Posted on August 9, 2009 by David Oxenford

Details of Webcasting Royalty Settlements for Noncommercial Webcasters Including Educational and Religious Internet Radio Operators

Noncommercial webcasters were provided with two royalty options under settlements reached with SoundExchange pursuant to the Webcaster Settlement Act of 2009 ("WSA").  One settlement was with Noncommercial Educational Webcasters.  The other, when announced, was characterized by SoundExchange as being a settlement with noncommercial religious broadcasters, though it applies to any noncommercial webcaster who elects to be subject to its terms.  As set forth below, except for certain mid-sized noncommercial webcasters who have more forgiving recordkeeping options under the Educational deal, it would seem that the settlement with the religious broadcasters provides far more advantageous terms, and it also reaches back to cover the period from 2006 through 2010.  The Educational webcasters agreement covers only the rates for the periods from 2011-2015.  These settlements provide another example of the issue raised before the Senate Judiciary Committee of the arbitrary nature of the precedential nature that will be accorded to WSA settlements in future webcasting proceedings.  The noncommercial agreement with significantly higer prices has been accorded precedential weight in future CRB proceedings, while the one with lower rates is, by its terms, not precedential in future proceedings.

It is easiest to start with a review of the 'Religious" broadcaters settlement (which, as we said above, is open to any noncommecial webcaster).  The agreement provides for a $500 per channel fee for each channel or stream offered by the noncommercial webcaster.  For that flat fee of $500 per channel, the webcaster can stream up to 159,140 monthly aggregate tuning hours of programming on each stream.  An Aggregate Tuning Hour ("ATH") is one hour of programming streamed to one person.  Thus, if you have 2 people who each listen for an hour, you would have two aggegate tuning hours.  A station with 2 listeners who each listen for half an hour would have one ATH of listening.  4 listeners for 15 minutes each would also add up to one ATH.  The 159,140 monthly ATH number represents listening of approximately 221 average simultaneous listeners 24 hours a day, 7 days a week.  If a webcaster exceeds this listening level, it must pay for excess listening on a per performance (per song per listener) basis, at the rates set out below.

For listening above the 159,140 monthly ATH level, a noncommercial webcaster electing the Religious broadcasters deal would pay at the following rates:  

  (i)   2006-2010:

 

             (a)        $0.0002176 per performance; or

(b)        $0.00251 per ATH , except in the case of channels or stations where substantially all of the programming is reasonably classified as news, talk, sports or business programming, in which case the royalty rate shall be $.0002 (.02¢) per aggregate tuning hour;

 

      (ii)        2011-2015:

Year

Per Performance Rate

2011

$0.00057

2012

$0.00067

2013

$0.00073

2014

$0.00077

2015

$0.00083

For large noncommercial webcasters, these rates cut the payments for performances in excess of the 159,140 cap by 2/3 from the rates set by the Copyright Royalty Board in its 2007 decision.  These rates are more in line with the noncommercial rates set under the Small Webcasters Settlement Act, which were in effect prior to 2006 and set rates at 1/3 of the commercial rates for performances in excess of 200 average simultaneous listeners. 

The Educational deal, by contrast, while structured very similarly ($500 per channel minimum and a per performance fee above 159,140 monthly ATH), requires far higher per performance fees.  The fees for performances above the cap are essentially the fees agreed to by the NAB, and which SoundExchange seems to be trying to make the standard for per performance fees that they will use as a benchmark in the upcoming proceeding to set royalties for 2011-2015.  The rates under the Educational deal are deemed precedential (while those under the Religious broadcasters deal are not).  For streaming above 159,140 ATH per month, the Educational webcaster would pay the following per performance rates:

                      Year         Rate per Performance

2011                      $0.0017

2012                      $0.0020

2013                      $0.0022

2014                      $0.0023

                        2015                      $0.0025

With the Educational Webcaster paying 3 times what a noncommercial entity would pay under the Religious Broadcasters deal, why would anyone ever elect the Educational deal?  For one reason - its treatment of recordkeeping requirements for smaller webcasters.  Apparently, recognizing that many schools will have webcasting operations which may receive some degree of listening, but which may not get the large nationwide audiences of some religious or other nationally-focused nonprofit webcasters, the Educational webcasters seem to have traded higher per performance rates above the 159,140 cap to get a bigger break on recordkeeping requirements for smaller webcasters.

Under the Educational Webcaster deal, stations streaming up to 55,000 ATH per month can pay an additional $100 yearly fee to SoundExchange and be exempt from recordkeeping and reporting requirements on the songs that they play.  The $100 fee is supposed to be used by SoundExchange to develop alternate methods of sampling and reporting the music played by these smaller webcasters.  55,000 monthly ATH is approximately 76 average simultaneous listeners 24 hours a day, 7 days a week. 

In contrast, while there is a "Noncommercial Microcaster" option under the Religious Broadcasters settlement which allows for a similar recordkeeping exemption, it applies to stations with up to 44,000 ATH per year, meaning a station can average only 5 simultaneous listeners on a 24 hour a day, seven day a week basis to qualify for the recordkeeping exemption under that deal.

Under both deals, webcasters agree to provide census reporting (reporting to SoundExchange each song played and how many times it was listened to), but only for larger webcasters exceeding the 159,140 ATH per month cap.  Here, again, there is slightly more flexibility for the Educational webcaster, not having to report on the number of listeners for each song, instead only having to report how often the song was played.  Large webcasters under the Religious Broadcasters deal do need to report on the number of listeners (though that information can be provided by ATH rather than on a per performance basis).  Under both deals, webcasters with less than 159,140 need only report for two weeks each quarter.

Parties deciding to elect the Religious Broadcasters deal must do so by September 15.  There is no comparable deadline for the Educational deal, as it covers only the periods after January 1, 2011, except for stations wishing to take advantage of the recordkeeping benefits, which can be elected immediately for 2009, and in January for 2010.  Under both deals, elections must be made every year, by January 31, as to whether or not a webcaster wants to continue to be covered by one of these deals.  The Educational deal is open only to those webcasters who are affiliated with educational institutions.

Thus, there are now two options (in addition to a third option for stations eligible for funding by the Corporation for Public Broadcasting, and to the option the Copyright Royalty Board adopted for 2006-2010 and any option that they may adopt for 2011-2015) for the noncommercial webcaster.  One option provides more recordkeeping breaks for Educational institutions that stream a moderate amount, while the other provides price breaks for the largest noncommercial webcasters.  Read these deals carefully when they are published in the Federal Register, and carefully choose the option that best meets your needs. 
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Posted on November 9, 2007 by David Oxenford

Another Proposed Settlement of Another Copyright Royalty Board Proceeding - New Subscription Services

The Copyright Royalty Board today announced that it is taking comments on a settlement to establish royalties for the use of sound recordings to be paid by companies that are planning to provide audio services to be delivered with satellite and cable programming.  In contrast to the "preexisting subscription services" who were in existence at the time of the adoption of the Digital Millennium Copyright Act in 1998, who recently reached a settlement agreeing to pay 7 to 7.5% of gross revenues for royalties (see our post, here), this settlement is with "New Subscription Services" which did not offer these kinds of subscription services in 1998.  This settlement does not apply to subscription services provided through the Internet.  The covered "new subscription services" have agreed to pay the greater of 15% of revenue or a per subscriber fee that will escalate over the 5 years that the agreement is in effect.  Given that these new services will be providing essentially the same service as the Preexisting Services, why the difference in rate?  Perhaps, it is because the difference in the law.

As we wrote earlier this week, the Preexisting Satellite Service pay royalties set based on the standards of Section 801(b) of the Copyright Act, which takes into account a number of factors including the interest of the public in getting access to copyrighted material, the relative contributions and financial risks of the parties in distributing the copyrighted material, the stability of the industry, and the right of the copyright holder to get a fair return on their intellectual property.  By contrast, the new subscription services who entered into the settlement just announced, who weren't around at the time of the drafting of the DMCA, use the "willing buyer, willing seller" standard also used for Internet radio.  And, because of the applicability of the willing buyer willing seller standard and the apparent uncertainties of the litigation process using it, these new services apparently decided to agree to a royalty double that of the preexisting services, even though they provide essentially the same service.

This settlement applies only to subscription services of a particular type.  This proceeding was begun when XM, Sirius and MTV all announced plans to offer audio services that are provided  as an add-on to a subscription to multichannel video providers (essentially cable and Direct Broadcast satellite television providers).  As these services cannot technologically track individual performances or listeners, they cannot pay according to the Internet radio decision.  Thus, a new proceeding was begun by the CRB to determine the rates to be paid by these services. 

Internet-based subscription services are not covered by this decision, but instead pay the royalties that apply to Internet radio services that were decided in March - if the subscription service is non-interactive (i.e. a listener cannot pick what songs he wants to hear) and otherwise meets the rules that apply under the statutory license (see our memo, here, for the details of those requirements).  Internet-based services that are interactive or otherwise don't meet the requirements of the statutory license must obtain clearances directly from the copyright owners, paying a privately negotiated rate. 

The fact that two settlements, one providing rates that are double the amount of the other when the only effective difference between the services was whether they were in existence at the time the governing statute was written fuels complaints about the arbitrary nature of the Copyright Royalty process.  While SoundExchange and other copyright holders have asked for "fairness" in seeking a performance royalty on broadcasters (who currently do not pay such a royalty), they benefit from the unfairness in circumstances such as this, when identical services pay royalties that are twice that paid by existing services.  And, to the extent that all services are deemed to be part of a single broad market for audio services, as some have argued, is there really justification for different treatment between subscription, nonsubscription, Internet and non-Internet based services?  When the rates that apply to satellite radio are decided in the next month, will we see these differences manifest themselves yet again?

These are not questions for the Copyright Royalty Board to decide - they only need to approve this agreement and are not charged with the broader responsibility of assessing the difference in policy between similar services.   Comments on this settlement are due on December 10.
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Posted on September 19, 2007 by David Oxenford

SoundExchange Announces 24 Agreements - But Not One a Settlement With Small Webcasters

SoundExchange yesterday announced that it had signed agreements with 24 small commercial webcasters.  Contrary to what many press reports have stated, this is not a settlement with Small Commercial Webcasters.  In truth, what was announced was that 24 small webcasters had signed on to the unilateral offer that SoundExchange made to small webcasters, about which we wrote here.  Essentially, this is the same offer that SoundExchange made in May, which was rejected by many independent webcasters as being insufficient to allow for the hoped for growth of  these companies, and insufficient to encourage investment in these companies.  These larger Small Commercial webcasters, including those that participated in the Copyright Royalty Board proceeding, rejected that offer and instead have sought to negotiate a settlement with SoundExchange that would meet their needs.  Instead of reaching a true settlement with these companies that had participated throughout the CRB proceeding and now have an appeal pending before the Court of Appeals, SoundExchange instead announced that their unilateral proposal was accepted by 24 unnamed webcasters.  Thus, rather than negotiating a settlement, if anything this announcement shows that SoundExchange has not been willing to negotiate - as it has not moved substantively off the proposal they announced over 4 months ago.

While 24 webcasters may have signed on, it would seem that these must be entities that don't expect to grow their revenues to $1.25 million, or grow audiences that reach the 5,000,000 tuning hour limit at which, under the SoundExchange-imposed agreement, the webcaster needs to start paying at the full CRB-imposed royalty rate.  Moreover, the agreements only cover music from SoundExchange members, excluding much independent music that many webcasters play.  For music from companies that are not SoundExchange members, a webcaster has to pay at full CRB rates.  For a small service playing major label music, the agreement may cover their needs, but for the larger companies playing less mainstream music, a different deal is needed. 

SoundExchange's press release announcing the agreements claimed that other small webcasters did not sign the agreement because aggregators would pay their royalties or because their  business models more appropriately fit with the CRB rates.  The press release does not mention that many webcasters did not sign because their business models include growing their businesses without going bankrupt, which does not seem to fit under the SoundExchange proposal.  If this is the only deal that  SoundExchange offers to small independent webcasters, SoundExchange will effectively do away with the independent webcaster who is serious about growing a business, but to whom a per performance royalty creates a situation where royalties exceed revenues. This would leave us with an industry essentially made up of hobbyists and big companies that subsidize their webcasting with their other lines of business - essentially crushing the hopes of those who saw the Internet as a way to build an independent radio business.

Small webcasters are not the only ones that are having settlement problems.  According to a letter released by NAB President David Rehr, after over 3 months of waiting, SoundExchange rejected a proposal from broadcasters to reach a compromise on their streaming royalties.  The Rehr letter claims that the rejection from SoundExchange, which is not public, did not seem to understand the broadcaster proposal.  SoundExchange President John Simson was also been quoted as saying that he expected to reach a settlement with NPR over their streaming royalties by the end of September.  With 12 days to go before the end of  the month, we will see whether this is really a deal come true, or another settlement without substance.
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