Posted on July 30, 2008 by David Oxenford

Senate Hearing: The Search for Compromise on Music Performance Royalties - Part One: The Issue of Standards

Tuesday, the Senate Judiciary Committee held a hearing on the sound recording performance royalty, titling the hearing  "Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms" (a webcast of which can be accessed here).  While the hearing was ostensibly to search for a way to come up with a uniform system of determining music royalties across various digital media platforms (though the broadcast analog performance royalty snuck into the discussion from time to time), in reality it appeared to be two things - a search for compromise and a demonstration of the dramatically different perspectives from which the recording industry and the digital radio industry approach the topic.  While one might assume that the dramatically different approaches would mean that no compromise was possible, there were a few areas of commonality that perhaps reflect the potential that, at some point, common ground can be found.  We will review the hearing's discussions in multiple parts - today dealing with the issue of the standard to be used in assessing royalties for the public performance of sound recordings and, in a subsequent post, we will summarize the differing world views of the participants and why the dramatically different ways that they see the business make for difficulty in compromise.

But first, a summary of the issues that were to be discussed at the hearing. Essentially, the hearing was to discuss two bills addressing different aspects of the royalty issues.  Senator Feinstein of California, who chaired the hearing, was looking for any common ground that might exist that would allow for movement on the Perform Act that she has introduced.  That act would attempt to do two things - (1) assure that a common standard was used to assess sound recording royalties in all digital media and (2) adopt standards that would require digital services to use some form of security or encryption that would make "stream ripping" more difficult.  The first goal of her bill, looking for a common standard, was an attempt to avoid some of the problems that have been evident in the royalty proceedings that have thus far been held before the Copyright Royalty Board which have resulted in dramatically different royalties - ranging from 6 to 8% of revenue for satellite radio companies and a similar royalty for digital cable music services (see our posts on those rates here and here) derived under an "801(b) standard" (after section 801b of the Copyright Act) , and the royalty for Internet radio that has been estimated to range between 75% and 300% of gross revenues of those services, derived from a "willing buyer, willing seller" royalty standard.  The Perform Act would subject all to a single standard - and it currently proposes a new standard - "fair market value."

The second bill that was being discussed was that of Senators Brownback and Wyden (who were both at the hearing, the former asking questions and the later as a witness) - the Internet Radio Equality Act (about which we have written here and here) which would lower Internet radio royalties to 7.5% of revenue and adopt the 801b standard for future proceedings.  As the bills propose different standards for music royalties, one area of disagreement was immediately evident.  Yet, as Senator Feinstein pushed the parties to find a compromise, a glimmer of hope actually appeared.  

The record company representative on the panel, Jeffery Harleston of Geffen Records, held firm for the "fair market value standard," arguing that if artists and labels are forced to license their product through a compulsory license, it is only "fair" that they receive the value that their work would have brought had they been able to license it in the marketplace - so a "fair market value" rate was appropriate to provide that compensation.  While the issue was not raised in the hearing, one wonders why, if the record companies believe that this standard is the only "fair" one when a compulsory license is involved, they don't advocate a change in Section 115 of the Act - the compulsory license that record companies rely on to get rights to reproduce the composition of a song when making a recording of that song.  Record companies and artists do not need to negotiate with music publishers for the rights to use a composition, but instead they can get that right through a compulsory license - and the royalty to be paid by the record companies under that license is set using the 801b standard.  So if record companies and artists use 801b when it benefits them, shouldn't the same standard be used when their product is the one subject to the license?

On the other hand, Joe Kennedy of digital music service Pandora, testified that the 801b standard, as used for all other royalties under the Copyright Act, should also be applied to the performance royalty in a sound recording.  Kennedy argued that, given the difficulty of the application of the "willing buyer, willing seller" standard to Internet radio (stating that the royalty currently takes 75% of Pandora's gross revenues and, if not changed, will definitely force the company out of business as the royalty increases over the next two years), it seemed difficult to justify the adoption of yet another new standard - "fair market value" - which has never been used in the past.  What Kennedy did not specifically state, but which seems evident from the fact that the recording industry is supporting this new standard, is that this new standard is likely to be interpreted much like the "willing buyer, willing seller" standard which already purports to assess the economic value of  music in an arms-length negotiation in an open marketplace.  That would seemingly be the same thing as "fair market value" of the music.

One point that was lost in the discussion was the meaning of the 801b standard, with some of the Senators in attendance admitting that they did not understand that standard and how it was applied.  What is the 801b standard?  The standard looks at a number of factors in assessing what the proper royalty should be.  Those factors are:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her 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.

As is evident, those factors not only look at the economic value of the use of the work, but also assess the public interest in the distribution of artistic and literary works and the impact that the royalty will have on the industry that has to pay it.  Just as the impact of the Section 115 royalty would have on the record companies must be assessed in looking at that royalty, the impact on the digital music businesses would have to be assessed in determining a rate decided under this standard.  In using the 801b factors in assessing the satellite radio royalties, for instance, the CRB reduced a willing buyer willing seller determination of 14% to a rate climbing from 6% to 8% of revenues over a 5 year period, justifying the reduction on the impact that the royalty would have on the business of the satellite radio companies if it were not so adjusted (see our previous post for more details). 

So - where was that glimmer of hope?  As Senator Feinstein pushed the parties on the panel to find a compromise standard so that the legislation could be moved this session, John Simson, the President of SoundExchange (the collective which collects the royalties and distributes them to artists and labels), actually broke ranks and stated that he did not rule out the use of the 801b standard.  However, he said that he thought that the standard would need to be tweaked to reflect current marketplace realities.  His specific example of where that tweaking could occur was in assessing the "substitution" issue - whether the use of the copyrighted work by the digital service would be a substitute for its purchase, thereby diminishing the income that the artist might receive from the use of the sound recording.  Of course, it would seem that the existing factors already take that into account in assessing the "risks" to various parties under consideration (C) above, the impact on the structure of the businesses that are involved in the proceeding under consideration (D), and the fair return under clause (B).

The purpose of the Copyright laws, under the Constitution, is "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."  Many commentators (see this article, for instance) state that the meaning of "science" at the time of the Constitution was much broader than it is today meaning, more generally, "knowledge and learning."  While creators are given limited exclusive rights, those rights are for purposes of promoting general knowledge within the community - not exclusively for the protection of the copyright holders.  If this interpretation is the correct one, then it seems like the Section 801b factors are exactly what is meant by the purpose of Copyright - insuring a fair return, but also allowing for the reasonable distribution of the copyrighted material so as to benefit the knowledge of the general population.  This, of course, leads into the discussion of the differing views of the purpose of the statute and of the state of the industry - issues both discussed in detail at the hearing - and to be covered in subsequent posts on this blog.

 
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Posted on June 1, 2008 by David Oxenford

Does the Copyright Royalty Board Exist - Internet Radio Appeal Proceeds and New Issues Arise

The appeals of last year's Copyright Royalty Board decision on the royalties paid for the use of sound recordings by Internet radio stations continue on, and one recent filing raises interesting questions of whether or not the CRB was properly appointed.  Last week, the Department of Justice, which represents the CRB in defending its decision in the Court of Appeals, filed its brief in opposition to the briefs of the webcasters, which we summarized here.  The DOJ brief essentially argued that the webcasters' briefs were insufficient to satisfy the requirement for a successful appeal - that the CRB decision was arbitrary and capricious or otherwise contrary to law.  Essentially, a Court need not revisit the decision and substitute its judgment as to whether the it believes that the decision was correct, but instead, to overturn a decision, the Court must find that the CRB (the expert agency) either violated the law or could not, on the fact, have logically come up with the decision that it did.  Thus, the DOJ brief made arguments that there was enough factual evidence for the CRB to decide in the way that it did, and made arguments that the webcasters had not offered contrary arguments or evidence on certain points during the CRB proceeding and were therefore barred from raising those arguments now.  Just before the DOJ brief was filed, another pleading raised the fundamental question of whether the Copyright Royalty Board was properly appointed and, if not, whether it has the constitutional authority to decide the cases that it has been considering.

This new argument about the CRB’s authority comes in a request filed with the Court of Appeals by Royalty Logic, a party to the CRB proceeding.  Royalty Logic is not a webcaster, but instead is seeking to be an alternative collection agency to SoundExchange.  Its pleading seeks supplemental briefing on the question of whether the Copyright Royalty Judges are “inferior officers” of the Federal government who, under the Constitution, can only be appointed by the President, by the Courts or by the head of a Department of the government. In a recent Supreme Court case, the Court found that certain tax court judges, who were appointed by a chief judge and not by a cabinet-level officer (the head of a “department”) violated this Appointments Clause of the Constitution. There has been much press coverage in the past few weeks as to whether this decision also applies to patent judges, and whether it could invalidate hundreds of patents approved by these judges (see the NY Times article on this issue, and listen to an NPR piece about the controversy). Royalty Logic contends that the same logic should apply to the appointment of the Copyright Royalty Judges who make up the CRB.  The Copyright Royalty Judges are appointed by the Librarian of Congress.  One question would be whether the Librarian is the equivalent to the head of a department though, technically, the Library of Congress is not even in the Executive Branch of government, but instead part of Congress.  In any event, Royalty Logic notes that the Copyright Royalty Tribunal, a predecessor agency done away with during the Clinton administration as part of their "Reinventing Government" program (one of the few agencies that was "reinvented"), had members appointed by the President.

In an order released last week, the Court permitted Royalty Logic to brief the issue, and gave the DOJ the right to respond.  However, the Court specifically did not make any determination as to whether it will consider the issue, as both the DOJ and SoundExchange have opposed the Royalty Logic motion as having been filed too late to be considered in this proceeding.

Obviously, if the Court does decide to hear the issue, and does decide that the CRB was not properly appointed, the results may fundamentally change the argument  - potentially requiring the re-hearing of the recently decided CRB cases or a legislative solution to provide a new process or even to set the rates.  And if Congress gets involved, who knows what else could happen?

In fact, recently, in connection with an unrelated bill in Congress on a matter having nothing to do with music royalties, The Internet Radio Equality Act, about which we wrote here, resurfaced as a potential rider. Eventually, as it threatened to derail the bill, the rider was withdrawn.  The new CRB royalties have now been effective for almost eleven months (see our reminder, here). While the recent action on IREA was predictably been greeted with skepticism by SoundExchange, it should not come as a shock that the bill is being revived as there have been no announced mutually-negotiated settlements of the royalty dispute over the past year, even though there have been discussions, and even though most Internet radio companies have claimed that there businesses are in jeopardy should these royalties continue to be in effect, and as they continue to substantially increase over the next two years. 

Unless there is legislative intervention, the appeal will go on.  Not only will the briefs be filed on the question of the CRB's status, but SoundExchange will also be filing a brief in support of the CRB decision later this month.  The webcasters will respond in July, and oral arguments will be held at a date to be set later in the year.  A decision is probably on tap for 2009 - just in time for the commencement of the next proceeding for royalties for 2011-2015.
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Posted on August 29, 2007 by David Oxenford

Congress to Return - Will Internet Radio Royalties Be on Its Agenda

With summer and the August Congressional recess drawing to a close, will consideration of the Internet Radio controversy over royalties be on the agenda when the September legislative session begins?  In recent weeks, there has been a settlement between the Digital Media Association (DiMA), representing the largest webcasters, and SoundExchange on the issue of the minimum royalty fee - agreeing that the $500 per channel minimum fee imposed by the Copyright Royalty Board ("CRB"), which might have by itself driven many webcasters like Pandora or Live 365 out of business had it not been resolved, would be capped at $50,000.  SoundExchange has also extended a unilateral offer to small commercial webcasters allowing them to continue to pay a percentage of revenue royalty of 10-12% for use of the music produced by SoundExchange members - but limiting the offer to webcasters with under $1.2 million in annual revenue, and requiring that any webcaster with over 5,000,000 tuning hours in any month to pay at the CRB rates for all listening in excess of that limit.  We wrote about that deal, and some of the concerns that larger small webcasters have, here.  These adjustments to the CRB rates may resolve some issues for some webcasters, but they leave open many other issues as set forth below - but will these tweaks to the CRB decision be enough to take the Congressional heat, in the form of the Internet Radio Equality Act, off of SoundExchange?

What issues remain?  There are still many.  These include:

  • The issues of the larger independent webcasters who may currently fit under the Small Webcaster Settlement ("SWSA") Act caps - but may well go over those caps before 2010, and could not afford to pay royalties at the CRB-mandated rates if they exceed the SWSA limits.
  • The CRB mandated rates are themselves problematic for virtually all commercial webcasters - and DiMA made clear that the settlement of the minimum fee issue was the first step in resolving the issues that preclude a vibrant webcasting industry under the CRB rates (see the DiMA press release on the settlement, here)
  • Noncommercial webcasters have not announced any settlement with SoundExchange - even though many expressed concerns over the fees for large noncommercial webcasters  which will, by the end of the royalty period, increase about 9 times over the rates that they had been paying (and more for larger NPR affiliates), and over recordkeeping and reporting requirements.
  • Broadcasters who stream their over-the-air signal over the Internet have not been involved in any of the tweaks to the CRB decision, nor has SoundExchange responded to the NAB's settlement offer made in June (according to the clock on the NAB homepage, the NAB settlement offer has been outstanding without response for 84 days at the time this post is being written). 
And what avenues remain open to resolve these issues?  In addition to the potential for renewed Congressional action in September, the webcasters are still pursuing their appeal of the decision in the US Court of Appeals for the District of Columbia (while the stay of the effective date of the CRB decision was denied by the Court, that does not affect the underlying appeal - see our post, here, for details) , and most of the webcasting groups are still in settlement discussions with SoundExchange over possible settlements.  We will see if any of these avenues lead to resolution of some or all of the remaining issues.
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Posted on August 22, 2007 by David Oxenford

Another Offer From SoundExchange - Still Not a Solution

Yesterday, SoundExchange sent to many small webcasters an agreement that would allow many to continue to operate under the terms of the Small Webcaster Settlement Act as crafted back in 2002, with modifications that would limit the size of the audience that would be covered by the percentage of revenue royalties that a small webcaster would pay. A press release from SoundExchange about the offer can be found on their website by clicking on the "News" tab.  This is a unilateral offer by SoundExchange, and does not reflect an agreement with the Small Commercial Webcasters (the “SCWs”) who participated in the Copyright Royalty Board proceeding to set the rates for 2006-2010 and who are currently appealing the CRB decision to the US Court of Appeals (see our notes on the appeal, here). The SoundExchange offer, while it may suffice for some small operators who do not expect their businesses to grow beyond the limits set out in the SWSA (and who only play music from SoundExchange artists - see the limitations described below), still does not address many of the major issues that the SCWs raised when SoundExchange first made a similar proposal in May, and should not be viewed by Congress or the public as a resolution of the controversy over the webcasting royalties set out by the CRB decision (see our summary of the CRB decision here).

The proposal of SoundExchange simply turns their offer made in May, summarized here, into a formal proposal.  It does not address the criticisms leveled against the offer when first made in May, that the monetary limits on a small webcaster do not permit small webcasters to grow their businesses – artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies. The provisions of the Small Webcasters Settlement Act were appropriate in 2002 when they were adopted to cover streaming for the period from 1998 through 2005, as the small webcasters were just beginning to grow their businesses in a period when streaming technologies were still new to the public and when these companies were still exploring ways to make money from their operations. Now that the public has begun to use streaming technologies on a regular basis, these companies are looking to grow their businesses into real businesses that can be competitive in the vastly expanding media marketplace. The rates and terms proposed by SoundExchange simply do not permit that to occur. 

To receive investment necessary to grow, the SCWs cannot be limited to $1.25 million in revenue. No investor will invest in a business which, when it reaches an artificial revenue threshold, essentially is forced to go bankrupt – as all projections show that the CRB royalties would exceed total revenue of a SCW even if it makes more than $1.25 million in revenue. 

The new restriction added in this offer by SoundExchange, one that requires a small webcaster to pay at the CRB rate for all listening that exceeds 5,000,000 aggregate monthly tuning hours, would already have some SCWs paying substantial sums in addition to the percentage of revenue royalty. And, at the growth rates projected for some SCWs, the amount necessary to pay such overages could exceed the $1.25 million revenue threshold – exceeding the amount of revenue that a small webcaster is allowed to earn under the SWSA provisions.

Even more importantly, it must be noted that the offer by SoundExchange does not allow a webcaster to play all music for their 10-12% of revenue as did the Small Webcaster Settlement Act – it only allows them to play music of SoundExchange members. For all music from artists who are not SoundExchange members, the full CRB-determined royalty would have to be paid. Thus, a webcaster will have to assess its music choices, and play only the songs released by SoundExchange members (principally the major labels and some independent labels) rather than the diversity of music from small labels and independent artists, the kinds of music that the statutory royalty was supposed to make easier to play through the “one-stop shop” that a statutory license provides to an Internet radio service.

SoundExchange has informally indicated that it will continue discussions as to the concerns of the SCWs.  The only way to resolve these issues is through meaningful negotiations, or through legislation like that proposed in the Internet Radio Equality Act. Unilateral proposals simply don’t address all the issues that have caused so much outrage over the CRB decision. In order for these independent companies to build profitable businesses that will promote music and be able to pay reasonable royalties, something more than what SoundExchange has offered must be available.
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Posted on June 26, 2007 by David Oxenford

A Day of Silence, A Motion for Stay, and A Congressional Hearing - As the Internet Radio Clock Ticks Down

As the clock ticks down to the July 15 effective date of the royalty rates for Internet Radio as determined by the Copyright Royalty Board, webcasters held a Day of Silence today, June 26, to demonstrate to listeners what may well happen if the rates go into effect, and to galvanize their listeners to ask Congress for relief. With the Day of Silence bringing publicity to the Congressional efforts to put the webcasting royalties on hold and to change the standard applied by the Copyright Royalty Board so that it is not focused completely on a hypothetical "willing buyer, willing seller" model, it's worth looking at some of the other issues that have arisen in the royalty battle in the last few days - including further pleadings filed in connection with the Motion for Stay currently pending in the US Court of Appeals, and the Congressional hearing that will occur on Thursday. 

As we've written before, there is currently pending a Motion for Stay of the CRB decision which was submitted jointly by the large and small webcasters and NPR.  Last week, the Department of Justice, acting on behalf of the Copyright Royalty Board to defend the royalty decision, and SoundExchange, each filed oppositions to the Motion for Stay. Each raised many of the same arguments. First, they argued that the large webcasters had procedurally forfeited their rights to challenge the question of the $500 per channel minimum fee by not raising their objection early enough in the CRB proceeding. The DOJ also argued that the damage from the minimum fee was speculative as there was no way to know how that minimum fee would be interpreted. The DOJ contended that, as it was unclear that SoundExchange would prevail on any claim that those Internet Radio services that produced a unique stream for each listener would have to pay $500 for each such stream, the question might end up in a lawsuit – but wouldn’t inevitably lead to the irreparable harm that is necessary for a stay to be issued.

As to the Small Webcasters, the DOJ seemed to acknowledge that irreparable harm would occur if the stay wasn’t granted as the royalties would exceed the revenues of these webcasters, though SoundExchange seemed to take the position that if some webcasters went out of business, that might not be irreparable harm as the loss of some of these webcasters would not harm the overall industry. SoundExchange also contended that, if the appeal were ultimately successful, these webcasters could get a refund of any fees that were higher than a rate that was eventually decided (seemingly overlooking the fact that these webcasters could not pay in the interim). Finally, the parties argued that the Small Webcasters had not addressed the reasons that the CRB had given for rejecting the percentage of revenue royalty that they had requested. Interestingly, the DOJ concluded its brief by suggesting that if any stay was granted, it should be limited to small webcasters who were paying royalties under the Small Webcaster Settlement Act.

Finally, the oppositions argued that NPR had not shown that it was arbitrary for the CRB to determine that they should pay royalties at the commercial rate (if they streamed over 158,000 aggregate tuning hours in a month - the amount that noncommercial streaming companies can stream for the $500 minimum fee), and that NPR had not demonstrated that their members could not track the on-line listnership of their stations, as had been claimed in the Stay request.

On Friday, the webcasters filed their Reply to these Oppositions. The webcasters, of course, contended that the oppositions had misread the evidence. The large webcasters pointed to places in the record where they had argued with the minimum fee proposal of SoundExchange, and also pointed to services like those provided by Yahoo!, Pandora, and Live 365 to show the irreparable harm that would occur if the stay was not granted. The Small Webcasters took issue with SoundExchange’s position that their demise did not constitute irreparable harm, and pointed out that their proposal to base a percentage of revenue royalty on their entire revenue addressed all of the CRB’s reasons why a percentage of revenue royalty was not proper (i.e. there was no definitional question of what revenue was subject to the royalty, and the definition of a small webcaster was easy – it was any entity willing to pay based on a percentage of their total revenue). NPR also pointed to evidence that it alleged refuted the contentions of the parties defending the CRB decision.

With the filing of the Reply, the Motion for Stay is now ripe for judicial action.  There is no time frame in which the Court must act, though it is certainly hoped that the decision is released before the July 15 deadline so that services know where they stand before the new royalties have to be paid. 

 In addition to the appeal, Congressional action on Internet radio continues.  On Thursday, the Small Business Committee of the House of Representatives holds a hearing on the effect of the CRB royalties on small businesses.  Both webcasters and musicians will be testifying.  The witness list for the hearing can be found here.

And finally, there was today's Day of Silence to drum up support for the Internet Radio Equality Act (see our summary here).  While most webcasters, including some of the largest webcasters in the country (Yahoo! and Pandora) are participating, as well as most NPR affiliates, press reports indicate that many commercial broadcasters (with the notable exception of Greater Media and Saga) did not observe the day. While broadcasters are about to be faced with a push for similar royalties for their over-the-air broadcasts (see our story here), many seemingly have yet to recognize the threat that these royalties present to their Internet operations. Throughout the royalty proceeding, only a few broadcast groups actively participated in the proceeding (Clear Channel, Salem, Bonneville, Susquehanna CBS for a portion of the proceeding).  Many broadcasters remained on the sidelines, and continue to be ambivalent to their support of efforts to overturn the decision. While the NAB has now, belatedly, joined in the fight by seeking intervention in the pending court appeal, the failure of radio broadcasters to join in the day of silence may indicate a continuing ambivalence on the part of some as to whether Internet radio is a threat or an opportunity, so many remain unsure what to do.  A post in Mark Ramsey's hear 2.0 blog, here, discussing his take on the ambivalence of broadcasters in this debate is worth reading.

With all these efforts and continuing settlement discussions ongoing, one hopes that today's Day of Silence is not a precursor of things to come.
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Posted on May 1, 2007 by David Oxenford

Final Decision of the CRB Issued - and Royalty Due Date is Postponed

On the same day that many webcasters were on Capitol Hill lobbying for the Internet Radio Equality Act, the Copyright Royalty Board issued its Final Determination of Rates and Terms today, and it was published in the Federal Register.  That action starts the clock ticking on appeals which must now be filed in 30 days.  In the Final Determination, the Board included a few revisions in its initial decision, reflecting the issues that it addressed in response to the Rehearing motions - including provisions adding a transitional period of two years during which webcasters can pay using an Aggregate Tuning Hour formula instead of paying based on each performance.  Surprisingly, the Board also amended the rules that it adopted governing the timing of the first payment under the new royalty rate, making the first payment due 45 days from the end of the month during which the Final Determination was issued.  As the decision was issued today, May 1, that would delay the due date for the first payments under the new royalties until July 15.

The statute governing the Copyright Royalty Board allowed the Library of Congress to review the CRB decision to determine if the Librarian (through the Copyright Office) saw any obvious errors of law.  Apparently, the Librarian found none (though that does not mean that there are not issues that can be raised on appeal), leading to the publication of the decision in the Federal Register.  Appeals are due 30 days after that publication.  On that date, parties file a Notice of Appeal, which provides notice to the Court of Appeals that parties believe that the decision was in error.  After those notices are filed, the Court will set briefing schedules and oral arguments.  The appeal process that can take a year or more before a decision is rendered.

Our previous coverage of the CRB proceeding can be found, here.

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Posted on April 26, 2007 by David Oxenford

Internet Radio Equality Act Introduced to Nullify Copyright Royalty Board Decision

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). 

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