moreover, as we wrote in our recent post, there still is the remainder of the current Congress to get through, including the "lame duck" session after the election, when Congressmen who may no longer have jobs will be voting on much legislation, including many big budget bills in which a performance royalty rider can get hidden. 

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Davis Wright Tremaine attorneys David Oxenford and Rob Driscoll conducted a seminar -  Using Music in Digital Media: Business and Legal Issues - on June 16, 2010 in New York City.  The seminar was presented to attorneys from committees of the New York State and New York City bar associations.  In the seminar, Dave and Rob discussed the music licensing issues that can arise when music is used in digital media - touching on everything from royalties for the streaming of music by Internet radio stations, to the use of music in video productions or in advertisements that may be displayed online, to the occasional use of music by a business on its website to enhance the "stickiness" of that site.  The PowerPoint presentation from the seminar is available here.  Many of the issues that were covered in the seminar are discussed in Dave and Rob's memo the on The Basics of Using Music in Digital Media, available by clicking on this link.

Another topic that was discussed was the use of music in user-generated content, and how website operators can avoid liability that may arise from the posting on their sites of content using music and other copyrighted materials by users over whom the site owner has no control.  The Digital Millennium Copyright Act provides protection for those who host sites where such content is posted, but certain formalities need to be observed by the site owner to insure that they receive the law's full protection.  Site owners cannot encourage the posting of copyrighted content unless the appropriate clearances have been obtained, they cannot have actual knowledge of the infringing content, they cannot receive a direct financial benefit from the infringement, and they must act promptly to remove infringing content if notified that it is on their site.  To make this notification possible, to provide a "safe harbor" under the DMCA, a website owner needs to place a notice on its website in a "location accessible to the public," and register with the Copyright Office, the name of a person to be contacted by a copyright owner if the owner finds its content being used on the site without permission.  This notice must provide the contact person's address, phone number and email address.  Information about registering the contact person with the Copyright Office, a list of those website operators who have registered, and a link to the form to be used to register a contact person, can be found here.

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Last week, a US District Court Judge adopted a new interim rate to be paid by commercial radio broadcasters to ASCAP for the use of ASCAP-licensed music by over-the-air radio stations, reducing the fees paid by the industry by about $40 million dollars, or about 20% of the total that had been paid by the industry under the rate deal that expired at the end of 2009. These rates replace interim fees that had been negotiated between ASCAP and radio representatives earlier this year.  The rate just adopted by the Court is the rate that will apply until a permanent rate for ASCAP fees is set by the Court (or agreed to in a settlement).  The permanent fees will be retroactive to January 1, 2010, so this apparent reduction in the ASCAP fees should not be taken to mean that the fees that will be paid by radio stations under this order will be the full extent of the ASCAP liability for any station. As we have written before,the Radio Music Licensing Committee (representing most commercial radio broadcasters), has been trying to renegotiate the rates charged by both ASCAP and BMI downward from their current levels. Both the ASCAP and the BMI agreements for over-the-air radio broadcasters expired at the end of 2009, and final rates for the future need to be set by rate court or by negotiations between the parties. As negotiations have yet to produce a deal, the RMLC has initiated rate court actions - which will involve long hearings, and may not be resolved fro quite some time (if there is no settlement prior to a final decision).  Each action is heard by a different judge, so this decision is not necessarily indicative of the interim or final rates that will be set by the Judge hearing the BMI case.

Besides the rates, which are clearly the major issue, there are other matters to be decided in a rate court proceeding. In the past, the rates paid by broadcasters covered their over-the-air broadcasts, plus the streaming of their over-the-air signals. Other use of music on websites, including “side channels” of music streamed by broadcasters that was not heard over-the-air, plus other digital music uses (e.g. mobile media uses), required independent ASCAP and BMI agreements. There has been an attempt to include all uses of music under the single ASCAP and BMI license given to commercial radio stations.

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The Copyright Royalty Board has announced its approval of new sound recording performance royalties for "new subscription services", i.e. music services provided to the customers of cable or satellite television systems by companies not in this business in 1998 at the time of the adoption of the Digital Millennium Copyright Act.   This royalty was adopted after a settlement between Sirius XM Radio, the only music service which filed to participate in this proceeding, and SoundExchange.  The settlement as approved provides for royalties that are the higher of 15% of the revenues of the service (subscription payments plus other revenues such as advertising and sponsorships provided by the service), or a minimum per subscriber fee that increases over the five year course of the royalty period.  The details of this settlement, including the escalating per subscriber royalties, can be found in the Federal Register notice of its approval, here.

This royalty has very limited applicability, governing only the payments due from audio services "transmitted to residential subscribers of a television service through a Provider which is marketed as and is in fact primarily a video service," i.e. music services bundled with a subscription to a cable or DBS service - and only where that service is delivered to residential users.  Given the limited applicability of this service, one might be inclined to ignore its adoption.  However, broadcasters in particular should pay attention to this royalty, as it is again indicative of the value that the music copyright holders and SoundExchange place on the use of their music in an audio service, and thus of what SoundExchange would seek were they to get a performance royalty on over-the-air broadcasting.   

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In the last two weeks, David Oxenford has, at two different conferences, moderated panels on digital music rights and licenses.  At the Digital Music Forum East, in New York City on February 25, 2010, his panel focused on rights and licenses generally, featuring panelists from SoundExchange, BMI, the Harry Fox Agency, Rightsflow and MediaNet.  As a handout, David provided copies of Davis Wright Tremaine's Guide to The Basics of Digital Music Licensing, available here.  Discussion on the panel included the question of when there is a public performance versus when there is a reproduction of a copyrighted piece of music (see our post here), royalties for interactive streaming (see our post here), and the difference between a sound recording and a musical composition, rights to both of which are needed in most digital uses of music (see our post here).

At the RAIN Summit North, held at Canadian Music Week on March 12, David's panel discussed the music royalty structure for Internet Radio companies in Canada. Panelists included the CEO of  Re:Sound (the Canadian version of SoundExchange, collecting royalties for the public performance of sound recordings) and the head of CMRRA-SODRAC (CSI), the Canadian Rights Society that collects for reproductions of musical compositions.  In Canada, broadcasters and Internet radio companies pay not only to SOCAN, the Canadian equivalent of ASCAP, BMI and SESAC in collecting for the public performance of musical compositions, but also to CSI for the reproductions of musical compositions made in servers, buffers and other digital reproductions. 

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Broadcasters need to be aware that ASCAP, BMI and SESAC (the "performing rights organizations" or PROs) don't cover them for all uses of music - especially uses that may be made on station websites.  Offering downloads, podcasts, and streaming video featuring music all require specific permission from music rights holders.  And, as we wrote just last week, incorporating music into recorded commercials also requires specific permission from rights holders - not just your routine payment to the PROs.  As music usually has two different classes of rights holders - those that hold the rights to the musical composition (the lyrics and music in the song, usually held by a publishing company), and the rights to the "sound recording" or "master recording" (usually held by the record companies), knowing who to ask for what rights can sometimes be complicated.  To help explain some of the basic issues of where to go for what rights, Davis Wright Tremaine has put together a Guide to the Basics of Music Licensing, available here. 

The Guide also addresses some of the controversial issues in music licensing, and the question of "fair use", a concept often cited but also often misunderstood.  So check out ourGuide for a basic introduction to the law governing music rights issues. 

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In one more indication that the Broadcast Performance Royalty (or "performance tax" as opponents of the legislation call it) is not dead yet is an article in yesterday's New York Times reviewing the issues at stake in the proceeding.  What was perhaps most interesting about that article was the fact that it appeared only one page away from an article about Internet Radio service Pandora, and a discussion of how that hugely popular service was almost driven out of business by music royalties set by the Copyright Royalty Board in their 2007 royalty decision.  The article about the broadcast performance royalty mentions that one of the difficulties in assessing the impact of the proposed royalty is that no one knows how much it will be, as it would be set by the Copyright Royalty Judges on the CRB.  Yet the Times makes no mention of the controversy over the previous decisions of the Board in the context of the Internet radio royalties, and how such royalties almost impacted services such as Pandora.  

How much would the proposed royalties on broadcasters be?  We have written before on that subject,here.  Under previous decisions using the "willing buyer, willing seller" royalty standard which is set out in the legislation that has passed House and Senate Judiciary committees dealing with this issue, the lowest royalty for the use of music in any case before the CRB has been 15% of gross revenues.  Even using a standard seemingly more favorable to the copyright user (the 801(b) standard that assesses more than the economic value of the music but also looks at the impact that the royalty would have on the stability of the industry on which it is imposed), the royalties have been in the vicinity of 7% of gross revenues for both satellite radio and digital cable radio, the two services that are subject to royalties set using the 801(b) standard.  This is more than broadcasters currently pay to ASCAP, BMI and SESAC - rates which are also currently the subject of proceedings to determine if these rates should be changed (see our posts here and here).   

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Using music in commercials is not as simple as just paying your ASCAP, BMI and SESAC royalties.  While many broadcasters think that paying these royalties is enough to give them the rights to do anything they want with music on their stations, it does not.  The payments to these Performing Rights Organizations (PROs) only cover the right to publicly perform music, i.e. to broadcast it.  They do not give you the right to take the music and "synchronize" it with other words or video material, e.g.  you cannot put music in a recorded commercial or otherwise permanently fix it into a recorded audio or video production.  Instead, to make such a production, the producer needs to get the rights to both the underlying musical composition (the words and musical notes) and, if you are planning to use a particular recording of a song, the rights to use that particular recording ( the "sound recording" or "master recording").  Getting these rights may very well require that you deal both with the record company or performing artist whose recording you plan to use, and the publishing company that represents the composer of the music.  And, as some artists may have concerns about having their music used to pitch some products, getting the rights to that artist's version of a particular song may not be easy. 

Even using the tune of a familiar song in an advertisement, with different words, is not permitted without getting the rights to do so from the publishing company.  A copyright holder in a musical composition has the right to prepare "derivative works" of that composition.  A derivative work is one that uses the original copyrighted material, but changes it somehow - like putting new words to an old tune.  Many think that "fair use" permits the making of a parody of a song, so they are allowed to use the tune as long as they produce a new version that is funny.  However, in the copyright world, fair use is not that simple.  A parody, to allow use of the original tune, must be making commentary or criticism of the original song.  Being independently funny or amusing, or otherwise dealing with some independent social or political issue, does not give you the right to use the music without securing permission from the composer of the music first.  A recent story in the Hollywood reporter's legal blog, THR,esq.com, told the story of a Congressional candidate, Joe Walsh, who thought that it would be cute to use the music of former Eagle Joe Walsh, to make fun of Democratic politicians.  As set out in that story, Eagle Joe Walsh's attorney did not find the campaign song very funny, and sent a very strong letter objecting to that use (the LA Times site had at one point had a link to a video of a band playing the candidate's version of the Joe Walsh song "Walk Away", but it now says that the video has been taken down due to a copyright objection). Don't let your station be the recipient of such a letter - get the rights to use music in commercials or other productions. 

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