Posted on August 9, 2009 by David Oxenford

Details on Sirius XM and SoundExchange Settlement on Internet Radio Royalties - An Option for Some Commericial Webcasters

The recent settlement on Internet radio royalties between Sirius XM Radio and SoundExchange provides yet another option for commercial webcasters trying to determine the royalties to be paid for the public performance of sound recordings.  While the settlement is signed by just these two parties, it will be published in the Federal Register and be available for all commercial webcasters who comply with its terms - which will essentially be any webcaster who is not a "Broadcaster" as defined in the NAB Settlement, about which we wrote here.  As set forth below, the royalty rates available under this settlement are slightly lower for 2009 and 2010 than those set by the Copyright Royalty Board back in 2007, but slightly higher than those available under the NAB settlement.  However, in 2013-2015, the rates available under this deal are actually lower than those agreed to by the NAB, meaning that they present a better deal for webcaster expecting their audiences to grow in the next few years.

First, the most important issue - how much will it cost?  As with the CRB decision, the NAB deal, and the Pureplay deal (about which we wrote here) as it applies to large pureplay webcasters, the rates established by the deal are based on a "per performance" charge.   A performance is one song as listened to by one listener.  So if a song is played on an Internet radio station subject to the deal and 100 people are listening at the time the song is played, there are 100 performances.  The rates established by the deal are as follows:

           Year              Rate per Performance

2009                      $0.0016

2010                      $0.0017

2011                      $0.0018

2012                      $0.0020

2013                      $0.0021

2014                      $0.0022

                        2015                      $0.0024

These rates are two one-hundredths of a penny per performance lower than the CRB rates in 2009 and 2010, but one one-hundredth of a penny higher than the rates agreed to by the NAB for these years.  The CRB has yet to set what is in effect the default rate - the rate that a party pays if they don't elect to be covered by one of the other available deals - for 2011-2015.  Under the NAB deal, the rates remain one one-hundredth of a penny cheaper than this Sirius XM deal in 2011.  The NAB rates are identical to this deal in 2012, but the NAB rates are one one-hundredth of a penny more expensive than under this settlement for 2013-2015.  Seemingly, webcasters electing this deal trade a slightly higher royalty now for one slightly lower in the future.

The deal also requires a yearly $500 per channel minimum fee, capped at $50,000. As in all other deals, this minimum fee is applied to the per performance royalties that the service incurs.

The deal must be elected by a webcaster currently in operation within 15 days of the date that this Agreement is published in the Federal Register - a shorter period than allowed under some of the previous deals.  Once it is elected, a webcaster is bound for the remainder of the period through 2015, and not able to opt out should some lower rates be available under a future CRB decision  (note that this is different than under the Pureplay deal, where a webcaster can opt out at the end of any year).  Any party making the election to be covered by this deal must drop out of any litigation over the rates for 2011-2015.  As is becoming standard on many of these deals, royalty payments and reports of use are due 45 days after the end of each month of operation. 

One other important aspect of this agreement is that it can be used as precedent in the upcoming CRB proceeding for rates for 2011-2015.  The NAB deal also has a similar provision, allowing it to be considered to be of precedential value.  On the other hand, lower rates agreed to in the Pureplay and Microcasters deals are specifically labeled nonprecedential.  We wrote about the concerns expressed to the Senate Judiciary committee about the ability of SoundExchange to dictate which deals are precedential and which are not, here.

Finally, it is important to note that this deal covers Sirius XM's Internet streaming of its programming, not its satellite delivered music programming from which it received the bulk of its revenues.  Royalties for the use of music in that programming is paid on a percentage of revenue basis of between 6 and 8% of revenues - a rate set by the CRB and recently upheld by the Court of Appeals.  As we have written, the difference in these royalties is due to the difference in the standard applied under the Copyright statute to the determination of royalty rates for different services - leading to calls for "platform parity", as considered by the Senate last week.

All in all, for those webcasters who are not broadcasters and not pureplay webcasters, and don't qualify as small webcasters under the Microcaster or Pureplay deals, this agreement may present some options for the future.  Watch for its publication in the Federal Register in the near future. 
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Posted on August 29, 2007 by David Oxenford

Congress to Return - Will Internet Radio Royalties Be on Its Agenda

With summer and the August Congressional recess drawing to a close, will consideration of the Internet Radio controversy over royalties be on the agenda when the September legislative session begins?  In recent weeks, there has been a settlement between the Digital Media Association (DiMA), representing the largest webcasters, and SoundExchange on the issue of the minimum royalty fee - agreeing that the $500 per channel minimum fee imposed by the Copyright Royalty Board ("CRB"), which might have by itself driven many webcasters like Pandora or Live 365 out of business had it not been resolved, would be capped at $50,000.  SoundExchange has also extended a unilateral offer to small commercial webcasters allowing them to continue to pay a percentage of revenue royalty of 10-12% for use of the music produced by SoundExchange members - but limiting the offer to webcasters with under $1.2 million in annual revenue, and requiring that any webcaster with over 5,000,000 tuning hours in any month to pay at the CRB rates for all listening in excess of that limit.  We wrote about that deal, and some of the concerns that larger small webcasters have, here.  These adjustments to the CRB rates may resolve some issues for some webcasters, but they leave open many other issues as set forth below - but will these tweaks to the CRB decision be enough to take the Congressional heat, in the form of the Internet Radio Equality Act, off of SoundExchange?

What issues remain?  There are still many.  These include:

  • The issues of the larger independent webcasters who may currently fit under the Small Webcaster Settlement ("SWSA") Act caps - but may well go over those caps before 2010, and could not afford to pay royalties at the CRB-mandated rates if they exceed the SWSA limits.
  • The CRB mandated rates are themselves problematic for virtually all commercial webcasters - and DiMA made clear that the settlement of the minimum fee issue was the first step in resolving the issues that preclude a vibrant webcasting industry under the CRB rates (see the DiMA press release on the settlement, here)
  • Noncommercial webcasters have not announced any settlement with SoundExchange - even though many expressed concerns over the fees for large noncommercial webcasters  which will, by the end of the royalty period, increase about 9 times over the rates that they had been paying (and more for larger NPR affiliates), and over recordkeeping and reporting requirements.
  • Broadcasters who stream their over-the-air signal over the Internet have not been involved in any of the tweaks to the CRB decision, nor has SoundExchange responded to the NAB's settlement offer made in June (according to the clock on the NAB homepage, the NAB settlement offer has been outstanding without response for 84 days at the time this post is being written). 
And what avenues remain open to resolve these issues?  In addition to the potential for renewed Congressional action in September, the webcasters are still pursuing their appeal of the decision in the US Court of Appeals for the District of Columbia (while the stay of the effective date of the CRB decision was denied by the Court, that does not affect the underlying appeal - see our post, here, for details) , and most of the webcasting groups are still in settlement discussions with SoundExchange over possible settlements.  We will see if any of these avenues lead to resolution of some or all of the remaining issues.
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