The Copyright Royalty Board has announced its approval of new sound recording performance royalties for "new subscription services", i.e. music services provided to the customers of cable or satellite television systems by companies not in this business in 1998 at the time of the adoption of the Digital Millennium Copyright Act. This royalty was adopted after a settlement between Sirius XM Radio, the only music service which filed to participate in this proceeding, and SoundExchange. The settlement as approved provides for royalties that are the higher of 15% of the revenues of the service (subscription payments plus other revenues such as advertising and sponsorships provided by the service), or a minimum per subscriber fee that increases over the five year course of the royalty period. The details of this settlement, including the escalating per subscriber royalties, can be found in the Federal Register notice of its approval, here.
This royalty has very limited applicability, governing only the payments due from audio services "transmitted to residential subscribers of a television service through a Provider which is marketed as and is in fact primarily a video service," i.e. music services bundled with a subscription to a cable or DBS service – and only where that service is delivered to residential users. Given the limited applicability of this service, one might be inclined to ignore its adoption. However, broadcasters in particular should pay attention to this royalty, as it is again indicative of the value that the music copyright holders and SoundExchange place on the use of their music in an audio service, and thus of what SoundExchange would seek were they to get a performance royalty on over-the-air broadcasting.
The 15% of revenue charged in this royalty is the lowest royalty for the sound recording public performance right of any royalty set by the Copyright Royalty Judges which is subject to the "willing buyer, willing seller standard." While the proposed broadcast performance royalty no longer uses the "willing buyer, willing seller" standard that was proposed in the original legislation, the legislation still proposes a standard that looks to the market value of the public performance of the sound recordings, using what is referred to as a "modified Section 801(b) standard", section 801(b) being the section of the Copyright Act that sets out this standard. Section 801(b) looks at other factors, besides just the market value of the use the music, in setting the royalty. Factors considered include the relative contributions of the service and the record companies in creating value, and the interests of the public in receiving access to copyrighted music. However, in the only prior case decided by the Copyright Royalty Judges using the 801(b) standard, the case dealing with satellite radio, the Judges determined that none of these factors were quantifiable. Instead, the only 801(b) factor taken into account in that case to lower the royalty below the market value that would be established by the "willing buyer, willing seller" standard was the factor that assessed the impact that the royalty would have on the stability of the industry to which the royalty applies. Application of that factor cut the satellite radio royalty in half (see our post on that case here). However, in the modified 801(b) standard currently proposed in the Performance Rights Act setting out the broadcast performance royalty, the factor assessing the stability of the industry on which the royalty will be applied is omitted from the test that would be used by the Copyright Royalty Board to determine the royalty for broadcasters (see our summary of the Senate bill here).
Thus, the 15% royalty agreed to for the new subscription services should serve as a warning to broadcasters as to what they may have to pay if the proposed performance royalty is adopted. As we wrote in our summary of the satellite radio case, the royalty could even be much higher (as the CRB decision in that case found that the market value of the royalty, before the 801(b) adjustment was about 14% of the satellite services’ gross revenues, but that gross revenue includes revenues from non-music programming not subject to the royalty, which the Judges concluded made up about half of the satellite services’ revenues – meaning that the Judges perceived the market value of the music to be about 25% of the revenue attributable to the music programming). Whether the royalty is 15% or 25% of gross revenues, it would clearly be a matter of great concern to music broadcasters.