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Note that these proceedings only deal with ASCAP and BMI for commercial radio broadcasters. Pure Internet radio operations do not pay under these rates. Nor do television stations, which are in their own process of negotiation or litigation over the rates that they will pay to these organizations.  Noncommercial radio also has its own process for determining rates paid to ASCAP, BMI and SESAC - through the Copyright Royalty Board.  SESAC (the third of the so-called "performing rights organizations"), which by some estimates represents 10-15% of all composers, also is not covered by these proceedings. SESAC is not currently covered by any antitrust decree requiring that their rates be overseen by a court, as are BMI and SESAC.  Thus SESAC is free, like any other business, to negotiate rates with each broadcaster, and to refuse to allow the use of their music by a broadcaster unwilling to pay their fees. While a group of TV broadcasters last year sued SESAC on anti-trust grounds, no decision has been reached in that case. 

Also, these fees only represent the fees paid for the use of the musical compositions (or musical works) licensed by ASCAP and BMI (the words and music of the song), not the song as recorded by a particular artist. As we have written many times before, while radio does not currently pay for the use of sound recordings for their over-the-air broadcasts, the issue of whether broadcasters should pay for the use of these sound recordings is still very much alive, as the recording industry seeks to impose a “performance royalty” or “performance tax” on radio. Radio already pays a sound recording performance royalty for all music streamed on the Internet, as set forth in an agreement between The National Association of Broadcasters and SoundExchange. 

Using music in any media enterprise is clearly expensive, and broadcasters need to watch carefully to make sure that they have the rights they need for the services that they provide.  For information about the rights that you need, check out our memo outlining the various music rights that you may need to operate.  And watch carefully as the rights and obligations are always changing!

The Copyright Office had recently issued a determination that ringtones and digital downloads were covered by this royalty, and could rely on the Section 115 compulsory copyright.  Again, in those contexts, copies were fairly easy to understand, as a copy is made when a ringtone or download is copied onto a phone or a computer, and when that happens, a specific fee is charged for the copy that is made.  The more difficult questions arise in cases of subscription services, limited time downloads, on-demand streaming, and even streaming done by a non-interactive service like an Internet radio station.  When is a "phonorecord" - a specifically identifiable copy of a recording that contains the musical work - made?  In the digital transmission process, multiple copies are made - on the servers of the music services, in transitory copies made by servers and routers on the Internet, and in the RAM and on the hard drive of the listener's computer.  Are these copies "specifically identifiable" such that a royalty should be paid?  In its Public Notice of this Roundtable, the Copyright Office raised many of these issues that formed the basis of the discussion on Friday.

 In 2003, the Recording Industry and the representatives of the music publishers entered into a settlement agreement that concluded that the non-interactive streaming did not involve copies that would give rise to a mechanical royalty, while interactive streaming and conditional downloads did.  However, as discussed at the Roundtable, the Harry Fox agency, the principal collection agent for the music publishing companies, represents less than 70% of the music publishers, so the agreement is not binding on all publishers.  Moreover, the Copyright Office representatives themselves asked at the Roundtable how they could draw a legal distinction between on-demand streaming and non-interactive streaming, when the technology involved was the same.  While the making of a copy in the streaming process may currently have no real value independent from the public performance (for which ASCAP, BMI and SESAC collect royalties for the musical composition), the Copyright Office asked if there should not at least be a recognition that a copy is made.  Questions even arose as to whether specifically identifiable copies are made in other digital transmissions that include buffer copies.

The question arose as to whether any copy made in a streaming process is specifically identifiable, and also whether the payment of such a royalty would be "double-dipping" - paying the composers twice for the use of their music.  In a recent decision in a Federal Court, a decision was rendered that ASCAP (and by implication BMI and SESAC) were not entitled to public performance royalties in connection with downloads, as no public performance was involved.  The question discussed on Friday was whether the reverse shouldn't also be true - that there is no mechanical royalty where there is a clear public performance.

Issues also exist as to the efficient operation of the statutory license.  The license requires notice to the copyright holder before it can be used, and as many of the copyright holders are difficult to find, and as there is no central database where the music publishers are identified, that is difficult.  In addition, as the Harry Fox agency, the one central licensing agency that exits, represents less than 70% of the copyright holders, a company that has a business model that doesn't allow for the per copy statutory royalty (e.g. a subscription service), doesn't have any group or groups with which it can negotiate to get blanket licenses for virtually the entire musical universe.  Thus,  licensing is difficult.

Everyone at the Roundtable agreed that the statutory language was ambiguous and did not cover all of the issues that arise in a digital world.  The Copyright Office itself has asked for legislative reform of the statutory license many times, to clarify these ambiguities.  In fact, at one point, the Register of Copyrights testified that she thought that one agency should collect all royalties for musical compositions, so that there would not be the issue of double dipping, and so that there would be organizations that would represent virtually all of the copyright holders for all purposes.   With the various entrenched stakeholders, that proposal didn't fly, thus we continue to have different groups representing composers for the public performance of music and for the mechanical royalty.  And, while we have had proposals for Section 115 reform floated in Congress for the last several years, the discussion on Friday was that Congressional action did not look imminent.  But all companies providing digital transmissions of musical compositions should continue to monitor these efforts, as the potential for problems arising from interpretations of who needs to get paid for digital services remains very high, and with the potential liabilities for copyright infringement being so great, the stakes are high.