Posted on July 31, 2009 by David Oxenford

SoundExchange Announces 4 More Settlements Under Webcaster Settlement Act - Sirius, College and Religious Noncommercial Broadcasters and a Group to be Named Later

SoundExchange has posted on its website this afternoon four press releases announcing new settlements of amounts due for Internet radio music royalties.  These settlements were negotiated under the provisions of the Webcaster Settlement Act of 2009.  The announcement lists settlements with two noncommercial groups representing College Broadcasters and noncommercial religious broadcasters, as well as a deal with Sirius XM for their streaming of music.  The fourth deal is with a group to be named later - a little mystery that sounds like something out of a trade of baseball players done right at the trading deadline.  In effect, that is the case here, as yesterday was the final date for deals to be done under the terms of the WSA.  These deals join the Pureplay Webcasters settlement announced earlier this month, as well as the deals with the Corporation for Public Broadcasting for NPR affiliates, the NAB for commercial broadcasters, and with microcasters done in February under the terms of the Webcasters Settlement Act of 2008 (links to our description of these deals can be found here).

The press releases do not release detailed terms. For Sirius, the release states that the parties agreed to a per performance rate which is not specified, covering webcasting royalties through 2015.  These rates do not apply to Sirius performances that are done by satellite, which are covered by the Copyright Royalty Board rates recently upheld by the US Court of Appeals.  Instead, these rates only cover the streaming of Sirius programming done over the Internet or to mobile devices using Internet technology.  The Collegiate Broadcasters agreed to a rate that provided the flat $500 fee for the first 159,140 aggregate tuning hours a month set by the CRB decision, and then per performance fees at the NAB rates for all streaming above that amount.  The religious broadcasters deal is less defined, discussing a per performance rate, but not providing any more details of the agreement.  For both noncommercial groups, there are references to reduced recordkeeping requirements for some webcasters, but again, those have not yet been detailed.

We will provide more details about these agreements when they are available, and we'll tell you about the fourth deal once that party is revealed.   With these settlements, SoundExchange has announced deals with many, but not all, of the parties who were to participate in the proceeding to determine Internet radio royalty rates for 2011-2015.  No deals have been announced with several large webcasters who are not "pureplays", i.e. they have substantial business outside of noninteractive webcasting.  NPR also filed to participate in the new proceeding, as their announced deal only covers the period from 2006-2010.  Whether any of these webcasters are the the "group to be named later" remains to be seen.

 
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Posted on July 18, 2009 by David Oxenford

Pureplay Webcasters Settlement Agreement Published In Federal Register - 30 Days for Webcasters to Make a Choice

The Pureplay Webcasters settlement agreement, which we summarized here, was published in the Federal Register on Friday, starting the 30 day clock running for the election of the deal by existing webcasters.  While this deal offers better per performance rates to large webcasters than offered by the rates established by the Copyright Royalty Board, and higher permissible listening levels to Small Commercial Pureplay webcasters than allowed under the Microcaster deal, this option still is not for everyone.  For larger webcasters, there is a minimum fee of 25% of total revenue, so companies with multiple lines of business will not want to opt into the deal.  For smaller webcasters, the fees are higher than under the Microcaster deal, including a $25,000 minimum yearly fee, and there are per performance rates that are charged when the webcaster offers services that are "syndicated," i.e. played through a website other than that of the webcaster itself.  So electing this deal is right only for larger "small pureplay" webcasters who have revenues over $250,000 (where they will be paying royalties in excess of the $25,000 minimum fee under any deal) and those entities nearing the audience caps of the Microcaster deal.  Nevertheless, for those webcasters who fit within the constraints of the deal, it offers benefits over the other existing options.  The opt-in date set by the deal is August 17, 2009.  The forms to opt into the the Small Pureplay webcasters agreement are here.  The forms for larger Pureplay webcasters are here. 

Note that this is just one of many options available to webcasters, each tailored to webcasters of specific types.  Noncommercial webcasters associated with NPR or the Corporation for Public Broadcasting have their own deal, where essentially CPB pays the royalties.  See our description of this deal, here.  Streaming done by broadcasters, who would not want to take the "pureplay" deal as their broadcast revenues would be subject to the royalties, have their own settlement agreement, which we described here and here, setting out per performance rates different than those arrived at by the CRB.  Small commercial webcasters can elect the "Microcaster" deal, which we described here.  And for those entities that don't fit under any of these categories, they will have to pay the CRB rates, which we described here and here.  The Radio and Internet Newsletter recently ran a good, basic summary of these alternatives, here.  Note that there still is another two week period where, under the Webcaster Settlement Act of 2009, agreements can be reached with SoundExchange by other webcaster groups to potentially pay rates that are different from any of those agreed to so far.

What groups remain who are not satisfied by the existing deals that offer some discount off of the CRB rates?  Noncommercial groups not affiliated with NPR, including religious broadcasters, are bound by the CRB rates, which give these webcasters up to 159,140 monthly aggregate tuning hours for $500 per year, but they have to pay the full commercial rates if they have larger audiences - rates that could end up being 10 times higher than those paid under the Small Webcaster Settlement Act provisions which expired in 2006.  Larger webcasters, including those that are part of portal sites or other sites that offer far more than webcasting, or those that offer an aggregator service providing hosting, bandwidth and other services to very small webcasters, also do not easily fit into any of the existing categories, as they will end up paying royalties on revenues not affiliated with their webcasting service. 

If no deal is reached by these groups, the CRB marches on with its proceeding to determine rates for 2011 to 2015.  Direct case exhibits for these webcasters are due at the end of September so, if no deals are reached, there will be more litigation next year to determine what the rates will be for webcasters not covered by any of these deals, or for ones who decide to opt out at a later date. 
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Posted on July 7, 2009 by David Oxenford

Pureplay Webcasters and SoundExchange Enter Into Deal Under Webcaster Settlement Act to Offer Internet Radio Royalty Rate Alternative for 2006-2015

A settlement under the Webcaster Settlement Act of 2009 was signed today by SoundExchange and a group of webcasters that I represented in the Copyright Royalty Board proceeding to determine the royalty rates for the use of sound recordings by Internet Radio stations for the period from 2006-2010. This agreement is for “pureplay” webcasters, i.e. those that are willing to include their entire gross revenue in a percentage of revenue calculation to determine their royalties. As permitted under the terms of the WSA, this agreement not only reaches back to set rates different, and substantially lower, than those that were arrived at by the CRB for the period from 2006-2010, but also resolves the rates for 2011-2015, relieving webcasters who join the deal from having to litigate another CRB proceeding to set the rates for those years. 

While no deal arrived at under the circumstances in which these webcasters found themselves (a CRB decision that did not set any percentage of revenue royalty rate and would seemingly put these webcasters out of business, the prospect of a new CRB proceeding that would costs significant sums to litigate with no guarantee of success, and with the only other current option being the “microcasters” deal unilaterally advanced by SoundExchange that severely limited the amount of streaming that a webcaster could do and imposed significant “recapture provisions” in the event of a sale of the webcaster's business) may not be ideal, the settlement does provide significant benefits over any other existing option for any webcaster who qualifies under its provisions. These deal points are set out below.

First, the deal provides for different treatment for large and small pureplay webcasters. For the small pureplay webcasters, the ones with less than $1.25 million in revenue (the number that has seemingly become a magic number included in the microcasters deal as well as the proposed broadcast performance royalty to distinguish between large and small users of sound recordings), a webcaster who agrees to pay slightly higher royalties in 2009-2014 than required under the microcaster deal (12% on the first $250,000 of revenue and 14%, as opposed to 10-12%), gets the following benefits:

 

  • An aggregate tuning hour limit of 8 million monthly ATH for 2009, 8.5 million for 2010, 9 million for 2011, and 10 million for 2012-2014, instead of the 5 million monthly ATH under the microcaster deal
  • A recapture provision that requires that the webcaster, upon sale of the webcasting business to an entity that would not qualify as a small pureplay webcaster, repay the difference between what he would have owed under this deal had he not elected to be a “small entity”, but the recapture is limited to 4 years, not a potential 10 years as required by the microcaster deal. In addition, under the terms of this deal, the webcaster has the option of paying 30% of the consideration from the sale to SoundExchange in lieu of the per performance recapture, a percentage which very well may be smaller than the per performance calculation. Under this deal, if the webcaster pays under the "per performance" option outlined below for one full year, no recapture requirement exists. This recapture provision is to avoid the LastFM issue that SoundExchange has expressed concern about in public statements (see our post here).
  • A transition period, for a small pureplay webcaster who grows its revenues beyond $1.25 million, that allows it to continue to pay at a percentage of revenue royalty for the remainder of the year in which it exceeds $1.25 million, and the entire following year. The webcaster would have to pay 25% of its revenues to SoundExchange, but would not have to make per performance payments for as much as two years, if it times its transition beyond the $1.25 million threshold properly. This is in contrast to the 6 month transition under the microcaster deal.
  • This deal gives the webcaster the ability to delay the transition to the per performance royalty, if its revenues go over $1.25 million, then drop back below that number. Only after a webcaster has revenues in excess of $1.25 million for 2 calendar years will it be required to pay at the per performance rates.

Webcasters who elect this deal must do so on a yearly basis. As the deal offers no small pureplay webcaster percentage of revenue option for 2015, this ability to opt out is important for the smaller webcaster who has not reached the $1.25 million cap by that time, as they can opt for the microcaster deal for 2015 if they cannot afford the pureplay per performance royalties set forth below in 2015. Or, if another settlement should be reached, or the CRB should set lower rates for 2011-2015, a webcaster could opt out of this deal and choose any better arrangement that comes along at the end of the calendar year in which it is operating.

 

The small pureplay deal also has minimum fees. Webcasters have a minimum fee of the greater of  $25,000 or 7% of expenses.  The 7% of expenses is also required under the microcaster deal. As it will be mostly larger “small” webcasters, ones with concerns about the $1.25 million dollar cap or the 5 million aggregate tuning hour limit under the microcaster deal, who elect this deal, most will have revenues in excess of $250,000, and thus would owe the $25,000 minimum fee in any event.  That minimum can be paid in quarterly installments.

 

For larger pureplay webcasters, the deal offers a substantial advantage over the CRB rates. The rates for large pureplay webcasters are the greater of 25% of revenue or a per performance royalty that is far lower than that required by the CRB – even through 2015. As set forth below, the per performance royalty for 2015 will be the same rate that webcasters were charged for 2008 under the CRB decision – and far less than that agreed to by the broadcasters in their settlement with SoundExchange. As most large webcasters claimed that the CRB-determined royalties would total 75% or more of their revenues, this new rate represents a substantial savings. The pureplay per performance royalties (with a per ATH royalty rate for 2006-2008) are as follows:

 

Year                 Per Performance      Per Aggregate Tuning Hour

2006                $0.00080                     1.2¢

2007                $0.00084                     1.26¢

2008                $0.00088                     1.32¢

2009                $0.00093

2010                $0.00097

2011                $0.00102

2012                $0.00110

2013                $0.00120

2014                $0.00130

2015                $0.00140

 

Either large or small pureplay webcasters, who offer a white label or syndicated service to some third party, where the service is offered to the public under the name of the third party and not the webcaster, or for those who offer a subscription service, will have to pay at higher rates. Presumably, the theory is that such services do not make their revenues from advertising, but instead from payments by third parties or from the subscriptions by the public, and can factor in these higher costs in the amounts that they charge for such services. Essentially, royalties for those services would be paid at the same per performance rate as the broadcasters are currently paying under their settlement with SoundExchange (see our post here on those rates).

 

In sum, while far from a perfect deal that webcasters would have selected on their own, this deal does provide another option for webcasters with substantial advantages in many area to those that qualify for treatment under this deal. While no doubt the fight will continue over the standards that should be used to determine royalties in future proceedings, so that parties don’t need to enter into these after-the-fact settlements when one party has a substantial bargaining advantage with a favorable decision already in hand, SoundExchange should be credited for agreeing to reach this deal when there was no compulsion that they do so. This deal presents certainty for many webcasters – eliminating further litigation and negotiation costs while setting rates at which a class of webcasters can go on with their operations. 
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Posted on June 18, 2009 by David Oxenford

Webcaster Settlement Act Approved By Senate - 30 Days For Internet Radio Royalty Settlements After the President's Signature

The US Senate yesterday passed the Webcaster Settlement Act of 2009, following House passage 10 days ago.  Once the Act receives the signature of President Obama, the law will go into effect, and give webcasting groups and the recording industry 30 days to reach a settlement (or settlements) on Internet radio music royalties for the use of sound recordings.  While the parties did not need the Act to reach settlements for the period of 2011-2015, which is subject to a new royalty proceeding which is now in its early stages, the WSA extension was necessary to cover royalties for the period of 2006-2010, which are covered by the Copyright Royalty Board decision released in 2007.  Without this extension, the rates in effect under the CRB decision (or the rates agreed to under settlements with broadcasters, certain very small webcasters and NPR, and announced earlier this year as authorized by the Webcaster Settlement Act of 2008 ) would have to be paid for that period absent a successful outcome of the currently pending appeal. 

Several groups which participated in the last CRB proceeding have yet to reach settlements, including the "Small Commercial Webcasters" (the independent pureplay webcasting companies), the large webcasters associated with the Digital Media Association, and noncommercial webcasting groups not affiliated with NPR.  In the only statement made on the floor of the Senate before the unanimous approval of the Act, Senator Leahy, the Chair of the Judiciary Committee, cited the controversy over the rates set by the CRB decision, and stated that it was preferable that the parties involved in the case reach an agreement rather than having new rates imposed by the government (see his statement here).  With the passage of this act, the parties now have that opportunity to reach a settlement of the royalties reaching back to 2006. We will see what settlements are announced during the upcoming 30 day period.

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Posted on January 15, 2009 by David Oxenford

SoundExchange and CPB Reach a Settlement on Webcasting Royalties - More Deals to Come?

The Corporation for Public Broadcasting and SoundExchange have reached an agreement on the Internet radio royalty rates applicable to stations funded by CPB.  While the actual agreement has not yet been made public, a summary has been released.  The deal will cover 450 public radio webcasters including CPB supported stations, NPR, NPR members, National Federation of Community Broadcasters members, American Public Media, the Public Radio Exchange, and Public Radio International stations.  All are covered by a flat fee payment of $1.85 million - apparently covering the full 5 years of the current royalty period, 2006-2010.  This deal is permitted as a result of the Webcaster Settlement Act (about which we wrote here), and will substitute for the rates decided by the Copyright Royalty Board back in 2007.

 The deal also requires that NPR drop its appeal of the CRB's 2007 decision which is currently pending before the US Court of Appeals in Washington DC (see summary here and here), though that appeal will continue on issues raised by the other parties to the case unless they, too, reach a settlement.  CPB is also required to report to SoundExchange on the music used by its members.  In some reports, the deal is described as being based on "consumption" of music, and implies that, if music use by covered stations increases, then the royalties will increase.  It is not clear if this increase means that there will be an adjustment to the one time payment made by CPB, or if the increase will simply lead to adjustments in future royalty periods. 

It is also unclear why the agreement covers only the current royalty period, and not the period from 2011 through the end of 2015, which was permitted by the Webcaster Settlement Act.  As we've written, the proceeding to determine the royalties for the next 5 years begins with the filings of Notices of Intent to Participate on February 4.  Thus, if the full deal does not cover that period, NPR will be right back in a proceeding to determine royalties almost immediately. 

The deal also seems to cover all streaming that complies with the statutory license (it is not interactive, it meets the statutory complement limiting the number of songs by the same artist can be played in a given period and sets other limitations, such as limits on pre-announcing when songs will be played - see our memo here).  So there appear to be no limits on covered stations setting up web-only streams, or streaming HD-2 and HD-3 streams, without any additional SoundExchange royalty obligations.

The signing of this deal also raises the question of whether there will be other deals under the Webcaster Settlement Act between now and the February 15 deadline.  Will there be a Valentines Day gift for non-CPB webcasters?  Stay tuned. 
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