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Posted on May 9, 2013 by David Oxenford

Changes at the Copyright Royalty Board - Two New Judges Make for an All-New Board for the Upcoming Internet Radio Royalty Rate Setting Proceeding

The Librarian of Congress has announced the appointment of two new judges to the Copyright Royalty Board – marking a total change in the three judge board since the decision in the last webcasting royalty case (about which we wrote here). The two new judges are David Strickler and Jesse Feder. Mr. Strickler will serve through 2016, taking the position of Judge Wisnewski (who resigned about a year ago) as the economics expert required by the statute creating the Board. Mr. Stricker is currently Senior Counsel at a law firm in New Jersey, specializing in business litigation, according to his biography on the firm’s website, here. He also has a Masters Degree in economics, and is an adjunct economics professor as Brookdale College in New Jersey.

Mr. Feder takes the place of Judge Roberts, who was one of the original CRB judges and had worked in the Copyright Office in connection with the CARP process that set the first rates for webcasting back in 2002. Judge Roberts recently resigned from the Board. The position that Mr. Feder takes is required by statute to be filled by someone with Copyright experience. According to Mr. Feder’s online profile, he was the Director of International Trade and Intellectual Property at the Business Software Alliance, and previously held several supervisory positions at the Copyright Office and in the Library of Congress. His appointment, filling Judge Roberts’ seat, lasts only until 2014 (but he could be reappointed).

These two judges join Chief Judge Suzanne Barnett, appointed just over a year ago, who recently presided over the royalty decisions for satellite and cable radio (see our summary here). Thus, for the next webcasting proceeding, there will be an entirely new Board, none of whom have presided over a case to set Internet Radio royalties. Certainly, the Chief Judge will be familiar with many of the arguments about the valuation of music rights (see our post here on the differing perceptions of the value of music) which would have come up in the recent satellite radio case. But, as webcasting has a different legal standard that applies to the determination of the royalty rates (see our explanation of the different standards here), we will all have to see how the case develops.

The next webcasting royalty proceeding, to set royalties for internet radio for 2016-2020, will begin early in 2014, when participating parties will need to file an expression of interest in participating in the proceeding. After these petitions to participate are filed, the CRB will schedule a period during which the parties are to try to settle the case. If there is no settlement, under current rules, direct case exhibits (setting out the evidence that each party advances to support the rates that they think should be charged), would be filed in late 2014, with the actual litigation over the evidence presented – and the decision – coming before the end of 2015. Of course, this could all change should there be any action on the Internet Radio Fairness Act. To be continued….

Tags: Intellectual Property, Internet Radio, Internet Radio Fairness Act, On Line Media, copyright royalty board, internet radio royaties, royalties for music, webcasting royalties

Posted on March 31, 2013 by David Oxenford

Why the Differing Perceptions of the Value of Music by Digital Music Services and Copyright Holders Make Royalty Decisions So Hard

With the National Association of Broadcasters big convention coming up next week in Las Vegas, this week we’ll look at a couple of the issues that will likely be discussed when the industry gathers for its annual reunion. On Sunday, before most of the NAB Show begins, the Radio and Internet Newsletter (RAIN) will be holding its RAIN Summit West, where I will be moderating a panel called The Song Plays On – which will focus on the music royalties paid by Internet Radio and other digital music services. We’ll not focus on what the current royalties are, but instead to try to explore what they could be in the future. This is really one of the most difficult issues in the industry, as the two sides (and really there are many more than two sides to this issue) come at the issue from far different perspectives. We will try to bridge those differences and explore where there might be common ground for music users and copyright holders to come together to arrive at mutually beneficial solutions to this thorny issue.

The Internet Radio Fairness Act introduced in Congress last year brought this issue into sharp focus. That Act sought to bring about a number of reforms in the way that the Copyright Royalty Board sets various music royalties – particularly the rates that apply to Internet radio stations. We wrote about the provisions of the bill dealing with Internet radio royalties soon after the bill was introduced. After that article, there was a Congressional hearing on the issue, and lots of debate before the bill died at the end of the year as the session of Congress expired. This year, the Chair of the House Judiciary Committee has promised a number of hearings on all aspects of music and audio copyright issues, though none have yet been scheduled. But the debate about IRFA last year illustrated the divide between the various sides in the music royalty debate.

As soon as IRFA was introduced, DC players started to choose up sides – with Internet radio operators, the Consumer Electronic Association, and others supporting the Act, and most record labels and artists opposing it. The opposition also recruited some unlikely supporters, including the NAACP, the National Music Publishers Association and Grover Norquist of the "no tax increase" pledge fame. Why do these groups oppose the act – whose principal purpose is to make the decisions as to royalties for Internet radio the same standard (the 801b standard about which we wrote here) as that used to determine the royalties for other digital music services (such as Sirius XM) subject to a statutory royalty?

As noted in these pages before, I represent Internet radio companies on royalty issues, so I want that potential bias to be on the table as I explore the differences in positions in this article. But, from my perspective, the real issue is the differing perception of the value of music, and the relative contribution to the value of digital media companies. Musicians, seeing music as the backbone of many digital entertainment services, feel that it is their content that is the reason that a service even exists, much less is successful. Services, on the other hand, believe that there is much more that governs success in the media universe, and that presentation, technology, promotion and many other factors lead to that success. Where that value lies, and what the relative contributions of the parties are, is at the heart of the disagreement over royalties.

In the last year, there have been more and more stories about musicians claiming that the payouts that they get from digital music services – even the interactive services that pay rates negotiated with the copyright holders at levels substantially higher than those paid by webcasters - are not sufficient. Sometime, the argument seems to be based on the belief that the royalties are not sufficient to compensate them for the loss of revenue that they expected to get from the sale of music. Other times, the concern seems to be grounded in a belief that the royalties don’t allow more musicians to achieve musical success – the elusive “musical middle class” – where musicians can make enough money from their art to support themselves and their families without resorting to holding two or three jobs. And there seem to be yet other times that musicians see the apparent success of certain Internet entrepeneurs, and wonder why they can’t make substantial money off the Internet too.

On the other hand, supporters of change in the royalty system point to the fact that there simply has not been a long-term successful, profitable music service developed under the current royalties. The world of interactive music services is littered with the remnants of abandoned services. Last year, Last FM, which had been a "success" story as it was sold to CBS for about $270 million about 5 years ago, is almost invisible in the US music universe, and is now cutting back on its services because of royalty demands. Pandora, by far the most successful of the noninteractive services, still has not announced a profitable year, or even any sustained profitable quarters, as the “content acquisition costs” (i.e. royalties) continue to eat up a more than half of their revenues. And, under the Pureplay Settlement Act, Pandora pays royalties at half the rate that most other webcasters do. In recent months, we’ve seen stories of other web giants – including Apple – delay the start of their music services while, thus far unsuccessfully, trying to negotiate a smaller royalty than they would otherwise pay – perhaps even lower than that paid under the Pureplay Settlement. Seemingly, these established Internet companies see a streaming music service as a losing proposition unless they can get lower royalties.

For webcasting companies, what is perhaps most frustrating is that the statutory royalties on noninteractive webcasting rise each year under the rates set by the CRB and under the various settlement acts, while revenues have not risen at the same rate. At the same time, the performing rights organizations (PROs) who collect on behalf of the publishing companies for the public performance of musical compositions, have traditionally been paid based on a percentage of revenue. They are watching digital royalties for sound recordings being paid on a per song per listener basis, and have started asking why they can’t be paid in the same manner. And some new agreements seem to propose that royalty basis, at the same time as other publishers start to pull their music from the PROs to negotiate separately, making the already difficult process of royalty negotiation that much harder.

While some services, most notably the Clear Channel properties, have managed to directly license music, lowering digital royalties substantially in exchange for a share of over-the-air broadcast revenues, this is not an option for pureplay webcasters or most other digital services. And, even for small broadcasters, the potential for them to have the leverage to negotiate such deals is small. So the royalty universe simply gets more complicated, with no easy solution in sight.

So our discussion at the RAIN Summit next Sunday should be a most interesting one. If you can’t be there, there will be an audio feed. But if you are in Las Vegas, this is but one of the many interesting sessions at the summit, and one of many that will be held at the greater NAB Show itself. The place to be next week

Tags: 801b standard, Intellectual Property, Internet Radio, Internet Radio Fairness Act, Music Rights, RAIN Summit West, how much does internet radio pay for music, music licensing fees, performing rights organization, sound recording performance royalty, webcasting royalties

Posted on October 8, 2012 by David Oxenford

Chaffetz Bill Introduced in House of Representatives to Adopt 801(b) Standard for Internet Radio Royalty Decisions of Copyright Royalty Board - What's It All About?

The recent introduction of a bill by Congressman Jason Chaffetz offers proposals for reform of the operations of the Copyright Royalty Board – reforms that many in the Internet Radio industry have hailed as promising real change in the way that royalty decisions for webcasters have been made. While some webcasters seem to think that relief is at hand, in fact, the bill has simply been introduced into Congress co-sponsored by four congressmen, so it has a long way to go before it can be adopted by Congress and become the law of the land. But it is worth looking at the many issues that the Bill addresses so that webcasters know what it says so that they can rationally argue for its passage.

Most webcasters have focused on the provisions of the bill that would substitute the standards set out in Section 801(b) of the Copyright Act for the standard that currently applies – "the willing buyer, willing seller" standard. 801(b) sets out five factors to be considered in determining the rates to be set for a statutory royalty. These factors are:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

In contrast, the current “willing buyer, willing seller” standard looks only at one question – what a willing buyer and willing seller would agree to in a marketplace transaction. What is the difference between these two standards?

We’ve written about the difference that they can make as a practical matter, here and here, as the differing standards have led to dramatically lower rates for music royalties paid by satellite radio and digital cable radio when compared to those paid by Internet radio. In the Internet radio world, as there usually are no true marketplace deals for non-interactive radio other than those that are directly influenced by the desire to avoid a protracted and expensive royalty proceeding, the CRB decisions have been influenced by rates set based on extrapolations from other deals. Recent decisions have started from deals in the interactive marketplace (with expert witnesses testifying on their estimation of the amount by which the interactive royalty should be adjusted, using an economic regression analysis, to remove the value of the interactivity – a very subjective evaluation at best). In the last webcasting royalty case (about which we wrote here), the standard that the CRB looked to in setting rates was the NAB deal with SoundExchange (summarized here), giving almost full weight to the royalties paid by broadcasters for their streaming, despite the fact that the deal had been negotiated after the prior CRB decision and resulted in substantial discounts off the CRB rates for streaming done in the prior royalty term. This deal that the CRB relied on was one negotiated in the face of, and to reduce, the already high royalties imposed in the prior proceeding, the one based on the regression analysis applied to the interactive rates (a decision summarized here) . The Chaffetz bill specifically states that interactive rates should not be used as the basis of setting the rates for noninteractive services (i.e. webcasting).

The Chaffetz bill would also make other more subtle changes in how these standards are applied. The bill would remove the precedential effect of past royalty decisions. It would also explicitly put the burden of proof on the parties seeking a royalty that the royalty they seek is reasonable – a standard that is common in ASCAP and BMI rate court litigation, but is not at all addressed in the current Copyright Act addressing the sound recording performance royalties set by the CRB.

Finally, the bill would amend the law to specifically remove any suggestions that certain aspects of recent royalty decisions were in fact the preferred way of reaching a royalty decision. Specifically, these issues include the following:

· Taking into account that the services using music need to make a return on their investments in setting up and operating their services

· Not disfavoring a percentage of revenue royalty, as opposed to the per song, per listener royalties now in effect for most royalties

· Allowing for a carve-out based on songs that are directly licensed (already allowed under a per performance royalty, but a more difficult concept to deal with when the royalty is based on a percentage of revenues)

· Any decision should give full-value to:

o The promotional value of the playing of music by the service

o The costs of the digital music service in putting together the programming that it features

Finally, the bill suggests that rates set by Webcaster Royalty Act settlements that are to expire in 2014 be extended through 2015. This would seem to include the rates for “small pureplay” webcasters whose percentage of revenue rates are to expire at the end of 2014, leaving them to convert to another type of service (the “small commercial webcaster” service that limits their listening hours) or to pay per song per listener rates that may well put them out of business as their royalties would, in most cases, exceed their revenues.

This bill also covers other issues which we will address in another article later this week, including changes to the law on ephemeral royalties. It is also bound to be opposed by the music labels and some artist groups. We’ll explain that opposition in yet another article coming up. Watch for those articles, and keep your eyes on the progress of this bill that may be very important to the survival of the Internet radio industry as we know it.

Tags: 801(b) standard, Intellectual Property, Internet Radio, Music Rights, chaffetz bill on internet radio royalties, copyright royalty board, standards for setting music royalties, webcasting royalties

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.

Tags: CRB royalties, Internet Radio, Music Rights, Sirius XM music royalties, direct music licensing, internet radio royalty, satellite radio royalties, soundexchange royalties, webcaster settlement act, webcasting royalties

Posted on May 8, 2011 by David Oxenford

Another Royalty Payment for Webcasters? EMI Withdraws From ASCAP For New Media Licensing

Just as webcasters thought that they had their royalty obligations figured out, there comes news that the already complicated world of digital media royalties may well become more complicated. Last week, EMI, which in addition to being a record label is a significant music publishing company, has reportedly decided to withdraw portions of its publishing catalog from ASCAP - which had been licensing the public performance of these songs. The withdrawal from ASCAP applies only to "New Media" licensing. What is the impact? As of today, webcasters pay ASCAP, BMI and SESAC for the rights to play virtually the entire universe of "musical compositions" or "musical works" (the words and musics of the song). By withdrawing from ASCAP, EMI will now license its musical compositions itself, adding one more place that webcasters will need to go to get all the rights necessary to play music on an Internet radio type of service. In addition to royalties paid for the musical composition, webcasters also pay SoundExchange for public performance rights to the sound recordings (the song as recorded by a particular singer or band) - and by paying this one organization, they get rights to perform all sound recordings legally released in the US. But any Internet radio operation needs both the musical composition (except for those compositions that have fallen into the public domain) and the sound recording performance rights cleared before they can legally play the music.

The news reports quote EMI as talking about the efficiencies that will be created by its licensing the musical compositions directly - in conjunction with the licensing of other rights - like the rights to make reproductions of its compositions, or the rights to publicly perform sound recordings to which its record label holds the copyright. But the whole idea of a performing rights organization with collective licensing is that it provides to digital music services the efficiencies offered by a one-stop shop for the purchase of rights to all a very large set of musical compositions. Up to now, a digital music service knew that, by entering into licensing agreements with ASCAP, BMI and SESAC (the "performing rights organizations, or "PROs"), it had rights to virtually all the musical compositions that it would normally use (i.e. they received a "blanket license"). If these rights are balkanized, so that each significant publisher licenses their own music, the webcaster will have to make multiple stops to license all the music they need - which always leads to confusion. The more places they have to go to license music, the more possibility that they will overlook a necessary rightsholder. But there is even a bigger potential issue for webcasters - price.

ASCAP and BMI, which are the largest of the performing rights organizations - together controlling an estimated 85 or 90 per cent of the musical compositions - are subject to antitrust consent decrees. They can't discriminate between music rights holders, and must offer the same licenses to similarly situated services, i.e. they must charge all webcasters according to set formulas - they can't cut deals with individual webcasters and offer them better deals, unless such deals are open to all that have similar qualifications. Moreover, the rates that they charge are subject to government oversight by a "rate court" - a Federal District Court judge who can hold a trial to determine the reasonableness of any proposed rate. This oversight is required by the antitrust consent decrees that govern both ASCAP and BMI.

As we have written before, SESAC, the smallest of the current PROs, is not subject to rate court review for its rates, nor is it restricted from "cutting deals" on the rates that it charges. It is a private company, not subject to any antitrust consent decree. Some music users have, from time to time, suggested that SESAC be brought under such decrees - including a group of TV stations that filed a lawsuit a year ago seeking to impose antitrust scrutiny on SESAC. As SESAC is often able to require royalties from users that seem higher than those that would be due to it if it was paid on a strictly pro rata basis, these kinds of concerns arise from time to time.

But SESAC is still a fairly large organization, in business for a long time, and most media companies are accustomed to dealing with it. EMI, and any other publisher that follows its lead, would seemingly be in a position similar to that of SESAC, and not be covered by the antitrust consent decrees. Thus, any such publisher could charge what it wanted for the public performance right to the compositions that it controls, and even charge different services different amounts. And it may be difficult for licensees to realize that they have to deal with a new organization or organizations to license music, and it will make it harder to determine which songs a music service has licensed or which ones it already has the rights to use. Some webcasters are still are surprised that they have to pay SoundExchange, which has been around in one form or another for a decade, so how will they get the word that they now can't rely on ASCAP, BMI and SESAC for all their public performance needs for musical compositions? While ASCAP's amended regulations (see Section 1.12 of those regulations dealing with this New Media opt-out) provide that ASCAP will must notify all New Media services when any publisher decides to avail itself of this New Media opt-out, and what songs will be licensed directly, as SoundExchange has itself found out, such notices often don't command the attention that one might think that they would.

Collective licensing was developed to provide a one-stop shop to clear vast catalogs of music. Many feel that it is necessary for those users - like a webcaster - who needs acceess to a broad array of music in order to operate its business. When the sound recording performance royalty was first established in the 1990s, it came with a mandatory collective licensing approach (the "statutory license"), so that all users could easily determine how to pay for the music that they use, without needing to deal with every rights holder - perhaps having to negotiate a different deal with each one. As we wrote here, that is why Internet radio has had the Beatles catalog for so long, even though interactive digital music services, which don't have a compulsory collective license only recently have been able to obtain such licenses.

If music publishers associated with record labels generally start to exercise their rights to withdraw their catalog from the PROs, it's possible that they could even exert more control over the use of the sound recordings. If, for instance, they control both the publishing and the master recording (the sound recording) rights to a particular band's music, and they feel that the statutory sound recording performance royalties set by the Copyright Royalty Board are too low for a particular recording, they can effectively block the use of that sound recording by extracting a higher price for the musical composition the next time the license for that composition becomes due. One could even see different prices being charged for the rights to different musical compositions (in fact, most Beatles compositions are held by EMI - so it is possible that every Internet radio operator will not have access to their recordings if this combined licensing scheme goes into effect). While the efficiencies claimed by the publisher might exist in the case of some interactive services, or in cases where you are dealing with a very limited number of songs (e.g. negotiations to use the music in video productions), for traditional Internet radio services, the efficiencies seem to diminish, not increase.

Just what digital services are affected by this move? Broadcasters do not seem to have to worry about this development, as the amendment to ASCAP's regulations allowing this partial withdrawal from its licensing system excluded them (and the definition of "broadcaster" under the antitrust conset decree (see Section II(f)), seems to exclude cable and direct broadcast satellite as well, as indicated in ASCAP's press release on the matter. This exclusion would seemingly include broadcaster's Internet simulcast's of their over-the-air programming. But other digital music services that are subject to Sections 114 (webcasters), 115 ("DPD", or "digital phonorecord deliveries", i.e. copies or reproductions of musical compositions made digitally) and 106(1) (other digital reproductions by audio services), are all covered.

This is an evolving story. There are many questions that remain. One unanswered question is exactly which songs are covered by this opt-out. Another is how it will affect the rates charged by ASCAP. Finally, the practical effect remains to be seen. It may well be that this new system will in fact prove more efficient, or will provide benefits to users and composers - or it may impose some of the burdens that I describe above. Until this is all sorted out, music companies will need to watch carefully to ensure that they license the music they need - from the proper places. More on some of the other issues involved in digital music licensing can be found in our advisory - The Basics of Music Licensing in a Digital World.

NOTE: Corrected 5/10/2011 to note that ASCAP, and not the music publishing company, sends out the notices to the services of a New Media opt out when a publisher decides to exercise it right to opt out of the normal ASCAP licensing scheme.

Tags: EMI New Media licensing, EMI withdraws from ASCAP, Internet Radio, Music Rights, blanket license, compulsory license, digital music royalties, musical composition, performing rights organization, sound recording, statutory license, webcasting royalties

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!

Tags: DMCA safe harbor, ISP liability, Internet Radio, SWCast shut down, internet royalties, soundexchange fees, soundexchange royalties, streaming music fees, webcasting recordkeeping requirements, webcasting royalties

Posted on March 14, 2011 by David Oxenford

Final Webcasting Royalty Rates Published - A Comparison of How Much Various Services Pay

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.

Tags: Internet Radio, Music Rights, comparison of fees paid for music, copyright royalty board, internet radio royalty, performance complement, royalties for music on the Internet, sound recording royalties, soundexchange fees, statutory royalties, streaming royalties, webcasting royalties, what legal issues arise when a broadcaster streams their signal on the Internet

Posted on December 14, 2010 by David Oxenford

Copyright Royalty Board Reaches Determination on Royalty Rates for Webcasting for 2011-2015 - For Internet Radio Operators Not Covered by Webcaster Settlement Act Agreements

The Copyright Royalty Board today released its Determination of Rates for noninteractive webcasting services for the period from 2011-2015. These rates will form the default rates for webcasters who have not opted into one of the many voluntary agreements negotiated last year under the Webcaster Settlement Act (see our summaries of the Pureplay webcaster deal here, the Broadcasters settlement here, the Small Webcasters or "microcaster" settlement here, the noncommercial webcasters settlements here, the Sirius XM settlement here, and the CPB/NPR settlement here). The Board set the following per performance royalty rates as the default rates for webcasters who are not terrestrial broadcasters:

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

Thus, the rates for this coming year will remain at the same level at which they are now set for 2010, and will increase slightly every other year. A performance is one song played to one listener.

The decision also adopted default rates for noncommercial webcasters, setting those rates at the levels agreed to in a settlement between SoundExchange and certain noncommercial educational webcasters reached last year. Those rates establish a minimum fee of $500 for each individual channel offered by a noncommercial webcaster. If the listening on any channel exceeds 159,140 Aggregate Tuning Hours in any month, the webcaster would pay for such overage on a per performance basis at the following rates:

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

The Board also set default rates for broadcasters who are streaming, but who had not opted into the NAB SoundExchange settlement agreement entered into in 2009. The rates for broadcasters are identical to those that apply to broadcasters who did opt into that agreement:

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

As most commercial webcasters had opted into settlement agreements, only Live365 litigated the commercial royalty rates in this proceeding against SoundExchange. As in the Webcasting II proceeding decided in 2007, the Judges were to reach a decision based on the standard of what a willing buyer and a willing seller would agree to in a hypothetical marketplace.

In reaching its decision in the case, the Copyright Royalty Judges rejected Live365’s proposed rates of $.0009 per performance, finding that the expert testimony that it had relied on, which advanced a model based on the performance of an average webcaster who would want to receive a 20% rate of return (comparable to that achieved by broadcast companies), was not supported by sufficient evidence as to what the typical costs of webcast operations were, nor as to why a hypothtical webcaster in a willing buyer-willing seller model would need to achieve that specific rate of return in order to agree on a particular level of royalty payment.

The Judges also rejected SoundExchange's proposed rates. It had advanced a proposal for rates beginning at $.0021 in 2011, and increasing yearly by $.0002 to reach a level of $.0029 in 2015. SoundExchange relied on an expert who took the rates that music services paid for music in the interactive marketplace (where royalties are agreed to in voluntary negotiations between record companies and users, not by a statutory royalty set by the government), and adjusted those rates to determine what he thought would be the rates that were paid without the interactivity. The expert suggested that these would lead to rates as high as $.0036 per performance. The Judges determined that this estimate was too high for several reasons, including the fact that the interactive marketplace was purely a subscription marketplace, and SoundExchange’s expert had not adjusted for the fact that the noninteractive market is primarily a nonsubscription marketplace.

After finding that these two models did not accurately reflect the current marketplace, the Judges turned to the rates negotiated in Webcaster Settlement Act ("WSA") agreements between SoundExchange and the NAB and Sirius XM (for its webcasting services). The Judges looked at those rates as providing a good indication of what a willing buyer and a willing seller would agree to in a hypothetical marketplace, as these rates represented real deals done by players with somewhat equal market power. Under the terms of the WSA, the Judges were able to consider WSA settlement agreements only where the parties to the agreements had agreed that their terms could be used as precedent. SoundExchange, the NAB and Sirius XM agreed to the use of their agreements as precedent. The Pureplay Agreement did not contain terms allowing the lower per-performance rates set out in that agreement to be used as precedent, so the Judges could not consider those lower rates.

The Judges determined that the current rate for 2010 set the lower bound of where the new rates should begin, and felt that some modest increases over time were justified by increased advertising revenues, increased listening, and increased performances being made by webcasters. Thus, the rates were increased at the levels set out above. The Judges did not consider whether the profits of webcasting companies were also increasing.

Parties have 15 days to seek a rehearing, and 30 days from the publication of the decision in the Federal Register to seek an appeal from the US Court of Appeals. The new rates do become effective while an appeal is pending but, as the rates for 2011 remain at the levels currently in place for 2010, that should not be an immediate issue for parties affected by this decision.

In the interests of full disclosure, I acted as co-counsel to Live365 in this proceeding.

Tags: Internet Radio, Music Rights, copyright royalty board, internet radio royalty, webcaster settlement act, webcasting royalties, willing buyer willing seller

Posted on January 6, 2010 by David Oxenford

Copyright Royalty Board Sets Comment Date on Internet Radio Minimum Fee Settlement

Last year’s Court of Appeals decision on Internet radio royalties for 2006-2010 remanded one issue to the Copyright Royalty Board for further consideration – the issue of the minimum annual fee to be paid by each webcaster. The Copyright Royalty Judges (“CRJs”) had decided on a $500 per channel minimum fee – a fee that created much concern in the Internet radio community as there was no clear delineation of what a channel was. For services, like Pandora, where there is a unique stream created for each listener, by some definitions there could be an almost infinite number of channels all subject to the $500 minimum fee. Following the CRB's initial decision, a number of the larger webcasters and SoundExchange entered into a settlement capping the minimum fee obligation at $50,000 per webcaster per year. Thus, services with more than 100 channels would only pay a minimum fee of $50,000 at the beginning of each year. However, this settlement was never extended to all webcasters - it applied only to those webcasters who signed the deal. Following the Court remand, SoundExchange and DiMA (the Digital Media Association which represents many webcasters), submitted the 2007 settlement to the CRB to be codified into the rules that govern webcasters generally. Just before Christmas, the CRJs asked for comments on that settlement. Comments are due by January 22.

In many cases, this settlement has been superseded by subsequent events – namely the settlements with webcasters that were entered into in February and then later in the summer under the provisions of the Webcaster Settlement Acts. Settlements with broadcasters, pureplay webcasters, small commercial webcasters and various noncommercial groups all set their own minimum fees (and, for the most part, cover the periods through 2015), and thus this proceeding is largely irrelevant to these webcasters. If this settlement is approved, the only remaining question before the CRJs on the remand of the 2006-2010 proceeding will be the minimum fee for some noncommercial groups that did not enter into any settlement, as this agreement on minimum fees applies only to commercial webcasters.

It is interesting to note that these minimum fees will finally be set in 2010 – the last year of the current license term, and will establish minimum fees that are due in January of each year (though these fees will no doubt be set after the last January in the term). The whole issue will have to be revisited for the 2011-2015 period in the proceeding that is currently underway to set the royalties for that period. Stay tuned for more information about that proceeding, which should be decided later in 2010.

Tags: Copyright Royalty Judges, Internet Radio, copyright royalty board appeal, copyright royalty board royalties, for, internet radio minimum fees, internet radio royalty payment, music", royalties, soundexchange , webcasting payments, webcasting royalties

Posted on August 30, 2009 by David Oxenford

David Oxenford Speaks on Panel on the Digital Millennium Copyright Act at the Future of Music Coalition Policy Summit

On October 6, 2009, David Oxenford participated in a panel called "Post-Millennium Analysis: The DMCA in the 21st Century" at the Future of Music Coalition's Policy Summit in Washington, DC. Other panelists included David Carson, General Counsel of the US Copyright Office, and Mitch Glazer, Executive Vice President, Government and Industry Relations for the RIAA. The panel discussed, among other topics, webcasting royalties and the proposed broadcast performance royalty, and the safe harbor provisions of the DMCA for services which allow the posting of user-generated content.

Tags: Appearances, Broadcast Performance Royalty, Digital Millennium Copyright Act, Future of Music Coalition Policy Summit, Internet Radio, broadcast performance tax, user generated content, webcasting royalties

Posted on August 9, 2009 by David Oxenford

SoundExchange and Corporation for Public Broadcasting Settlement on Internet Radio Royalties for 2011-2015

The Corporation for Public Broadcasting has entered into a settlement with SoundExchange extending their current agreement on Internet Radio royalties for "Public" radio stations through 2015. The previous deal, about which we wrote here, covered the period from 2006 to 2010. This new agreement picks up in 2011 and covers included stations through 2015. As in the previous deal, the new agreement has a payment by CPB to SoundExchange satisfying all royalties for all of the covered stations. This was the fourth agreement that was announced last week, about which we wrote here, although details of this deal had not previously been released. We have written about the other deals entered into under the Webcaster Settlement Act of 2009 ("WSA"), including the deals with Sirius XM (here) and with other noncommercial webcasters (here).

This agreement covers stations affiliated with NPR, American Public Media, Public Radio International, and the Public Radio Exchange. CPB will pay to SoundExchange $2,400,000 in five yearly installments, covering up to 490 public radio stations in the first year, and up to 10 additional stations per year thereafter (up to 530 in 2015). The fee is also subject to adjustment if all of the covered stations exceed certain listening levels. Those levels, and the required true-up for performances in excess of the caps, are set out below. However, the CPB payments for excess performances are limited to a total of $480,000 over the 5 year period of the Agreement:

Year Music ATH Cap Per Performance Rate

2011 279,500,000 $0.00057

2012 280,897,500 $0.00067

2013 282,301,988 $0.00073

2014 283,713,497 $0.00077

2015 285,132,065 $0.00083

The agreement recites that these rates represent a payment computed on the basis of 1/3 of the rate agreed to in the NAB settlement with SoundExchange (here), minus a discount for the ease of collection caused by the single payment from CPB. If the covered stations stream anywhere near the Music ATH caps set forth above, that discount would be significant. It is also interesting to note that the deal is, by its terms, not precedential in the upcoming CRB proceeding. So why this suggestion as to how it was computed was included in the agreement is not clear.

Individual stations have few obligations directly to SoundExchange under this agreement. It is NPR which makes the election to go forward with this deal, once the CPB Board has approved the deal. It appears that some stations which are major users of music (the top 30% of the users of music among the covered stations) have to provide information about the songs that they play for a majority of their web site performances. Otherwise, simply complying with the rules on streaming, such as the performance complement (which we described here), and providing some information about songs the station played for limited periods of time each quarter, seem to be all that is required of affiliated stations.

For CPB affiliated stations, this settlement provides security through 2015 to allow them to build their Internet radio audiences. It certainly is a benefit of being a CPB station - some of the most successful streaming stations on the Internet.

Tags: CPB SoundExchange royalty settlement, Internet Radio, Internet radio royalties, Noncommercial Broadcasting, internet music fees, internet music royalties, noncommercial internet radio, noncommercial webcaster settlement, public radio webcasters settlement, webcasting royalties

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.

Tags: Internet Radio, Sirius XM music royalties, Sirius music payments, SoundExchange, internet music fees, internet music payments, internet music royalties, internet radio royalties effective date, internet radio royaties, platform parity, pureplay webcasters, pureplay webcasters settlement, sirius soundexchange settlement, sound recording royalty, soundexchange fees, webcasting music fees, webcasting royalties

Posted on July 31, 2009 by David Oxenford

SoundExchange Announces 4 More Settlements Under Webcaster Settlement Act - Sirius, College and Religious Noncommercial Broadcasters and a Group to be Named Later

SoundExchange has posted on its website this afternoon four press releases announcing new settlements of amounts due for Internet radio music royalties. These settlements were negotiated under the provisions of the Webcaster Settlement Act of 2009. The announcement lists settlements with two noncommercial groups representing College Broadcasters and noncommercial religious broadcasters, as well as a deal with Sirius XM for their streaming of music. The fourth deal is with a group to be named later - a little mystery that sounds like something out of a trade of baseball players done right at the trading deadline. In effect, that is the case here, as yesterday was the final date for deals to be done under the terms of the WSA. These deals join the Pureplay Webcasters settlement announced earlier this month, as well as the deals with the Corporation for Public Broadcasting for NPR affiliates, the NAB for commercial broadcasters, and with microcasters done in February under the terms of the Webcasters Settlement Act of 2008 (links to our description of these deals can be found here).

The press releases do not release detailed terms. For Sirius, the release states that the parties agreed to a per performance rate which is not specified, covering webcasting royalties through 2015. These rates do not apply to Sirius performances that are done by satellite, which are covered by the Copyright Royalty Board rates recently upheld by the US Court of Appeals. Instead, these rates only cover the streaming of Sirius programming done over the Internet or to mobile devices using Internet technology. The Collegiate Broadcasters agreed to a rate that provided the flat $500 fee for the first 159,140 aggregate tuning hours a month set by the CRB decision, and then per performance fees at the NAB rates for all streaming above that amount. The religious broadcasters deal is less defined, discussing a per performance rate, but not providing any more details of the agreement. For both noncommercial groups, there are references to reduced recordkeeping requirements for some webcasters, but again, those have not yet been detailed.

We will provide more details about these agreements when they are available, and we'll tell you about the fourth deal once that party is revealed. With these settlements, SoundExchange has announced deals with many, but not all, of the parties who were to participate in the proceeding to determine Internet radio royalty rates for 2011-2015. No deals have been announced with several large webcasters who are not "pureplays", i.e. they have substantial business outside of noninteractive webcasting. NPR also filed to participate in the new proceeding, as their announced deal only covers the period from 2006-2010. Whether any of these webcasters are the the "group to be named later" remains to be seen.

Tags: Internet Radio, Internet radio royalties, Sirius XM music royalties, Sirius music payments, music royalties, music royalty settlement, noncommercial internet radio, nonprofit internet radio royalties, payments by internet radio stations, webcaster settlement act, webcasting royalties

Posted on July 18, 2009 by David Oxenford

Pureplay Webcasters Settlement Agreement Published In Federal Register - 30 Days for Webcasters to Make a Choice

The Pureplay Webcasters settlement agreement, which we summarized here, was published in the Federal Register on Friday, starting the 30 day clock running for the election of the deal by existing webcasters. While this deal offers better per performance rates to large webcasters than offered by the rates established by the Copyright Royalty Board, and higher permissible listening levels to Small Commercial Pureplay webcasters than allowed under the Microcaster deal, this option still is not for everyone. For larger webcasters, there is a minimum fee of 25% of total revenue, so companies with multiple lines of business will not want to opt into the deal. For smaller webcasters, the fees are higher than under the Microcaster deal, including a $25,000 minimum yearly fee, and there are per performance rates that are charged when the webcaster offers services that are "syndicated," i.e. played through a website other than that of the webcaster itself. So electing this deal is right only for larger "small pureplay" webcasters who have revenues over $250,000 (where they will be paying royalties in excess of the $25,000 minimum fee under any deal) and those entities nearing the audience caps of the Microcaster deal. Nevertheless, for those webcasters who fit within the constraints of the deal, it offers benefits over the other existing options. The opt-in date set by the deal is August 17, 2009. The forms to opt into the the Small Pureplay webcasters agreement are here. The forms for larger Pureplay webcasters are here.

Note that this is just one of many options available to webcasters, each tailored to webcasters of specific types. Noncommercial webcasters associated with NPR or the Corporation for Public Broadcasting have their own deal, where essentially CPB pays the royalties. See our description of this deal, here. Streaming done by broadcasters, who would not want to take the "pureplay" deal as their broadcast revenues would be subject to the royalties, have their own settlement agreement, which we described here and here, setting out per performance rates different than those arrived at by the CRB. Small commercial webcasters can elect the "Microcaster" deal, which we described here. And for those entities that don't fit under any of these categories, they will have to pay the CRB rates, which we described here and here. The Radio and Internet Newsletter recently ran a good, basic summary of these alternatives, here. Note that there still is another two week period where, under the Webcaster Settlement Act of 2009, agreements can be reached with SoundExchange by other webcaster groups to potentially pay rates that are different from any of those agreed to so far.

What groups remain who are not satisfied by the existing deals that offer some discount off of the CRB rates? Noncommercial groups not affiliated with NPR, including religious broadcasters, are bound by the CRB rates, which give these webcasters up to 159,140 monthly aggregate tuning hours for $500 per year, but they have to pay the full commercial rates if they have larger audiences - rates that could end up being 10 times higher than those paid under the Small Webcaster Settlement Act provisions which expired in 2006. Larger webcasters, including those that are part of portal sites or other sites that offer far more than webcasting, or those that offer an aggregator service providing hosting, bandwidth and other services to very small webcasters, also do not easily fit into any of the existing categories, as they will end up paying royalties on revenues not affiliated with their webcasting service.

If no deal is reached by these groups, the CRB marches on with its proceeding to determine rates for 2011 to 2015. Direct case exhibits for these webcasters are due at the end of September so, if no deals are reached, there will be more litigation next year to determine what the rates will be for webcasters not covered by any of these deals, or for ones who decide to opt out at a later date.

Tags: Internet Radio, Internet radio royalties, SoundExchange, copyright royalty board, music royalties, music royalty settlement, noncommercial internet radio, online music payments, payments by internet radio stations, pureplay webcasters settlement, small webcaster, sound recording royalty, webcaster settlement act, webcasting royalties

Posted on July 10, 2009 by David Oxenford

Court Rejects Webcaster Challenge to Copyright Royalty Board Decision on Internet Radio Royalties - And Does Not Rule on Constitutional Issue of CRB Appointment

The US Court of Appeals for the District of Columbia today released its decision for the most part rejecting the appeals of webcasters of the 2007 decision of the Copyright Royalty Board setting Internet Radio royalty rates for the use of sound recordings. The Court generally upheld the Board's decision, finding that the issues raised by the appealing parties did not show that the decision was "arbitrary and capricious" - a high standard of judicial review that the Courts accord when reviewing supposedly "expert" administrative agency decisions. On only one issue did the Court have concerns with the CRB's decision - that being the question of the $500 per channel minimum fees that it had required that webcasters pay. The Court found that per channel fee, which could result in astronomical fees for some webcasters regardless of their listenership, was not supported by the record evidence, and remanded that aspect of the case to the CRB for further consideration.

The Court surprised some observers by not reaching the constitutional issue of whether the Copyright Royalty Judges were properly appointed. As we wrote before (see our posts here and here), issues were raised by appellant Royalty Logic, contending that these Judges should be appointed by the President, and not by the Librarian of Congress. In the recent Court decision on the CRB rates for satellite radio, where the issue had not even been raised, one Judge nevertheless wrote that he questioned the constitutionality of the CRB. The Court here decided not to decide the issue - finding that it had been raised too late by Royalty Logic, and raised too many fundamental issues (including whether the Register of Copyrights should herself be appointed by the President, potentially invalidating many copyrights) to be decided on the minimal briefing accorded it by the parties.

This decision really just delays the consideration of the issue of the constitutionality of the CRB. Now that this issue is on the table, it is bound to be raised by other parties in other CRB proceedings. Thus, as the CRB embarks on its consideration of the webcasting royalty rates for 2011-2015, there is a cloud hanging over its existence - one that may take another Court decision, or some corrective action by Congress, to remedy.

Tags: Internet Radio, Internet radio royalties, SoundExchange, constitutionality of CRB, constitutionality of copyright royalty board, copyright royalty board, court decision on webcasting royalties, sound recording royalty, streaming music fees, streaming royalties, webcasting appeal, webcasting royalties

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.

Tags: CRB, Internet Radio, SoundExchange, Webcasters Settlement Act, copyright royalty board, music royalties, music royalty settlement, pureplay webcasters, pureplay webcasters settlement, sound recording, sound recording royalty, webcaster settlement act, webcasting royalties

Posted on June 18, 2009 by David Oxenford

Webcaster Settlement Act Approved By Senate - 30 Days For Internet Radio Royalty Settlements After the President's Signature

The US Senate yesterday passed the Webcaster Settlement Act of 2009, following House passage 10 days ago. Once the Act receives the signature of President Obama, the law will go into effect, and give webcasting groups and the recording industry 30 days to reach a settlement (or settlements) on Internet radio music royalties for the use of sound recordings. While the parties did not need the Act to reach settlements for the period of 2011-2015, which is subject to a new royalty proceeding which is now in its early stages, the WSA extension was necessary to cover royalties for the period of 2006-2010, which are covered by the Copyright Royalty Board decision released in 2007. Without this extension, the rates in effect under the CRB decision (or the rates agreed to under settlements with broadcasters, certain very small webcasters and NPR, and announced earlier this year as authorized by the Webcaster Settlement Act of 2008 ) would have to be paid for that period absent a successful outcome of the currently pending appeal.

Several groups which participated in the last CRB proceeding have yet to reach settlements, including the "Small Commercial Webcasters" (the independent pureplay webcasting companies), the large webcasters associated with the Digital Media Association, and noncommercial webcasting groups not affiliated with NPR. In the only statement made on the floor of the Senate before the unanimous approval of the Act, Senator Leahy, the Chair of the Judiciary Committee, cited the controversy over the rates set by the CRB decision, and stated that it was preferable that the parties involved in the case reach an agreement rather than having new rates imposed by the government (see his statement here). With the passage of this act, the parties now have that opportunity to reach a settlement of the royalties reaching back to 2006. We will see what settlements are announced during the upcoming 30 day period.

Tags: Internet Radio, Internet radio royalties, SoundExchange, music royalties, music royalty settlement, payments by internet radio stations, sound recording royalty, webcaster settlement act, webcasting royalties

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.

Tags: Internet Radio, Internet radio royalties, NAB SoundExchange settlement, SoundExchange, Webcasters Settlement Act, census reporting, copyright royalty board, small webcaster, sound recording royalty, webcasting recordkeeping, webcasting royalties

Posted on March 29, 2009 by David Oxenford

With April 2 Webcasting Election Due for Broadcasters - A Look at the Record Label Waivers of the Performance Complement

As we have written, by April 2, broadcasters who are streaming need to file with SoundExchange a written election in order to take advantage of the SoundExchange-NAB settlement. For broadcasters who make the election, the settlement agreement will set Internet radio royalty rates through 2015. One aspect of this agreement that has not received much attention is the waiver from the major record labels of certain aspects of the performance complement that dictates how webcasters can use music and remain within the limits of the statutory license. When Section 114 of the Copyright Act, the section that created the performance royalty in sound recordings, was first written in the 1990s, there were limits placed on the number of songs from the same CD that could be played in a row, or within a three hour period, as well as limits on the pre-announcing of when songs were played. These limits were placed seemingly to make it more difficult for listeners to copy songs, or for Internet radio stations to become a substitute for music sales. In conjunction with the NAB-SoundExchange settlement, certain aspects of these rules were waived by the 4 major record labels and by A2IM, the association representing most of the major independent labels. These waivers which, for antitrust reasons, were entered into with each label independently, have not been published in the Federal Register or elsewhere. But I have had the opportunity to review these agreements and, as broadcasters will get the benefit of the agreements, I can provide some information about the provisions of those agreements.

First, it is important to note that each of the 5 agreements is slightly different. In particular, one has slightly more restrictive terms on a few issues. To prevent having to review each song that a station is playing to determine which label it is on, and which restrictions apply, it seems to me that a station has to live up to the most restrictive of the terms. In particular, the agreements generally provide for a waiver of the requirement that stations have in text, on their website, the name of the song, album and artist of a song that is being streamed, so that the listener can easily identify the song. While most of the labels have agreed to waive that requirement for broadcasters - one label has agreed to waive only the requirement that the album name be identified in text - thus still requiring that the song and artist name be provided. To me, no station is going to go to the trouble of providing that information for only the songs of one label - so effectively this sets the floor for identifying all songs played by the station and streamed on the Internet.

The agreements otherwise agree to waive the requirements that a webcaster play:

No more than 3 songs in a row by the same artist
Not more than 4 songs by same artist in a 3 hour period
No more than 2 songs from same CD in a row

However, these provisions are waived only insofar as the broadcaster does not "depart materially from today's range of typical over-the-air radio programming practices," citing specifically the practices of having DJs talk between songs and stations running commercials and PSAs between songs. Presumably, if a station were to go all music, with no talk or no commercials for a long period, that would not be within the typical practices of over-the-air radio stations. These waiver agreements also cover HD-2 stations, so stations should be careful that their formatics on these stations which are being streamed do not so totally depart from normal broadcast practices in such a way as to violate these waiver provisions. (Note these waiver agreements do not cover Internet-only channels that a broadcaster may program on its website).

The waivers also do not allow the streaming of an entire CD. In fact, the most restrictive of the provisions limit a broadcaster to streaming no more than half the songs from an album or CD at any time within a 3 hour period. So the "6 album sides at 6" type of promotion may be permissible, as long as the station does not then play another song from the same CD in a proximate time period.

The agreements also provide for a waiver of a provision that many broadcasters are probably not even aware exists - a requirement under Section 112 of the Copyright Act that does not allow "ephemeral copies" of recordings to be kept for more than 6 months. An ephemeral copy is a temporary copy of a sound recording made to facilitate a transmission. For instance, a copy of songs from a CD made by a broadcaster to put the music into a station's hard drive music system would be an ephemeral copy that normally could not be retained for more than 6 months without negotiating a license with the copyright holders. These waivers eliminate that six month limitation.

These waivers are different from the agreement with SoundExchange which covers all copyright holders. The waivers cover only those labels who have signed a waiver agreement. But, as the four major labels and the association representing the major independent labels have signed, most artists played by most radio stations will be covered by these agreements.

Broadcasters who are planning to sign on to the NAB-SoundExchange agreement will have the extra benefit of these waiver agreements. Broadcasters should carefully review these agreements and take advantage of them - an advantage that may give them rights on the Internet that other webcasters do not have.

Tags: HD radio music royalties, Internet Radio, NAB soundexchange agreement, Section 112 of copyright act, broadcaster-soundexchange agreement, ephemeral copy, identifying songs on internet radio, internet radio performance complement, section 114 of copyright act, webcasting royalties

Posted on January 27, 2009 by David Oxenford

Dates Set for Oral Arguments on Webcasting and Satellite Radio Appeals Of Copyright Royalty Board Decisions

The oral argument on the Webcasting appeal of the March 2007 Copyright Royalty Board decision setting Internet radio sound recording royalty rates for 2006-2010 has now been set for March 19. So, if no settlement under the Webcaster Settlement Act (about which we wrote here) is reached before the February 15 deadline set out in that act, the case will go on to the argument, though apparently without NPR, which benefits from the settlement that the Corporation for Public Broadcasting has reached with SoundExchange. Even with a settlement with all of the webcasters, SoundExchange is still being challenged by Royalty Logic, which wants to be an alternative collection agency for music royalties, so the case will probably go forward. Royalty Logic is the party which raised the issue of whether the Copyright Royalty Board was properly appointed under the Appointments Clause of the Constitution, an issue that looks to invalidate the entire CRB decision. Even thought the Court's argument will be held in March, a final decision will likely not be released for several months after the argument.

The royalty case that resulted in the much lower royalties for Sirius XM is also scheduled for argument in March, the week after the webcasters case. That decision, about which we wrote here, was decided under the 801(b) standard, which takes into account not only the perceived economic value of the music (the "willing buyer, willing seller" standard used in the webcasting case), but also factors involving the public's interest in receiving music, and the impact on the industry that the royalties will have. If these cases both go forward, after hearing them in short order, the US Court of Appeals will become the center of the digital music royalty world - at least for a short period of time. Watch for more as these cases develop.

Tags: 801b, Internet Radio, Internet radio royalties, Sirius XM music royalties, SoundExchange, how much does an internet radio station pay for music, royalty logic, webcaster settlement act, webcasting appeal schedule, webcasting royalties, who collects music royalties, willing buyer willing seller

Posted on January 5, 2009 by David Oxenford

Here We Go Again - Copyright Royalty Board Announces Date for Filing to Particpate in Proceeding to Set Webcasting Royalties for 2011-2015

The Copyright Royalty Board today published a notice in the Federal Register announcing the start of its next proceeding to set the royalties to be paid by Internet radio operators for the performance rights to use "sound recordings" (a particular recording of a song as performed by a particular performer) pursuant to the statutory royalty. As we've written extensively on this blog, the statutory royalty allows an Internet radio station to use any publicly released recording of a song without the permission of the copyright owner (usually the record company) or the artist who is recorded, as long as the station's owner pays the royalty - currently collected by SoundExchange. In 2007, the Copyright Royalty Board set the royalties for 2006-2010, a decision which prompted much controversy and is still under appeal. In the Notice released today, the CRB set February 4 as the deadline for filing a Petition to Participate in the proceeding to set the royalties for the next 5 year period.

The 2006-2010 royalties are currently the subject of negotiations as the parties to the last proceeding attempt to come to a voluntary settlement to set royalties that are different than those established by the CRB decision. The Webcasting Settlement Act (which we summarized here) gives webcasters until February 15 to reach an agreement as to rates that would become an alternative to the rates that the CRB established. The Act also permits parties to reach deals that are available not only for the 2006-2010 period, but also allows the deals to cover the period from 2011-2016. Thus, theoretically, webcasters could all reach agreements with SoundExchange to establish rates that cover the next royalty period, obviating the need for the proceeding of which the CRB just gave notice. But, as is so often the case, those settlements may not be reached (if they are) until the last minute - so parties may need to file their Petitions to Participate before they know whether a settlement has been achieved.

The Petitions to Participate can be filed either by individual parties interested in participating in the case, or jointly by parties with common interests. Section 351.1 of the CRB rules require specific contact information for the participant, and a statement of the interest of the party filing the request in the proceeding. A filing fee of $150 per petition is also required. In the next month, there may be the formation of various interest groups ready to participate in this next proceeding. These proceedings are long and expensive, so the formation of groups to jointly participate are often the only way for Internet music services can afford to participate in these proceedings.

At the same time, the CRB noticed the start of a proceeding for the royalty for "new subscription services." These services include subscription digital music services not provided over the Internet, and not in existence in 1998 when the Digital Millennium Copyright Act was adopted. Services that were in existence (like the satellite radio services that were authorized by the FCC when the DMCA was adopted and certain cable music services) are referred to as the "pre-existing subscription services" and are not governed by the "willing buyer, willing seller" standard that govern webcasting royalties. These services, unlike Internet radio, cannot measure exact listenership. Services that came later, such as music services provided by XM and Sirius to the satellite television systems, are the "new subscription services." In 2007, they negotiated a 15% royalty to cover the period through 2010. If they cannot reach an agreement on a new rate, they, too, would have to participate in a new proceeding to determine the royalties that they will pay for 2011-2015. The filing date for these services to partipate in the proceeding to set rates is also February 4.

So the fun starts again - get ready to litigate.

Tags: DMCA, Digital Millennium Copyright Act, Internet Radio, Internet radio royalties, SoundExchange, copyright royalty board, music royalties, preexisting subscription service, royalties for 2011 to 2015, sound recordings, webcasting royalties, webcasting settlement act, willing buyer willing seller

Posted on November 17, 2008 by David Oxenford

Is A Settlement on Internet Radio Royalties Near? Will All Webcasters Be Included and Will They Be Able to Afford It?

The Webcaster Settlement Act, about which we write here, has been signed into law by President Bush, giving parties to the Internet Radio royalty dispute until February 15 to enter into a settlement and have it become effective, without the need for any public comment or any further government approvals. Several recent articles have indicated that a settlement is close - for at least some of the webcasters. In several recent statements, Tim Westergrin of Pandora has indicated that the webcasters in DiMA (the Digital Media Association), in their negotiations with SoundExchange and the record labels, were getting very close to results. At a the Digital Music Conference held in Los Angeles last month, Jon Potter, the President of DiMA, seemed to echo that sentiment. However, neither could state with absolute certainty when the deal would come, or what its terms would be, though in Westergrin's comments at that conference, available here, he stated that webcasters probably would not be happy with the likely outcome of the settlement, implying that there would be a high rate that would be agreed to by the parties, though it would be one less than what the Copyright Royalty Board ordered (and one which would allow companies like his to survive). However, he indicated that perhaps not all webcasters would be able to survive at the rate being discussed, and some might have to try to enter into their own agreements to fit other types of webcast operations. In fact, the Webcasters Settlement Act is not limited to a single settlement, so various other parties who participated in the CRB proceeding - including broadcasters who stream their signals online, small commercial webcasters, and NPR and other noncommercial groups - could negotiate settlements as well, though there have not been any recent public statements that these negotiations were close to bearing fruit.

At a panel that I moderated at the CMJ Music Marathon later in October, which included a SoundExchange representative and a member of its Board, there was a suggestion that further settlements with groups other than DiMA might follow if and when the deal with the large webcasters is concluded. This approach may make some sense as the copyright holders don't want any deals that they cut with small webcasters or noncommercial parties that could affect their negotiations with larger webcasters, from whom the vast bulk of their revenues are derived. Copyright holders naturally want to address the interests that will be the most lucrative. However, this approach does put smaller parties, who are often most worried about potential liabilities and most sensitive to uncertainty, into a very uncomfortable position. As we've written before, the statutory license that is administered by SoundExchange was granted by Congress at least partially to make access to music possible, especially to smaller parties with little bargaining power and little ability to cut deals with thousands of copyright holders, which would be required without this license. Yet these are the parties most in need of relief from the rates imposed by the Copyright Royalty Board, so we hope that the talks of future settlements in fact are accurate.

If and when the settlement is reached, the next major question will be how the Internet radio service will be monetized. A recent New York Times article asks that question, interviewing a number of operators about the difficulties in attracting advertisers to the service. A new blog, Audio4cast, covering the business side of the Internet radio and digital music industry, looks at the question of how the industry can benefit from the current economic crisis. The New York Post has run an article highlighting the fact that, more and more, Internet-only webcasters are cutting back on their services due to the high royalties, while broadcasters are able to grow their on-line listeners by subsidization from their over-the-air business. Recognizing that the industry still has not figured out how to make money from their operations is an important issue in any discussion of royalties, as royalties have to be realistic in light of the real-world business conditions for a vital Internet radio business to exist. We will all have to see if any settlements which do result from the Webcaster Settlement Act recognize these realities and set rates that allow the Internet radio industry to survive and thrive.

Tags: DiMA, Internet Radio, SoundExchange, congress music royalties, congress webcasting, copyright royalty board, internet music license, internet radio settlement, pandora royalties, pandora settlement, royalty settlement, statutory license, webcasting royalties, webcasting settlement

Posted on January 30, 2008 by David Oxenford

Reminder - Internet Radio Royalty Minimum Fee Due on January 31

Each year, Internet radio stations must pay a minimum fee to SoundExchange, and that fee is due by January 31. These minimum fees are applied against the obligations of a Internet radio service to pay royalties for the use of sound recordings on their stations. SoundExchange does not send bills, so webcasters must remember, on their own, to make the payments. For commercial webcasters (including broadcasters who stream their signals on the Internet), under the Copyright Royalty Board decision released last March, a minimum fee of $500 per channel is due. While SoundExchange and certain large webcasters agreed to cap this minimum fee liability at $50,000 no matter how many channels a webcaster transmits (see our post here), this agreement has yet to be submitted to the CRB for approval. Minimum payments are also due from noncommercial and small webcasters.

Under the CRB decision, noncommercial webcasters also owe a minimum fee of $500 per channel. Small webcasters, who earlier this year accepted the SoundExchange offer about which we wrote here, owe a minimum fee of $2000 if they had 2007 revenues of less than $50,000, and minimum fees of $5000 if their 2007 revenues exceeded $50,000. Note that details about these minimums are difficult to locate on the SoundExchange website. Nevertheless, the current rules require that these payments be made. Future settlement negotiations may adjust some of these minimums but, as of this moment, the failure to pay the minimum fees could, at a minimum, subject an Internet radio service to penalty fees and interest payments.

Tags: Internet Radio, Internet radio royalties, SoundExchange, Website Issues, copyright royalty board, internet radio fees, minimum fees, small webcaster, streaming fees, streaming royalties, webcasting fees, webcasting royalties

Posted on December 26, 2007 by David Oxenford

Internet Radio Reminder - No More Aggregate Tuning Hour Royalty After January 1

With 2008 almost upon us, webcasters streaming music on the Internet need to remember that the way of computing and paying royalties to SoundExchange will shift on January 1- a change that may be especially important for broadcast stations. Under the Copyright Royalty Board decision reached last March, webcasters must pay royalties computed on a per "performance" basis. A performance is a per song, per listener computation. In other words, if an Internet radio station plays a song and 15 listeners are logged into the station at the time that the song plays, there would be 15 performances on which the royalty would need to be paid. While broadcasters objected that they did not (and in many cases could not) track the number of performances that were made by their stations on the Internet, the CRB, on reconsideration of their initial decision, only went so far as the give stations an interim rate based on the number of "Aggregate tuning hours" that a station served (e.g. one listener listening for one hour, or two for a half hour each would both be the equivalent of one aggregate tuning hour). See our post, here, on the CRB's reconsideration decision. The aggregate tuning hour (or ATH) metric is one that is more readily obtain from a content delivery network or other bandwidth provider, and a metric that has been used since the first royalties were established in 2002. Yet as of January 1, as the interim ATH rate applied only to 2006 and 2007, that method of payment will no longer be available, and many webcasters are wondering what to do to compute the per performance royalty.

Neither the CRB decision nor SoundExchange, which collects the royalties, explained what a webcaster who cannot count performances is to do when the option to pay based on aggregate tuning hours disappears. The royalty for January performances is due to be paid to SoundExchange on March 16 (45 days after the end of the month), and a webcaster preparing to file its royalty statement on that day will need to have a performance count to include on its statement. Many Internet radio companies have been trying to determine how to count performances and, while there are some services that offer to provide software to do so, it is my understanding that none are foolproof and, in some cases, they may not be able to get a complete count of performances. And many smaller stations may not be able to afford such systems.

Several companies including Ando Media, Abacast and Liquid Compass offer services that will count the number of listeners to a stream and synchronize those numbers with the songs that are being served by a station's music scheduling software to compute a number of performances. Reports of use for filing with SoundExchange are also prepared. We have not tested these services and cannot endorse them, but are providing this list for informational purposes for webcasters to explore further. (There may well be other such services available that readers may suggest). However, as I understand it (and perhaps some readers can correct me if I am not correct), not all of these systems are foolproof. One of the biggest issues is what happens when music does not run through a station's music scheduling software? For instance, if a station is picking up syndicated programming where the syndicator selects the music and the music does not run through the station's scheduling software, some of these services may not be able to track the performances that result from such the webcast of such programs. Other glitches may also exist, e.g. for a radio station where the on-air announcer picks his own music that is never run through any scheduling software.

These and other ambiguities will hopefully be remedied over time. However, with the deadline so close, stations should be aware of the change in the rules, and make plans to comply as fully as possible by the new deadlines - which would mean planning right now, if they have not already done so.

Tags: Internet Radio, SoundExchange, Website Issues, copyright royalty board, music royalties, per song per listener, performance royalties, streaming fees, webcasting fees, webcasting royalties

Posted on November 20, 2007 by David Oxenford

Briefing Dates Set on Internet Radio Royalty Court Appeal

The US Court of Appeal for the District of Columbia has set the briefing dates on the appeal filed by various webcasting groups seeking review of the decision of the Copyright Royalty Board setting Internet radio royalties for the period 2006-2010 for the use of sound recordings (see our coverage of this controversy here, and a detailed summary of the CRB decision here). The briefs of the various webcasting groups who appealed are due on February 25. The brief for the CRB (represented by the Department of Justice) is due on April 25, and that of SoundExchange (the "Intervenor) will be filed on May 15. Reply briefs are due on June 12, and oral arguments are yet to be scheduled. As the Court usually takes a summer break in July and August, the argument is likely to be held in the Fall of 2008, and a decision would likely not come until very late in the year or, more likely, in 2009.

Appeals were filed by the a number of groups including large webcasters (including AOL, Yahoo and DiMA), the small commercial webcasters (who I have represented), various noncommercial groups (including two collegiate broadcasting groups and the National Religious Broadcasters Noncommercial Music Licensing Committee), and various commercial broadcasters who also stream their signals on the Internet. A group called Royalty Logic, which is seeking to become a collective that is competitive with SoundExchange, also filed an appeal of the CRB decision.

Already, there has been a settlement announced on one narrow aspect of the case, the minimum fees for companies that stream multiple channels, limiting the per company minimum fee to $50,000. Obviously, if there are other settlements, these appeals could become unnecessary in whole or in part. See our summary of the remaining issues to be resolved here.

Tags: CRB decision, Internet Radio, copyright royalty board, internet music fees, internet radio royaties, music licensing, sound recording royalty, streaming royalties, webcasting appeal, webcasting royalties

Posted on September 19, 2007 by David Oxenford

SoundExchange Announces 24 Agreements - But Not One a Settlement With Small Webcasters

SoundExchange yesterday announced that it had signed agreements with 24 small commercial webcasters. Contrary to what many press reports have stated, this is not a settlement with Small Commercial Webcasters. In truth, what was announced was that 24 small webcasters had signed on to the unilateral offer that SoundExchange made to small webcasters, about which we wrote here. Essentially, this is the same offer that SoundExchange made in May, which was rejected by many independent webcasters as being insufficient to allow for the hoped for growth of these companies, and insufficient to encourage investment in these companies. These larger Small Commercial webcasters, including those that participated in the Copyright Royalty Board proceeding, rejected that offer and instead have sought to negotiate a settlement with SoundExchange that would meet their needs. Instead of reaching a true settlement with these companies that had participated throughout the CRB proceeding and now have an appeal pending before the Court of Appeals, SoundExchange instead announced that their unilateral proposal was accepted by 24 unnamed webcasters. Thus, rather than negotiating a settlement, if anything this announcement shows that SoundExchange has not been willing to negotiate - as it has not moved substantively off the proposal they announced over 4 months ago.

While 24 webcasters may have signed on, it would seem that these must be entities that don't expect to grow their revenues to $1.25 million, or grow audiences that reach the 5,000,000 tuning hour limit at which, under the SoundExchange-imposed agreement, the webcaster needs to start paying at the full CRB-imposed royalty rate. Moreover, the agreements only cover music from SoundExchange members, excluding much independent music that many webcasters play. For music from companies that are not SoundExchange members, a webcaster has to pay at full CRB rates. For a small service playing major label music, the agreement may cover their needs, but for the larger companies playing less mainstream music, a different deal is needed.

SoundExchange's press release announcing the agreements claimed that other small webcasters did not sign the agreement because aggregators would pay their royalties or because their business models more appropriately fit with the CRB rates. The press release does not mention that many webcasters did not sign because their business models include growing their businesses without going bankrupt, which does not seem to fit under the SoundExchange proposal. If this is the only deal that SoundExchange offers to small independent webcasters, SoundExchange will effectively do away with the independent webcaster who is serious about growing a business, but to whom a per performance royalty creates a situation where royalties exceed revenues. This would leave us with an industry essentially made up of hobbyists and big companies that subsidize their webcasting with their other lines of business - essentially crushing the hopes of those who saw the Internet as a way to build an independent radio business.

Small webcasters are not the only ones that are having settlement problems. According to a letter released by NAB President David Rehr, after over 3 months of waiting, SoundExchange rejected a proposal from broadcasters to reach a compromise on their streaming royalties. The Rehr letter claims that the rejection from SoundExchange, which is not public, did not seem to understand the broadcaster proposal. SoundExchange President John Simson was also been quoted as saying that he expected to reach a settlement with NPR over their streaming royalties by the end of September. With 12 days to go before the end of the month, we will see whether this is really a deal come true, or another settlement without substance.

Tags: Internet Radio, SoundExchange, copyright royalties, copyright royalty board, internet royalties, music royalties, royalty settlement, small commercial webcasters, webcasting, webcasting royalties

Posted on August 22, 2007 by David Oxenford

Another Offer From SoundExchange - Still Not a Solution

Yesterday, SoundExchange sent to many small webcasters an agreement that would allow many to continue to operate under the terms of the Small Webcaster Settlement Act as crafted back in 2002, with modifications that would limit the size of the audience that would be covered by the percentage of revenue royalties that a small webcaster would pay. A press release from SoundExchange about the offer can be found on their website by clicking on the "News" tab. This is a unilateral offer by SoundExchange, and does not reflect an agreement with the Small Commercial Webcasters (the “SCWs”) who participated in the Copyright Royalty Board proceeding to set the rates for 2006-2010 and who are currently appealing the CRB decision to the US Court of Appeals (see our notes on the appeal, here). The SoundExchange offer, while it may suffice for some small operators who do not expect their businesses to grow beyond the limits set out in the SWSA (and who only play music from SoundExchange artists - see the limitations described below), still does not address many of the major issues that the SCWs raised when SoundExchange first made a similar proposal in May, and should not be viewed by Congress or the public as a resolution of the controversy over the webcasting royalties set out by the CRB decision (see our summary of the CRB decision here).

The proposal of SoundExchange simply turns their offer made in May, summarized here, into a formal proposal. It does not address the criticisms leveled against the offer when first made in May, that the monetary limits on a small webcaster do not permit small webcasters to grow their businesses – artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies. The provisions of the Small Webcasters Settlement Act were appropriate in 2002 when they were adopted to cover streaming for the period from 1998 through 2005, as the small webcasters were just beginning to grow their businesses in a period when streaming technologies were still new to the public and when these companies were still exploring ways to make money from their operations. Now that the public has begun to use streaming technologies on a regular basis, these companies are looking to grow their businesses into real businesses that can be competitive in the vastly expanding media marketplace. The rates and terms proposed by SoundExchange simply do not permit that to occur.

To receive investment necessary to grow, the SCWs cannot be limited to $1.25 million in revenue. No investor will invest in a business which, when it reaches an artificial revenue threshold, essentially is forced to go bankrupt – as all projections show that the CRB royalties would exceed total revenue of a SCW even if it makes more than $1.25 million in revenue.

The new restriction added in this offer by SoundExchange, one that requires a small webcaster to pay at the CRB rate for all listening that exceeds 5,000,000 aggregate monthly tuning hours, would already have some SCWs paying substantial sums in addition to the percentage of revenue royalty. And, at the growth rates projected for some SCWs, the amount necessary to pay such overages could exceed the $1.25 million revenue threshold – exceeding the amount of revenue that a small webcaster is allowed to earn under the SWSA provisions.

Even more importantly, it must be noted that the offer by SoundExchange does not allow a webcaster to play all music for their 10-12% of revenue as did the Small Webcaster Settlement Act – it only allows them to play music of SoundExchange members. For all music from artists who are not SoundExchange members, the full CRB-determined royalty would have to be paid. Thus, a webcaster will have to assess its music choices, and play only the songs released by SoundExchange members (principally the major labels and some independent labels) rather than the diversity of music from small labels and independent artists, the kinds of music that the statutory royalty was supposed to make easier to play through the “one-stop shop” that a statutory license provides to an Internet radio service.

SoundExchange has informally indicated that it will continue discussions as to the concerns of the SCWs. The only way to resolve these issues is through meaningful negotiations, or through legislation like that proposed in the Internet Radio Equality Act. Unilateral proposals simply don’t address all the issues that have caused so much outrage over the CRB decision. In order for these independent companies to build profitable businesses that will promote music and be able to pay reasonable royalties, something more than what SoundExchange has offered must be available.

Tags: Internet Radio, Internet Radio Equality Act, Internet radio royalties, SoundExchange, copyright royalty board, internet radio music, percentage of revenue royalty, small webcasters, streaming music, webcast music, webcasting royalties

Posted on July 12, 2007 by David Oxenford

Court Denies Webcaster Stay

Yesterday, a three judge panel of the US Court of Appeals in Washington, D.C. denied the Emergency Motion for a Stay of the Internet Radio Royalty rates set earlier this year by the Copyright Royalty Board. Our coverage of the stay motion can be found here and here. Coverage of the entire royalty issue and the surrounding controversy can be found in various posts on our blog, here. The denial of the stay means that, absent Congressional action or some voluntary agreement of the parties, the new rates will go into effect with payments for the period since the CRB decision being due on Monday, July 16.

The Court's decision was very brief - in essence three sentences which merely stated that the moving parties had not met the high legal burden necessary for the Court to impose a stay. A stay is an extraordinary legal action, taken by a Court as part of its equitable powers to insure that justice is carried out. In order to justify a stay, a party must show the Court that there is a likelihood of success on the merits of the case (in other words, it must prove in a 20 page stay motion the likelihood that it will eventually win its appeal after full briefing and oral argument), plus it must prove that there will be irreparable harm if the stay is not issued (more than simply a loss of money - but harm that cannot be remedied if the appeal is eventually successful). Weighing those factors, and balancing the competing interests of the parties and the public interest, the Court decides whether or not to issue a Stay. In this case, as there was no more than the pro forma Order, we do not know what shortcomings the Court perceived in the Motion seeking the Stay, but no reasons are required as the Court can merely decide not to exercise its equitable discretion in a case.

Thus, with only days to go before the obligation to pay the new higher royalties kicks in, webcasters' hopes are limited to Congressional actions or voluntary agreements to stay these new obligations. While the appeal will continue and be fully briefed and argued over the course of the coming year, none of the due dates for these actions, much less an anticipated date for a Court decision, has been set. The due date for the royalties does not mean that negotiations necessarily end, or that lawsuits will follow the next day if a webcaster does not pay on time, but the potential liability for obligations will be looming over each webcaster, as well as the potential for lawsuits for collection of royalties and copyright infringement against those who do not timely pay. It will obviously be of interest to all webcasters to watch and see how the parties act in these coming days. Will there continue to be talks - or will the recording industry take a hard line? We will see.

Tags: Internet Radio, Internet radio royalties, copyright royalty board, copyright royalty stay, internet radio music payments, webcasting music, webcasting royalties, webcasting stay

Posted on July 3, 2007 by David Oxenford

Minimum Per Channel Fee Offer - Waiting for the Stay?

Last week brought more action, and not much in the way of results, as we count down to the July 15 effective date of the new Internet Radio Royalties. The actions that received the largest amount of press coverage were the hearing before the US House of Representatives Small Business Committee, and the offer by SoundExchange suggesting that the minimum $500 per channel fee be capped at $2500 per service. While both initially seemed to offer the prospect of some resolution of the dispute over the Internet Radio royalties that were adopted by the Copyright Royalty Board, in fact neither ultimately resulted in much.

The Committee hearing featured webcasters and musicians - equally divided between those who believed that the royalties were fairly decided, and those who believed that the rates were too high. The one thing on which most of the witnesses seemed to agree was that some rate adjustment was warranted for small webcasters, though no one was able to quantify how such a settlement should be reached. The Congressional representatives, on the other hand, were cautious to act, asking again and again whether the parties were going to be able to settle the case between themselves. While Congressman Jay Inslee testified in favor of his Internet Radio Equality Act, the members of the committee seemed hesitant to act while there were judicial avenues of relief still pending, and the possibility of settlement.

SoundExchange, perhaps sensing some vulnerability on the pending appeal - including the current request for a stay of the decision - made an offer that seemed to resolve one of the most contentious issues - the $500 per unique channel minimum fee which alone would cost webcasters billions of dollars by some estimates. SoundExchange publicized an offer to cap the yearly minimum fee at $2500 - but agreed to that cap only through 2008. This offer was promptly rejected by the Digital Media Association, as it would only postpone the inevitable bankruptcy of some Internet radio companies that have huge numbers of individually generated streams. One almost wonders if this offer was only advanced by SoundExchange to blunt the force of the request now pending before the Court of Appeals seeking a stay of the decision while the appeals are heard.

The pleadings have all been filed on that stay, and the parties are waiting for that action or some other as the clock ticks down to the July 15 effective date of the CRB decision.

Tags: CRB appeal, Internet Radio, Internet radio royalties, Small Business internet radio, copyright royalty board, internet radio court, internet radio minimum fees, royalty appeal, webcasting appeal, webcasting royalties

Posted on June 26, 2007 by David Oxenford

A Day of Silence, A Motion for Stay, and A Congressional Hearing - As the Internet Radio Clock Ticks Down

As the clock ticks down to the July 15 effective date of the royalty rates for Internet Radio as determined by the Copyright Royalty Board, webcasters held a Day of Silence today, June 26, to demonstrate to listeners what may well happen if the rates go into effect, and to galvanize their listeners to ask Congress for relief. With the Day of Silence bringing publicity to the Congressional efforts to put the webcasting royalties on hold and to change the standard applied by the Copyright Royalty Board so that it is not focused completely on a hypothetical "willing buyer, willing seller" model, it's worth looking at some of the other issues that have arisen in the royalty battle in the last few days - including further pleadings filed in connection with the Motion for Stay currently pending in the US Court of Appeals, and the Congressional hearing that will occur on Thursday.

As we've written before, there is currently pending a Motion for Stay of the CRB decision which was submitted jointly by the large and small webcasters and NPR. Last week, the Department of Justice, acting on behalf of the Copyright Royalty Board to defend the royalty decision, and SoundExchange, each filed oppositions to the Motion for Stay. Each raised many of the same arguments. First, they argued that the large webcasters had procedurally forfeited their rights to challenge the question of the $500 per channel minimum fee by not raising their objection early enough in the CRB proceeding. The DOJ also argued that the damage from the minimum fee was speculative as there was no way to know how that minimum fee would be interpreted. The DOJ contended that, as it was unclear that SoundExchange would prevail on any claim that those Internet Radio services that produced a unique stream for each listener would have to pay $500 for each such stream, the question might end up in a lawsuit – but wouldn’t inevitably lead to the irreparable harm that is necessary for a stay to be issued.

As to the Small Webcasters, the DOJ seemed to acknowledge that irreparable harm would occur if the stay wasn’t granted as the royalties would exceed the revenues of these webcasters, though SoundExchange seemed to take the position that if some webcasters went out of business, that might not be irreparable harm as the loss of some of these webcasters would not harm the overall industry. SoundExchange also contended that, if the appeal were ultimately successful, these webcasters could get a refund of any fees that were higher than a rate that was eventually decided (seemingly overlooking the fact that these webcasters could not pay in the interim). Finally, the parties argued that the Small Webcasters had not addressed the reasons that the CRB had given for rejecting the percentage of revenue royalty that they had requested. Interestingly, the DOJ concluded its brief by suggesting that if any stay was granted, it should be limited to small webcasters who were paying royalties under the Small Webcaster Settlement Act.

Finally, the oppositions argued that NPR had not shown that it was arbitrary for the CRB to determine that they should pay royalties at the commercial rate (if they streamed over 158,000 aggregate tuning hours in a month - the amount that noncommercial streaming companies can stream for the $500 minimum fee), and that NPR had not demonstrated that their members could not track the on-line listnership of their stations, as had been claimed in the Stay request.

On Friday, the webcasters filed their Reply to these Oppositions. The webcasters, of course, contended that the oppositions had misread the evidence. The large webcasters pointed to places in the record where they had argued with the minimum fee proposal of SoundExchange, and also pointed to services like those provided by Yahoo!, Pandora, and Live 365 to show the irreparable harm that would occur if the stay was not granted. The Small Webcasters took issue with SoundExchange’s position that their demise did not constitute irreparable harm, and pointed out that their proposal to base a percentage of revenue royalty on their entire revenue addressed all of the CRB’s reasons why a percentage of revenue royalty was not proper (i.e. there was no definitional question of what revenue was subject to the royalty, and the definition of a small webcaster was easy – it was any entity willing to pay based on a percentage of their total revenue). NPR also pointed to evidence that it alleged refuted the contentions of the parties defending the CRB decision.

With the filing of the Reply, the Motion for Stay is now ripe for judicial action. There is no time frame in which the Court must act, though it is certainly hoped that the decision is released before the July 15 deadline so that services know where they stand before the new royalties have to be paid.

In addition to the appeal, Congressional action on Internet radio continues. On Thursday, the Small Business Committee of the House of Representatives holds a hearing on the effect of the CRB royalties on small businesses. Both webcasters and musicians will be testifying. The witness list for the hearing can be found here.

And finally, there was today's Day of Silence to drum up support for the Internet Radio Equality Act (see our summary here). While most webcasters, including some of the largest webcasters in the country (Yahoo! and Pandora) are participating, as well as most NPR affiliates, press reports indicate that many commercial broadcasters (with the notable exception of Greater Media and Saga) did not observe the day. While broadcasters are about to be faced with a push for similar royalties for their over-the-air broadcasts (see our story here), many seemingly have yet to recognize the threat that these royalties present to their Internet operations. Throughout the royalty proceeding, only a few broadcast groups actively participated in the proceeding (Clear Channel, Salem, Bonneville, Susquehanna CBS for a portion of the proceeding). Many broadcasters remained on the sidelines, and continue to be ambivalent to their support of efforts to overturn the decision. While the NAB has now, belatedly, joined in the fight by seeking intervention in the pending court appeal, the failure of radio broadcasters to join in the day of silence may indicate a continuing ambivalence on the part of some as to whether Internet radio is a threat or an opportunity, so many remain unsure what to do. A post in Mark Ramsey's hear 2.0 blog, here, discussing his take on the ambivalence of broadcasters in this debate is worth reading.

With all these efforts and continuing settlement discussions ongoing, one hopes that today's Day of Silence is not a precursor of things to come.

Tags: Broadcast Performance Royalty, Day of Silence, Internet Radio, Internet Radio Equality Act, Internet radio royalties, NPR Internet royalties, small webcaster, webcasting legislation, webcasting motion for stay, webcasting royalties

Posted on June 16, 2007 by David Oxenford

30 Days And Counting Down to the New Internet Radio Royalty Rates

With July 15 now less than a month away, the new Internet Radio music royalties are still scheduled to go into effect. Congressional legislation is slowly being considered, and a Motion for Stay to put the regulations on hold pending appeal has been filed (see our post here). Some discussions on settlement have also taken place, though no deals have been done. Without some action, payments under the new rules will soon be due. See our memo, here, for more details on the CRB decision, and all of our posts on this issue, here. While the legal and legislative actions are still proceeding, and the clock is counting down, the coverage in the popular media continues to grow. In two recent discussions of the issue, SoundExchange spokesmen seem to blame Internet Radio for the current woes of the recording industry and to justify the high royalty rates through comparisons to the illegal pirating of copyrighted music. All of these issues will be discussed at a seminar that I am moderating later this week at the Digital Media Conference in the Washington DC area.

One example of SoundExchange's recent claims can be found in a series of articles found on the Los Angeles Times website featuring a "Dust-up" exchange of viewpoints on the Internet radio issue, between Kurt Hanson, owner of Internet radio broadcaster Accuradio and the publisher of the Radio and Internet newsletter, and Jay Rosenthal, a Board member of SoundExchange. Mr. Rosenthal, in attacking the value of Internet radio as a promotional tool, said that while webcasters might excite people about new music, most new music is now illegally downloaded so that the promotion doesn't actually help the artists. But, as Kurt Hanson points out, that would essentially be an excuse for never promoting any music in any venue - in fact it seemingly would be an excuse for shutting down the recording industry. If music promotion just leads to illegal file sharing sites, and little or no music is ever to be sold again, why bother? Does the recording industry really expect to make up for lost sales by receiving royalties from Internet radio? Yet the same point seems to be made by SoundExchange President John Simson in a piece done by the PBS program NOW. That program focused on the Internet Radio station Radio Paradise and how its popular, eclectic music mix will be silenced if the new royalties go into effect. In that story, Simson also points to illegal downloading as causing the woes of the music industry, seemingly implying that this justifies outrageous royalties - yet offers nothing to tie downloading to Internet radio.

SoundExchange's recent discussions of the issues seem to accept the fact that the royalties will put much of the advertising-supported Internet radio industry out of business. Initially, when the decision was first released, the public responses of SoundExchange seemed to be that the industry was crying wolf - that it could really afford these rates. That claim is not heard as often any more. As more evidence was advanced to show that the royalties would exceed the revenues of most ad-supported webcasters, the next argument advanced by SoundExchange seemed to be that it accepted that most webcasters would go out of business, but it was the webcasters' own fault because of their lousy business models. That too seems to have quieted, as Congress seems to want there to be diversity among webcasters(see our article about the settlement offer made to small webcasters after Congressional pressure). Now, it seems that illegal file sharing has become the principal justification for the rate - almost as if the claim is that if the record industry is suffering so should the Internet radio industry.

Of course, there are other justifications offered for the rate - that the decision is one that was legally arrived at and should therefore be followed, that big webcasters can indeed afford the high rates, that the copyright belongs to the artists and labels and they ought to be able to do what they want with it. We will see in the next 30 days how all these arguments play out. We will be exploring these issues on a panel I will be moderating at the Digital Media Conference in Silver Spring, Maryland on Friday, June 22. The panel will feature representatives from SoundExchange, from NPR and DiMA, and Kurt Hanson from Accuradio and the Radio and Internet Newsletter. If you plan to be in the DC area on Friday and are interested in this issue, you may want to attend.

Tags: Internet Radio, Internet radio royalties, On Line Media, SoundExchange, copyright royalty board, digital music royalties, file sharing, internet music payments, payments for internet music, webcasting royalties

Posted on May 1, 2007 by David Oxenford

Final Decision of the CRB Issued - and Royalty Due Date is Postponed

On the same day that many webcasters were on Capitol Hill lobbying for the Internet Radio Equality Act, the Copyright Royalty Board issued its Final Determination of Rates and Terms today, and it was published in the Federal Register. That action starts the clock ticking on appeals which must now be filed in 30 days. In the Final Determination, the Board included a few revisions in its initial decision, reflecting the issues that it addressed in response to the Rehearing motions - including provisions adding a transitional period of two years during which webcasters can pay using an Aggregate Tuning Hour formula instead of paying based on each performance. Surprisingly, the Board also amended the rules that it adopted governing the timing of the first payment under the new royalty rate, making the first payment due 45 days from the end of the month during which the Final Determination was issued. As the decision was issued today, May 1, that would delay the due date for the first payments under the new royalties until July 15.

The statute governing the Copyright Royalty Board allowed the Library of Congress to review the CRB decision to determine if the Librarian (through the Copyright Office) saw any obvious errors of law. Apparently, the Librarian found none (though that does not mean that there are not issues that can be raised on appeal), leading to the publication of the decision in the Federal Register. Appeals are due 30 days after that publication. On that date, parties file a Notice of Appeal, which provides notice to the Court of Appeals that parties believe that the decision was in error. After those notices are filed, the Court will set briefing schedules and oral arguments. The appeal process that can take a year or more before a decision is rendered.

Our previous coverage of the CRB proceeding can be found, here.

Tags: Internet Radio, Internet Radio Equality Act, Internet radio royalties, copyright royalty board, webcasting royalties

Posted on April 26, 2007 by David Oxenford

Internet Radio Equality Act Introduced to Nullify Copyright Royalty Board Decision

The Internet Radio Equality Act was introduced in the House of Representatives today, proposing several actions - most significantly the nullification of the decision of the Copyright Royalty Board raising royalty rates for the use of sound recordings by Internet radio stations. Our summary of the decision and its aftermath can be found here. In addition to nullifying the decision of the Board, the Act does the following:

Changes the "willing buyer, willing seller" standard used to determine royalty rates for Internet radio to the "801(b)" standard - named after section 801(b) of the Copyright Act, which considers a variety of factors in determining royalties - factors including possible disruption to the industry of royalties, the maximization of the distribution of the copyrighted work to the public, the relative value of the contributions of the copyright holder and the service, and the determination of a fair rate of return to the copyright holder. The 801(b) standard is the used for determining rates for satellite radio and digital cable radio.
Establishes an interim royalty rate for 2006-2010 of (at the choice of the webcaster) either .33 cents per Aggregate Tuning Hour of listening or 7.5% of the service's revenues directly related to Internet radio
For noncommercial radio, places the royalty determination into Section 118 of the Copyright Act, which is where other noncommercial royalties (including the royalty for ASCAP and BMI for over-the-air use of musical compositions) are found, using the standards set forth in that section; and
Establishes a royalty for 2006-2010 for noncommercial entites at 150% of the fee that the service paid for the sound recording royalty during 2004.
Requires three studies to be conducted after the initiation of the next royalty proceeding, that will be submitted to the Copyright Royalty Board for their consideration in that case. One study, by the National Telecommunications and Information Administration ("NTIA"), would study the economic impact of royalties on the competitiveness of the Internet radio marketplace. A second, to be conducted by the FCC, would study the impact of royalties on local programming, diversity of programming (including foreign language programming), and the competitive barriers to entry into the Internet radio market. A final study, by the Corporation for Public Broadcasting, would provide information to the CRB on the impact of the royalties on public radio operators.

This act has been introduced in Congress, sponsored initially by Congressmen Jay Inslee of Washington (D) and Donald Manzullo of Illinois (R). The introduction merely starts the Congressional process. Additional sponsors will need to be gathered, the bill will need to be considered by a committee of Congress (where a "mark-up" usually occurs, allowing changes to be made before the bill is reported out of committee) , and then the bill would have to be approved by the full House. Often, hearings will be held on the impact of the bill. A similar process would need to occur in the Senate, and then the bill would have to be signed by the President before it becomes law. Significant public support will need to be necessary for this process to be completed as, no doubt, the bill will be opposed by SoundExchange.

This is but a first step toward resolving the issues that have arisen since the CRB has released its decision. While there may questions that will arise as this bill is considered and debated, webcasters certainly welcome this first step in resolving the issues they have with the CRB decision - both short term (the impending royalty obligations) and long term (the "willing buyer-willing seller" standard that the CRB had to use to resolve the case).

Tags: Internet Radio, Internet Radio Equality Act, Internet Radio Fairness Act, Internet radio royalties, copyright royalty board, statutory royalties, webcasting royalties

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