A full year ago, the Copyright Royalty Board released its decision setting royalties for the use of sound recordings by Internet Radio webcasters (see various posts on the subject here).  As an article this week in the Boston Globe sets out, despite much talk of a post-decision settlement to lower the royalties set by the CRB that many Internet Radio operators claim will put their stations out of business, no such settlement has yet been announced.  And, in a week that brought about the transfer of the operations of one of the largest webcaster’s operations to a traditional radio company (as CBS took over operations of AOL’s Internet Radio service), appeals of the decision were filed with the US Court of Appeals for the District of Columbia.  A busy week, but still no resolution of the Internet radio controversy.

Four separate appeals briefs were submitted to the Court.  One was a combined brief of the large Webcasters (represented by DiMA, the Digital Media Association) and the Small Webcasters(Accuradio, Radioio, Digitally Imported Radio, Radio Paradise), another was submitted by several commercial broadcast groups (Bonneville, the NAB and the National Religious Broadcasters Association) and a third by several noncommercial groups (including college broadcasters, NPR, and noncommercial religious broadcasters).  A final brief was submitted by Royalty Logic, a company that wants to become an alternative to SoundExchange as the collection agent for performers.  These briefs will be answered by the Department of Justice (defending the CRB and its decision before the Court) and SoundExchange.  The briefing process will continue for several months, with an oral argument to follow, quite possibly not until the Fall.  Thus, a decision in the case may well not be reached until 2009. 

The briefs filed by the parties raised a number of issues about the CRB decision including the following:

  • The failure of the CRB to even address the proposal for broadcasters to pay a flat fee for streaming, similar to the flat fee that they pay to ASCAP and BMI
  • The failure of the Board to adopt a flat fee for noncommercial stations, similar to that which had previously been negotiated between SoundExchange and NPR
  • The determination by the Board that the Small Commercial Webcasters were not really concerned about a percentage of revenue royalty, despite consistent testimony that the fee was necessary to their survival
  • The adoption of a $500 per channel minimum fee in spite of the lack of evidence that this fee in any way reflected SoundExchange’s costs of collection.
  • The determination of the royalty rate using a model derived from on-demand services, even though the model used an adjustment factor between the two types of services was abandoned by SoundExchange in the Satellite Radio proceeding, and despite the fact that there was an agreement between the record companies and Yahoo for certain streaming with limited amount of interactivity that provided an analogy much closer to the non-interactive streaming at issue here, that was never mentioned by the Board (though a similar Yahoo deal formed the basis of the royalty decision in 2002).
  • The decision by the CRB that it had to adopt a proposal that was advanced by the parties, and could not split the difference by adopting a rate that it derived from the totality of the evidence – resulting in the Board essentially adopting the SoundExchange proposal.

While the appeal process progresses, the Boston Globe article made clear that the negotiations about a voluntary settlement are also still dragging on without any resolution.  The Court briefs had been delayed for two weeks in expectation that a settlement between SoundExchange and certain noncommercial webcasters might be reached, thereby obviating the need for the preparation of the briefs for those parties.  Yet the two weeks went by, and no settlement was reached.

The AOL-CBS deal may well reflect the determination by many Internet-only webcasters that they cannot make a business out of webcasting under the current economic conditions.  Note that the Globe article also mentions the efforts made by other webcasters, such as Live 365, to reduce their streaming in order to reduce their royalty obligations.  Rumors are that other Internet radio companies are also limiting their audiences, as appears evident by the Average Quarter Hour listening of Yahoo! which, according to Arbitron measurements, have decreased from over 300,000 to approximately 220,000 between May and June and December, the last numbers available on the Arbitron website.

Without an adjustment in the royalties, the promise of Internet radio, to provide diverse sources of programming to the public, may well have come to an end.  If even the largest of Internet radio companies are either abandoning the business or limiting their streams, how will small start-up companies deliver music to the public?  Will the predictions of the Globe article, that terrestrial broadcasters will be the only services that can survive in this environment, come to pass?  Will the record companies, that have contended that Internet (and terrestrial radio) do not provide promotional benefits to music, get their wish and end up having to promote their music in secret?  Over the next few months, these questions may well be answered.