Monday, July 16th is the first business day after the effective date of the new Internet Radio royalties set by the Copyright Royalty Board. As we wrote earlier this week, the Court of Appeals has denied the requested stay of the effective date. And, while a bill was introduced in Congress this week to provide for a legislative stay, that will not be acted on by Monday, nor will action occur on the broader Internet Radio Equality Act. Thus, many webcasters are asking what they should do on July 16. Some have suggested that they should stop streaming, while others have wondered what will happen if they don’t pay the higher royalties. This decision is one that each webcaster should make carefully, in consultation with their counsel and business advisers. But there are some practical considerations that should be taken into account when making the decision as to what should be done on Monday.
First, it should be noted that not all webcasters are equally affected by the royalty rate increase. Larger commercial webcasters, including most broadcasters who are streaming their signals on the Internet, should have been paying royalties up to now that, while lower than those adopted by the CRB, have increased by "only" about 40% – from $.00076 per performance (per song per listener) to $.0011 per performance. These rates will continue to increase between now and 2010 so that they eventually will reach $.0019 per song per listener. But for now, the increase is relatively modest (as compared with some of the other increases discussed below). While there are reportedly at least some conversations going on between SoundExchange and groups representing broadcasters and large webcasters about reaching some sort of accommodation on royalties, there is no certainty that any deal will be reached, so these webcasters probably should be paying the higher royalties (and hoping for a credit against future royalties should there be an agreement reached in the future to reduce these royalties, a successful appeal, or future legislative action reducing the royalties).
For other webcasters, it is much more difficult (in many cases impossible) to pay the new higher royalties. For instance, the small commercial webcasters that I have represented in the CRB proceeding, would in most cases be paying over 100% of their revenues in royalties under the new rates. Large noncommercial webcasters who exceed the 157,000 monthly aggregate tuning hours that they get for a $500, end up paying royalties in some cases more than five times what they were paying in the past and, in the case of NPR stations, increases even greater than that. But these are the parties with whom SoundExchange has made public statements that they are attempting to negotiate special deals. In some press reports, for instance Friday’s Radio and Internet Newsletter, it was reported that SoundExchange would withhold any action pending the outcome of these negotiations, and that they had made a similar statement to a Congressional meeting held by Congressman Markey and the House Telecommunications Subcommittee on Thursday. As a participant in that non-public meeting, I cannot comment on any of those discussions, but as I wrote here before the meeting, one would hope and expect that SoundExchange would exercise restraint in its dealings with parties who continue to pay at rates at which they paid in the past, if those parties are actively negotiating in good faith on the SoundExchange offers to noncommercial webcasters and small commercial webcasters.
It should be noted that any offer by SoundExchange is not legally binding until it has been finalized with the groups representing the webcasters involved, approved by the SoundExchange Board, and then ratified by the CRB or through some other form of government action. And until that happens, copyright holders could take legal actions against those who have not met their legal obligations. This is also true for the announced offer by SoundExchange to cap the per stream minimum fees at $50,000 – which will help those webcasters with multiple unique channels who were fearing crushing minimum fee liabilities. But, again, the details of that "deal" need to be worked out. Thus, there can be no certainty that any future action will protect webcasters who do not come into full compliance on Monday. All webcasters need to take these facts into account in deciding how to act.
There are other considerations to keep in mind for webcasters contemplating what to do now that the 15th has arrived. First, as these royalties are retroactive to January 1, 2006, if there is not some change in the royalties, many webcasters (particularly small commercial webcasters and large noncommercial webcasters) already have accumulated huge back liabilities that would technically exist even if they terminate operations today. As these liabilities already exist, that may make some webcasters involved in negotiations with SoundExchange about a possible reduction in the royalty amounts consider whether the immediate cessation of streaming would significantly reduce their potential liability.
Moreover, for those webcasters involved in appeals of the CRB decision, there is at least some language in the statute governing these proceedings that would suggest that these royalties are not due until the appeal has been resolved. While the CRB regulations state that these royalties are due now, those regulations were written before any appeal was filed, and would not necessarily address that contingency. Again, though, the statute is not a model of absolute clarity, so webcasters should consult with their own legal counsel to determine how to proceed before taking this position.
All of these considerations must be carefully evaluated in deciding what to do on Monday. For many larger webcasters, the answer would appear to be that the royalty should be paid. For other noncommercial and small commercial webcasters, realities may require closer examination of their options. But any decision should be made after careful thought and consultation with counsel. Then – watch the developments as they occur in the upcoming weeks.