Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

SiriusXM announced that is has filed a legal action, including antitrust claims, against SoundExchange and A2IM (the American Association of Independent Music - the association of independent record labels), charging, according to a press release, these two organizations "with unlawfully interfering in SiriusXM's efforts to secure, through a competitive market, copyrights critical to its business. The complaint contends that the conduct violates federal antitrust, as well as New York state law." The claim is essentially that these defendants conspired to prevent SiriusXM from negotiating direct licenses with musicians, licenses that could take music out of the royalty scheme administered by the Copyright Royalty Board, where royalties are paid to SoundExchange.  We wrote about the attempts by SiriusXM to negotiate such direct licenses, and the opposition of music groups to these agreements, last year. 

Why would SoundExchange and A2IM oppose direct music licensing?  One reason is that music licenses that are directly negotiated between music users and rights holders are traditionally the best evidence of the value of music.  In recent rate court cases involving performing rights organizations, direct licenses formed crucial evidence of the value of music rights.  In cases dealing with ASCAP and BMI royalties for "business establishment" or "background music" services, evidence of direct licenses at rates significantly lower than previously established resulted in court decisions dropping rates by as much as two-thirds from the rates that ASCAP and BMI had previously been charging.  Were SiriusXM to be successful in its suit, and if it is in fact able to negotiate direct music licenses for substantial catalogs of music at rates lower than what it has paid under previous rate decisions, it would presumably introduce such evidence in proceedings before the Copyright Royalty Board (which is now in the process of setting the rates for the public performance of sound recordings by SiriusXM over its satellite service for the next 5 years), and argue that these direct deals are the best evidence of what a willing buyer and willing seller would agree to in a competitive marketplace. While the rates set by the CRB for SiriusXM are not like Internet radio rates and established solely based on a willing buyer, willing seller test, the question of marketplace rates is still a very important component to any CRB decision setting those rates (see our article here on the rates that SiriusXM currently pays to SoundExchange and the standard used to set such rates). 

As we've written before, one of the biggest issues in all rate proceedings heard before the CRB has been establishing what a willing buyer and willing seller would agree to pay in a competitive marketplace like the one for which the rates are being set.  In most cases, as there are no direct licenses, the CRB has to extrapolate what willing buyers and willing sellers would pay for sound recording performance royalties in a noninteractive market from evidence of what companies pay in other markets.  In the past, the CRB has relied on evidence of what is paid in the interactive marketplace, and adjusted those payments downward using some economic expert witnesses to determine what the appropriate adjustment would be.  Most recently, in the last webcasting royalty case, the CRB looked at rates that had actually been negotiated with SoundExchange for noninteractive webcasting services, but these were rates that had been agreed to after prior decisions of the CRB, and included other benefits to the parties that had agreed to the royalties, including the reduction of royalty rates that had already been previously set.  Also, in these cases, the only rates that could be introduced as evidence before the CRB were rates agreed to by SoundExchange.  Where SoundExchange had agreed to other, lower rates (as they did, for instance, with Pureplay webcasters), these rates were excluded from evidence as SoundExchange had insisted, before these agreements at lower rates were signed, that these lower-rate deals would be nonprecedential - and this agreement as to the nonprecedential nature of the agreements was binding on the CRB because of provisions in the Webcaster Settlement Act that allowed such agreements to reduce royalty rates that had already been established by the CRB and to make these lower rates binding on all copyright holders. 

Were SiriusXM to be able to directly negotiate lower royalties with a significant number of artists or labels, such royalties might provide crucial evidence in CRB proceedings as to what the true marketplace value of such rates should be.  Lower direct licensing rate could impact not only the rates paid by SiriusXM, but also other proceedings dealing with the sound recording royalty rate, including potentially proceedings for webcasting royalties (proceedings that will also affect the rates that broadcasters pay for streaming their signals). The next royalty proceeding for webcasters begins in 2014, and will set the rate for webcasting from 2016-2020.  Obviously, that could make the outcome of this lawsuit by SiriusXM, and its ability to negotiate direct licenses, very important to the future of digital music. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

The differing royalty rates for these three groups of webcasters can be summarized as set forth below.

Broadcasters Per Performance Royalties

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

Statutory Webcasting Per Performance Royalty Rates

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

Pureplay Webcasters Per Performance Royalty Rates

• 2011 - $.00102 per performance
• 2012 - $.00110 per performance
• 2013 - $.00120 per performance
• 2014 - $.00130 per performance
• 2015 - $.00140 per performance

As set forth above, there are different aspects to each of these rates that bring different benefits and costs.  Pureplay webcasters pay the higher of the per performance royalties set out above and 25% of their gross revenue for all business lines - hence the name "pureplay", as only businesses that do virtually nothing but webcasting can benefit from these rates.  Broadcasters actually get an additional benefit from their rates that is not available to other webcasters - where they are simulcasting their on-air signals, they need not abide by the Performance Complement - which limits the number of songs from the same artist that other webcasters can play within specified periods (see the details on this waiver here).

What do these rates mean?  On a cost per thousand basis, services playing 10 songs an hour to 1000 listeners would be paying $10.20 per hour under the Pureplay deal, $17.00 an hour under the Broadcaster deal, and $19.00 an hour under the rates set out in the CRB decision.  By 2015, those rates would be $14.00 under the Pureplay deal, $25.00 per hour under the Broadcaster deal, and $23.00 per hour under the CRB decision.  Obviously, to pay for such royalties, broadcaster and statutory webcasters will either need to sell more commercials, or sell at a higher CPM than would a Pureplay webcaster. 

There are other rates available under these and other deals to smaller entities who cannot afford the per performance royalties set out above (though there is always some question about whether the services that pay these per performance royalties can really afford them). For small commercial webcasters with less than $1.25 million in annual revenue, they can pick a percentage of revenue royalty of 10-12% of gross revenues for services with less than 5 million aggregate tuning hours per month, or 12-14% for those with more monthly hours.  Noncommercial services can pay at several different rates - including a royalty structure with limited reporting requirements and higher per performance fess if certain minimum listening levels are exceeded, or one with more reporting but lower royalties after the minimum levels are exceeded (see our comparison, here).  NPR stations have their own deal - where streaming is paid for all affiliated stations by CPB.

It is a confusing royalty world - with services paying differing amounts for essentially the same service.  These rates will be in place until the end of 2015.  After that, who knows what rates will apply - as there will either be new negotiations for new rates, or another CRB proceeding to set rates for the industry. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

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!

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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. 

• Email This
• Print
• Comments (4)
• Trackbacks
• Share Link

The battle over the broadcast performance royalty has begun anew, with the introduction of legislation to impose a performance royalty for the use of sound recordings on broadcast stations.  This royalty would be in addition to the royalties paid to ASCAP, BMI and SESAC (which go to compensate composers of music), as this royalty would be paid to the performers of the music (and the copyright holders in the recorded performance - usually the record companies).  The statement released by the sponsors of the bill cites numerous reasons for its adoption - including the facts that most other countries have such a royalty, that satellite and Internet radio have to pay the royalty, and that it will support musicians who otherwise do not get compensated for the use of their copyrighted material.  The NAB has countered with a letter from its CEO David Rehr, arguing that musicians do in fact get  compensation through the promotional value that they get from the exposure of their music on broadcast stations.  The 50 state broadcast associations also sent a resolution to Congress, taking issue with the premises of the sponsors - citing the differences in the broadcast systems of the US and that of other countries where there is a performance royalty, and arguing that broadcasting is different from the digital services who have a greater potential for substitution for the purchase of music.  What does this bill provide?

The bill introduced this year are very similar to the legislation proposed last year (which we summarized here); legislation that passed the House Judiciary Committee but never made it to the full House, nor to the Senate.  Some of the provisions of this year's version include:

• Expansion of the public performance right applicable to sound recordings from digital transmissions to any transmission
• Royalties for FCC-licensed noncommercial stations would be a flat $1000 per year
• Royalties for commercial stations making less than $1.25 million in annual gross revenues would pay a flat $5000 per year.  There is no definition of what constitutes "gross revenues," and how a per station revenue figure could be computed in situations where stations are parts of broadcast clusters
• Excludes royalties in connection with the use of music at religious services or assemblies and where the use of music is "incidental."  Incidental uses have been defined by Copyright Royalty Board regulations as being the use of "brief" portions of songs in transitions in and out of programs, or the brief use of music in news programs, or the use in the background of a commercial where the commercial is less than 60 seconds - all where an entire sound recording is not used and where the use is less than 30 seconds long
• Allows for a per program license for stations that are primarily talk
• Establishes that the rates established for sound recordings shall not have an adverse effect on the public performance right in compositions (i.e. they can't be used as justification for lowering the ASCAP, BMI and SESAC rates)
• Requires that 1% of any fees paid by a digital music service (such as a webcaster, or satellite radio operator) for the direct licensing of music by a copyright owner (usually the record company) be deposited with the American Federation of Musicians to be distributed to non-featured performers (background musicians), while the distribution of any fees to the featured performer be governed by the contract between the performer and record company
• Requires that any 50% of any fees paid by a radio station for direct licensing of music be paid to the agent for collection of fees (i.e. SoundExchange) for distribution in the same manner that the statutory license fees are distributed (45% to the featured performer, 2.5% to background musicians, and 2.5% to background vocalists)

These are the basic provisions of the bill.  There are lots of issues and ramifications that we have written about before, and which we will cover in a subsequent post.  But, for now, radio broadcasters should know that the challenge from the recording industry has now been issued, and there will be a major fight ahead that could very well dictate the future operations of many broadcast radio stations.

• Email This
• Print
• Comments (2)
• Share Link