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 April 26, 2009 by David Oxenford

Internet Radio Royalty Reminders - April 30 is the Last Date to Elect Small Webcaster Agreement and for Broadcasters to Pay Past Fees, and Don't Forget the Recordkeeping Obligations

We recently wrote about the agreements between SoundExchange and various groups of webcasters, which became effective under the terms of the Webcasters Settlement Act.  These rates act as a substitute for the rates set by the 2007 Copyright Royalty Board decision  setting Internet radio royalties for the use of sound recordings in the period from 2006-2010.  The deal with broadcasters set lower rates than the CRB for 2009 and 2010, and also waived certain requirements otherwise applicable to webcasters, limiting the number of songs from the same artist that can be played in a given period of time (see our posts here and here).  There is also a deal that SoundExchange unilaterally advanced to certain small webcasters which allows for a percentage of revenue royalty, but limits the amount of listening to these webcasters allowed at these rates, and imposes significant recapture fees if a webcaster sells its service to another company that would not qualify as a small webcaster (see our post here).  April 30 is an important date under both deals, as it is the date by which small webcasters must elect the deal, and the date by which all broadcasters who elected the broadcaster deal earlier this month are to pay any back royalties which they owe for streaming from 2006 through the date of the agreement.

In talking to Internet radio operators, both broadcasters and small webcasters, many seem to be unaware of the records that need to be maintained to remain in compliance with the requirements of the deals.  Both the small webcasters agreement and the NAB-SoundExchange settlement require "full census" reporting of  all songs played by the service, which will include information for every song - including the name of the song that was played, the featured artist who performed the song, the album on which the song appeared, and the label on which the album was released.  In addition, the webcaster must report on the number of times each song was played, and how many people heard each transmission of the song.  Only very small broadcasters and "microcasters" under the small commercial webcaster deal, are totally exempt from these requirements.  Under their deal, broadcasters need not provide all the information for up to 20% of their programming, but this percentage of the broadcast week that can avoid full reporting will shrink every year (see our post here for details).

These are not statistics that can be easily gathered in-house by most webcasters.  Instead, most broadcasters or webcasters need to make sure they have a service that can provide this information.  Many content delivery networks now bundle this information with their services, and stand-alone services like that provided by Ando Media can track this information.  Some of these services will prepare all the reports of use that are required by SoundExchange and, for broadcasters, the statements of account that compute the number of performances that are necessary to determine the monthly fees that are now due from broadcasters - to be paid 45 days after the end of each month.  So broadcasters should make sure that they are using such a service to track their listening, so that they can be ready to pay their fees for streaming done in March by May 15. 

Lots of detailed information is required, and lots of statistics - so be sure that you are ready to comply. 
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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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