Posted on January 4, 2013 by David Oxenford

Full Text of Copyright Royalty Board Decision on Sirius XM and Music Choice Royalties Released - The Basics of the Decision

The full decision of the Copyright Royalty Board setting the royalty rates to be paid to SoundExchange by Sirius XM and Music Choice from 2013 through 2017 has now been released.  We wrote about the initial release of the summary of the decision before Christmas.  The final decision is interesting in many respects. First, it is the first decision to be released since two of the original three Copyright Royalty Judges left the bench. The decision, as released was actually two decisions – one signed by the new Chief Judge and an acting judge who filled in for Judge Wisniewski, the Board's economic expert, when he had to retire for health reasons. The second decision, reaching the same result but based on different reasoning, was signed by the Board's lone holdover, Judge Roberts, a long-time fixture at the Copyright Office before joining the Board. In addition, the decision seems to reject some premises that had long been used to justify royalty rates in other proceedings – and thus may give some insights on approaches to be used in the webcasting royalty proceeding that will begin in 2014 and conclude in 2015. The majority decision also, for the first time, gives at least some weight to direct licensing deals for the public performance of sound recordings by a noninteractive service. Finally, the decision provides explicitly for carve-outs from the established royalties for music on which no royalties need to be paid, including music that is directly licensed, and for pre-1972 sound recordings.

Before looking at the decision, it needs to be noted that these royalties are theoretically decided not just for Sirius XM and for Music Choice, but also for other services that fit into their class of service as defined by Sections 112 and 114 of the Copyright Act. Thus, the Music Choice decision applied theoretically to all "Preexisting Subscription Services" (or a "PSS") and the Sirius XM decision to all "preexisting satellite digital audio services" (or, as used in the decision, "SDARS" – satellite digital audio services). The "pre-existing language means that these services were either in existence or authorized by the FCC (for the SDARS services) at the time of the adoption of the Digital Millennium Copyright Act in 1998.  Of course, since 1998, all of Music Choices then-existing competitors in the cable audio business have gone out of business with one exception, and the second SDARS service – XM Radio – has merged with Sirius. So, effectively, these rates apply only to very few companies.

One importance of these rates is the fact that the DMCA decided that these preexisting services would use the 801(b) standard for the determination of royalty rates. We've written about this standard before. It is the one that is used by most other royalty decisions made by the Copyright Royalty Board (including the rates paid by the record companies under Section 115 of the Copyright Act for "mechanical royalties" for the reproduction of musical compositions used in producing CDs, downloads, and other sound recordings). It is also the rate that is proposed for use in the Internet Radio Fairness Act to set the royalties for Internet radio companies instead of the "willing buyer, willing seller" standard that is currently in use for webcasters. We will write more about the IRFA next week. While the difference in standard did not play a big part in the decision in this current CRB decision, it was analyzed and provided the framework for the decisions that were reached.

 

With that background, let's look at the rates. For PSS, essentially the audio services that accompany cable television service, the rates (as a percentage of gross revenue) were set as follows:

 

2013     8%

2014     8.5 %

2015     8.5%

2016     8.5%

2017     8.5%

 

This represents a very small increase from the 7.5% royalty rate that was in effect in 2012.  That rate had been reached as a result of a settlement between the parties in the last royalty proceeding. While we will go into more detail on the reasoning in the decision next week, the CRB essentially rejected SoundExchange's calls for the rate to be substantially increased (to 45% of revenue by the end of the term), and those of Music Choice asking that they be lowered. By rejecting the arguments of the parties, the Board looked to the last negotiated settlement as providing a benchmark royalty as to what reasonable parties would view as a marketplace rate, and proposed a modest increase as Music Choice plans more music options in the future.  On that basis, the Board came up with the rates that they adopted.

 

The Sirius XM decision involved more considerations, but essentially the same result. The majority of the Board rejected the proposals from SoundExchange to raise the rates.  It had proposed  starting at 12% of revenue in 2013 and ending at 20% in 2017.  The Board also rejected the Sirius proposals to lower the rates, currently at 8% of revenue, down to 5% based on evidence provided by direct licensing deals. Instead, the Board determined that the rates (as a percentage of the service's gross revenues - minus certain non-music related income) should be as follows:

 

2013   9%

2014   9.5%

2015   10%

2016   10.5%

2017   11%

 

The majority of the Board rejected much of the expert testimony provided by both parties, and used the parties' proposals to set the bounds of reasonableness for the rates (as the Sirius XM testimony suggested that their direct licensing deals were at 5-7% of revenue, the 7% was viewed as setting one bound of what was reasonable, with the 12% proposed by SoundExchange for the 2013 royalty forming another bound). We will write more about the details of the reasoning used to reach these decisions next week.

 

Another interesting aspect of the Sirius XM decision was the treatment given to the directly licensed sound recordings and the pre-1972 sound recordings. The Board agreed that the directly licensed sound recordings should be excluded from the royalties, as the licensing rights had already been obtained and paid for through the direct licenses. The Board also explicitly agreed, for the first time in any decision of which we are aware, that pre-1972 sound recordings also are not to be included in the revenue base, as the Federal sound recording copyright only applies to songs created in 1972 and after (with certain exceptions for earlier non-US recordings that are covered by US laws as a result of treaty obligations - see our discussion of this issue here and here).

 

While the Board recognized that the directly licensed sound recordings, and the pre-1972 sound recordings should be excluded, they had some trouble deciding how such an exclusion should be computed, as Sirius XM could not quantify the number of listeners to such recordings as used on their various channels. They obviously could count the number of times that such songs were played, but not how popular they were – how many people were listening to the songs each time they were played. To get to that number, the Board decided that a proxy should be used – the Internet streaming that Sirius XM does of its programming. The Board decided that Sirius XM could exclude from its payments a percentage equal to the percentage made up of the total number of performances streamed through its Internet service made up by the direct licensed and pre-1972 songs (a performance being one song streamed to one person – the manner in which most Internet radio services pay their royalties). So, if Sirius streamed 1 million performances in a given period, and of those 10,000 were streams of pre-1972 or directly licensed recordings, it could deduct 1% of the amount that it would otherwise owe SoundExchange.  This proxy was authorized only where Sirius XM streamed essentially the same programming that it provided on its satellite service.  If Sirius XM decided to stop streaming a channel, it was unclear how or if such an exclusion could be taken. 

 

There is much more to write about concerning the analysis of the competing cases.  We will look at those issues next week, and suggest how some of the analysis may be relevant to the Internet radio royalty issues that webcasters will be facing quite soon. 

 

Update - 1/5/2013 - The article initially indicated that only one PSS continued in business.  I have been informed that at least one other PSS is still in operation and qualifies for this rate, and the article has been corrected to reflect this.

 

Correction - 4/1/2013 - This article had incorrectly stated the rates for the SDARS services. 
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Posted on September 25, 2012 by David Oxenford

A Deal Between Entercom and Big Machine Records To Give the Record Company a Royalty on Over-the-Air Broadcasting

A deal between Big Machine Records and a broadcaster, this time Entercom Communications, was announced at the NAB Radio Show giving the record company a royalty on the broadcaster’s revenue from over-the-air broadcasting in exchange for lower royalties on digital operations. This deal follows one announced by Clear Channel back in June. Talking to broadcasters around the country, many seem confused by the deals, not understanding why they were done, how they work, or what they accomplish. More than anything, many broadcasters fear that the deals will lead to a generally applicable royalty payable to sound recording copyright holders (i.e. the record companies) on over-the-air broadcasting.  Let's start with an explanation of how these deals work. 

While the details of these deals are not public, a session at the NAB Radio Show shed a little more light on the subject.  The session also included a promise from a Clear Channel representative that more deals are on the way. Perhaps the biggest news was at least some indication of the parameters of the financial terms of the agreements, with the President of Big Machine saying, in response to the question of whether the deal was an agreement to pay 1% of over-the-air revenues in exchange for a 3% digital royalty, that these numbers were certainly in the ballpark. If those numbers are in fact accurate, the digital royalty is substantially smaller than that paid by most webcasters, where royalties computed on the usual per song per listener basis can range from 45% of revenue to several times the total revenue of most webcasters.  

So just how do these deals work, and what do these percentages mean in real terms? While specific details of the deal have not been disclosed, all indications are that these broadcasters obtained the right to perform on their digital properties recordings from Big Machine artists (including many country artists such as Taylor Swift and Rascal Flatts ), in exchange for a share of the revenues from both the broadcaster’s digital and over-the-air operations. While the royalty on the over-the-air revenues would be a new cost, as digital becomes more popular with consumers and more important to the company, these companies appeared to feel that a reduction in their digital royalties was worth the price. Of course, there may well be other facets to the agreement adding incentives to the parties that we just don’t know. 

A deal with a single record company probably doesn’t in reality mean that much economically, but it could be significant if these deals become more wide-spread and include major labels.  The percentages agreed to in these deals are, in reality, likely not percentages of either companies’ revenues, but instead a pro rata share of those revenues, computed based on the amount of Big Machine music played by the Clear Channel or Entercom stations. Let’s run some numbers to illustrate the savings. Assuming hypothetically that Big Machine artists comprise 10% of the songs played by a specific country radio station, Big Machine would likely receive one-tenth of one percent of the station’s total over-the-air revenues, and three tenths of the station’s total digital revenue (deriving those figures from the 1%/3% royalty rates mentioned at the Radio Show times the assumption that 10% of the total songs played on the station come from Big Machine artists). 

On the digital side, the station would reduce its obligations to SoundExchange for all of the music that it has played by Big Machine artists – no longer having to pay on a per song per listener basis for that music (in effect, the broadcaster has directly licensed that music – see our posts on direct licensing here and here). If that station had been paying SoundExchange 60% of its digital revenues for the use of recorded music, the royalty on the Big Machine artists would have gone from 6% of the digital revenue of the station (10% of the 60%) to just .3%, a dramatic drop providing immediate tangible benefits to the station.

Why would the parties enter into these deals, and what impact will they have on webcasting and over-the-air royalties?  More on those issues tomorrow. 
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Posted on March 28, 2012 by David Oxenford

Sirius XM Brings Law Suit Against SoundExchange Alleging Collusion to Stop Direct Licensing of Music - Impact on Royalties?

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. 
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Posted on November 8, 2011 by David Oxenford

The Debate Over Sirius' Attempt to Directly License Music - SoundExchange Once Said A Marketplace Negotiation to Adjust for High Rates "Was to Be Expected"

There have been many reports about the attempts by Sirius XM Radio to license music directly from record labels, bypassing any royalty rates set by the Copyright Royalty Board.  Direct licensing would have Sirius pay the record labels or copyright holders for the rights to use music, avoiding any dealings with SoundExchange, which normally collects the royalties for the public performance of sound recordings under the statutory license.  The most recent report about Sirius' efforts was in the New York Times, here.  Sirius, like webcasters, pays royalties set by the CRB (if they cannot be negotiated among the parties) that cover the public performance of all legally released sound recordings.  While webcasters currently have royalties that are in place through 2015, the royalties for Sirius end in 2012, and are being litigated now (see our story here on the last royalties set by the CRB for Sirius).  To avoid the uncertainty of litigation, with which webcasters are very familiar, Sirius has been attempting to license music directly from the copyright holders.  This is not a new story - Rhapsody reportedly tried the same thing earlier this year, and Clear Channel tried to get royalty waivers from independent artists several years ago in exchange for more exposure for their music (see our stories, here and here).  Each time a music service suggests that it might want to license music directly to try to recognize some savings over the rates established through CRB litigation, the music community objects - see, for instance, the statements of unions AFTRA and AFM here, that of SoundExchange here, and that of A2IM (the association of independent record labels), here.  But what is really wrong with the efforts of services to negotiate lower royalties?  If you believe the testimony of SoundExchange's own witness in the Copyright Royalty Board proceedings - nothing at all.  In fact it is to be expected. 

In the CRB proceeding that was held in 2005-2006 (and from which, most of the settlements arose that now govern the royalties for sound recordings played by Internet radio stations), SoundExchange relied on a number of witnesses, including one expert, Michael Pelcovits, an economist whose model was the principal testimony relied on by the CRB in establishing the rates they determined to be reasonable.  In his written testimony, Mr. Pelcovits stated as follows:

...a rate that is set too low may have serious economic dangers.  By setting a rate too low, inefficient entry may be encouraged, and inefficient levels of production will be encouraged, which can hinder the development of an efficient market.  It is also worth noting that setting the statutory rate too high will not necessarily be harmful to the market.  If the price is too high, parties can (and are almost certain to) negotiate agreements for rates lower than the statutory standard.  Thus, a rate that is set too high is likely to "self-adjust" because of the sellers' natural incentive to meet the market. 

(Emphasis added).  The statutory rate referred to in this quote is the rate that is set by the CRB.  What this quote says is that, if that rate is set too high, then parties will naturally negotiate after-the-fact to try to find what the real market rate should be, and that such negotiations should be expected - not feared as many seem to be claiming as these attempts to cut deals come to light.  In other words, the music community seemed to favor (and expect) such negotiations, before they were against them it in their statements today. 

In fact, it is quite clear that the negotiation of lower rates has already happened.  In the many settlements that came about after the CRB decision on Internet radio rates was released after the 2006 proceeding, while the parties were fighting appeals and pursuing Congressional redress, rates lower than those that were set by the CRB were negotiated by many parties, including the Pureplay webcasters (on which Pandora relies), small webcasters, noncommercial webcasters, and even broadcasters (see our summary of the rates under all these deals, here).  All of these settlements were deals that were negotiated, as Dr. Pelcovits put it, "to self-adjust....to meet the market."  Clearly, the CRB rates are not sacred.  So what is the difference between these deals done pursuant to the Webcaster Settlement Acts, and the deals that have been tried now and have been condemned by so many in the music community? 

One possible difference is the loss of control. The settlement deals that were done under the Webcaster Settlement Acts all provided SoundExchange with the opportunity to decide which deals were precedential in future CRB proceedings, and which could be excluded from future rate-setting cases.  So, as we've written before (here and here), the deals that set relatively low rates, like those with the Pureplay Webcasters and the small webcasters, were deemed non-precedential, while those deals with higher rates, like the agreement with the Broadcasters, were considered precedential - and in fact contributed to the CRB decision in 2010 setting the rates for 2011-2015 for those webcasters not covered by one of the WSA settlements.  Deals that are marketplace deals would not be afforded the non-precedential status afforded the WSA deals absent some new act of Congress.

In establishing the statutory royalty, Congress envisioned that the CRB would base its decision on the rates set by the marketplace for similar rights.  In previous cases, because there were no freely negotiated marketplace rates (except for those recently done under the WSA and deemed "precedential"), the Copyright Royalty Judges had to rely on economic analysis of royalty schemes for other types of service and to come up with proper "adjustment factors" so as to determine the hypothetical rate that would be negotiated had these parties been negotiating rates for noninteractive webcasting.  Obviously, this is an inexact science, and has led to some results that many have argued are too high (though, as the SoundExchange press release indicates, some in the music community believe that the rates are too low).  Having freely negotiated rates may well provide some "real" basis for determining what a willing buyer and willing seller really would pay for music in a real marketplace.  But we will see if any such rates can in fact be negotiated by Sirius or any of the other parties that have attempted such negotiations. 
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Posted on August 1, 2011 by David Oxenford

Copyright Royalty Board Gives SoundExchange Permission to Use Proxy Information to Distribute Royalties

What does SoundExchange do when it collects royalties from an Internet radio operator, but the operator doesn't provide complete information about the songs that were played?  That question was raised by the Copyright Royalty Board in a Notice of Proposed Rulemaking on a proposal by SoundExchange for the distribution of such royalties, about which we wrote here.  The CRB has now agreed  to SoundExchange's proposal to distribute this money via a "proxy system."  In other words, SoundExchange will be distributing the money pro rata based on the information that it has for the songs on which similar services did accurately report.  The CRB provided the authority for this distribution by proxy for unallocated money collected during the period 2004 through 2009, which SoundExchange reports now amounts to approximately $19.4 million (down from the $28 million reported when the CRB's Notice was released in April). 

Why is there no information for these songs?  As we wrote when the CRB Notice was first released, there are many reasons, beyond simple failure of Internet radio services to meet the requirements for reporting set out in the CRB rules (about which we wrote here).  There are also situations where, under various settlement agreements, no reporting is necessary.  For instance, under the settlement agreement with broadcasters, no reporting is necessary for a certain percentage of songs played by each station.  Even under the CRB rules, there is a recognition that certain small webcasters (particularly noncommercial operators) can't afford all of the software that is necessary for the recordkeeping required of large webcasters. There will always be some songs for which no information is available, thus the need for this proxy system to distribute the money.  And, as the result of the CRB action, SoundExchange now has the authority to use this system. 

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Posted on April 25, 2011 by David Oxenford

SoundExchange Seeks Permission to Distribute Royalties Based on Proxy Information

What should SoundExchange do with money that it collects for the performance of sound recordings, when it does not know what sound recordings were played by a particular service?  As we've written many times on this blog, SoundExchange collects royalties from digital music services , including satellite radio, cable radio and webcasters, for the performance of sound recordings (i.e. a recording of a song by a particular artist).  It is charged with the obligation to distribute these royalties one-half to those who hold of the copyright to the sound recording and one-half to the artists who perform on those recordings.  However, SoundExchange, according to a filing recently made with the Copyright Royalty Board, does not always know which songs were played by a particular music service.  Thus, it has had difficulty distributing all of the money it collects - currently holding $28 Million in royalties from the period 2004 to 2009 that have not been distributed.  Why?  According to SoundExchange much of the problem is that not all services report what they played and how often, and other information that is submitted is sometimes inaccurate or otherwise does not adequately identify the music that was played.  To deal with this problem, SoundExchange has asked that the Copyright Royalty Board authorize it to use proxy information to distribute these funds from 2004-2009.  The CRB has asked for comments on that proposal.  Comments are due on May 19.

What is proxy information?  Basically, SoundExchange plans to infer from the information that it does have what music was played by the services for which it has no information.  According to the SoundExchange filing, they would make these assumptions based on the type of service.  Thus, information from webcasters would be used to estimate what other webcasters were playing.  Information from background music services who did report would be used to determine what other background music services played, and so on.  The CRB, in its request for comments, asks if the proxy should be further broken down so that, for instance, noncommercial webcasters would serve as a proxy for other noncommercial webcasters, and commercial webcasters would serve as a proxy for other commercial webcasters.  The Copyright Royalty Judges are also seeking to assess whether SoundExchange has done all that it can do to get the required information, and if the proxy system is a fair way of determining distributions for the money that has not yet been awarded to rightsholders and artists. 

Does this proposal have any impact on the services themselves?  Apparently not, as SoundExchange is at this point only looking for this authority in order to distribute money collected for royalties that came in from 2004 to 2009.  It does not appear to be looking at imposing any new restrictions on webcasters or other digital music services.  Instead, it is only looking for the authority to distribute the money that it has already collected based on the information that it has available.  What should music services take away from this request?

Clearly, digital music services should understand that the actions taken here are taken only because SoundExchange did not get full reporting.  In some of the webcaster settlement agreements (see, e.g. the settlement with broadcasters, summarized here), and in the CRB's own record keeping rulemaking proceeding, it was recognized that certain classes of webcasters could not be expected to provide full census reporting, i.e. reporting that lists all of the songs played by the service and how many listeners heard each song.  This reporting process can be expensive, especially for groups like noncommercial webcasters and even some small broadcasters and other small companies.  In some cases, the cost of reporting would be greater than the royalties collected or certainly the revenue produced by the streaming.  In many of these cases, SoundExchange is already authorized to distribute proceeds based on some proxy methodology.

But other webcasters, who are supposed to be reporting on a census basis, should do so.  The Copyright Royalty Board has asked whether SoundExchange has exhausted all its avenues to collect information about what is being played.  SoundExchange, in its pleading, notes that many services simply have lost past data, and some services are no longer in business.  So getting that information is difficult or impossible.  But in the future, SoundExchange will no doubt be looking to develop stronger enforcement capabilities against webcasters and others who do not meet reporting requirements.  But, even then, there will no doubt be gaps, as there will be computer malfunctions, inaccurate data that is entered, and companies that go out of business withou having met all of their obligations. 

Clearly, no one wants musicians to go unpaid - especially when the royalties have already been collected.  In the past, there has been talk of developing monitoring systems that would be easy and inexpensive to use.  Many streaming service providers already provide some type of reporting system.  But virtually all still require human input - identifying the songs correctly in a service's music scheduling software, and that sometimes is not easy, as information from record companies and other music suppliers is not always available and consistent. Automating such systems, making them ubiquitous, foolproof, easy to use and inexpensive, should be the priority of SoundExchange and webcasters and other music services, so that those who deserve to get paid are paid, but avoiding systems that are so hard to use that they make streaming or other digital music use difficult or impossible. 
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Posted on April 19, 2011 by David Oxenford

SoundExchange Claims Credit for Shutting Down Webcaster Who Was Not Paying Royalties

SoundExchange claims on its website that webcaster SWCast.net was shut down when SoundExchange complained to its ISP that the service was not paying royalties for the use of the music played by the site.  SWCast was an aggregator of webcast channels created by other individuals, who paid the company - allegedly for the streaming and for the royalties that were due for that streaming.  According to the SoundExchange press release, the webcaster was shut down when SoundExchange "sent a letter requesting that the hosting ISP disable access to the SWCast site."  SoundExchange's statement says that, despite repeated attempts to engage the webcaster, SWCast neither paid royalties nor filed reports of use for the songs streamed by the service, leading to SoundExchange's action.  As far as we know, this is the first time that SoundExchange has taken such an action. 

How did this work?  While we have not seen the letter that SoundExchange sent to the ISP, we can assume that it alleged that SWCast was infringing on copyrighted materials by not paying the required royalties.  ISPs have a safe harbor under the Digital Millennium Copyright Act, protecting them from liability for the infringement of users of their services, if the ISP does not encourage the infringement, registers an agent with the Copyright Office, and agrees to take down infringing content when properly notified by a copyright holder (see our post here).  We can only assume that SoundExchange or the copyright holders themselves notified the ISP that the material streamed by this webcaster was infringing as no royalties were being paid and, to protect itself, the ISP blocked access to the site.

Does this action reflect a new aggressiveness on the part of SoundExchange?  We have noted before that, from time to time, there seems to be a flurry of collection activity by SoundExchange.  We have heard from several streaming companies that they have recently received notices from SoundExchange inquiring about various compliance issues.  SoundExchange has been staffing up, and they have an attorney on staff whose principal job is enforcement.  Perhaps, with a new President, and with the last webcasting royalty proceeding done but for the appeals, this is a time when SoundExchange feels comfortable enough to act to ensure compliance with its royalty requirements. 

We've summarized the Internet radio royalty rates recently, and reminded webcasters not to forget their minimum fee payments and yearly election requirements.  If you are streaming, this might be a good time to check your royalty compliance to make sure that you are doing all that is expected by SoundExchange.  They may be watching!
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Posted on January 26, 2011 by David Oxenford

Reminder: Most Webcasters Need to File With SoundExchange Minimum Fees and Many Need A Notice of Election of Webcaster Settlement Act Rates, All By January 31

Each year, we remind webcasters about their obligations under various settlement agreements entered into with SoundExchange and under CRB decisions to make minimum payments and, in some cases, to file a Notice of Election to be covered under certain negotiated rates - all due by January 31.  All webcasters have minimum fee obligations due by January 31.  Many, though not all, Webcasters who have elected the the royalty rates set by many of the settlement agreements entered into pursuant to the Webcasters Settlement Act must also file an election notice with SoundExchange by January 31 to continue to be covered by those settlement agreements.   These agreements were entered into by groups of webcasters and SoundExchange, and allow the webcasters to pay royalties at rates lower than those rates set by the Copyright Royalty Board for 2011. 

While SoundExchange has, in the past, sent out reminders of these obligations to services that had paid in the prior year, sometimes these notices get lost, so Internet Radio operators need to remember to make these filings.  The original election forms filed under settlement agreements signed by the NAB and by Sirius XM cover the entire settlement period from 2006-2015, so no election form must be filed each year, though minimum fee payments must still be made.  Note that certain small broadcasters, who under the Broadcaster agreement need not comply with SoundExchange recordkeeping obligations, do need to file an election to certify that they still meet the standards necessary to count as a small broadcaster.  The WSA settlement agreements that cover Pureplay webcasters, Small Commercial webcasters, and certain Noncommercial Educational webcasters are all are entered into on a year-by-year basis (though, as noted below, there is a default in certain noncommercial webcasting agreements that, if you were covered in prior years, you will be continued to be covered in the current year, unless you opt out).  Thus, to continue to be covered, parties currently governed by these agreements need to file a Notice of Election to again be covered by these agreements by January 31.

The election forms are available on the SoundExchange website, though they are not easy to find. The forms that must accompany the annual minimum fees are also on the SoundExchange website.  Note that in some cases there are forms that cover both webcasters who paying under a particular settlement, as well as under the special provisions for small entities that are covered by these same agreements (e.g. Small Pureplay webcasters file a different form than other Pureplay Webcasters even though both are governed by the same agreement.  Similarly Small Broadcasters file a form different than other broadcasters, though both are covered by the same agreement, and soon by a CRB decision adopting those rates as the default rates for all broadcasters who stream programming on the Internet). 

These forms can be found at the links below.  Click on the name of the category of webcasters for a link to our article that summarizes the particular settlement or CRB decision, the minimum fees required, and the qualifications for small webcasters under that deal (if there is such a provision):

Note that there is no specific form for NPR affiliates covered under the NPR settlement, as an organization set up by the Corporation for Public Broadcasting handles all payments and SoundExchange filings.  Other companies providing Internet radio services need to pay attention to these dates - and file the necessary papers and make the required payments by the upcoming deadline. 

 

So pay attention and meet the filing deadlines!

 
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