Last week, the Copyright Royalty Board published in the Federal Register its decision on Internet radio royalties for 2011-2015. The question that I received many times since the publication last week is “huh, didn’t we already see that decision a long time ago?” Indeed we did – the original decision setting the rates was reached in December 2010 (which we wrote about here and here). But, as many will remember, there was also an intervening decision finding that the CRB had been unconstitutionally established. The Court remedied the unconstitutionality by changing the law’s provisions dealing with the ability of the Librarian of Congress to remove the Judges, and sent the decision back to the CRB to redo the 2010 decision. The redo is the result that was released last week. While the new decision did not change the rates for webcasters, it did contain some new analysis that presents some interesting insights into the Judge’s thought processes that may be relevant to webcasters who will be affected by the recently started proceeding to determine rates for 2016-2020. As the three Judges on the CRB have all arrived on the CRB since the 2010 decision, this rewritten decision provides some insight as to how they are approaching the new proceeding.
By the time the decision declaring the unconstitutionality of the “old” CRB was reached, the only party left fighting the decision was Intercollegiate Broadcasting Systems, a group of college broadcasters. All of the commercial broadcasters had either settled their royalty disputes, or dropped out of the proceeding (see our summary of the rates entered into by parties as part of the Webcasters Settlement Acts). Thus, no commercial webcasters participated in the remanded proceeding before the CRB. The CRB noted the lack of any challenge to the commercial rates, and given that they were not challenged, and that they fell in a zone of reasonableness, they were adopted. But, in determining that the rates were in the zone of reasonableness, the CRB did not just pay lip service to reviewing the prior decision, but it instead did a full review of that decision. And, some of the discussion that they offered may arise again in the new proceeding.
The most interesting insight may be that the new Judges seem very interested in the potential for percentage of revenue royalty rates. As described in our article describing the current rates, all of the current commercial rates, except for those that govern certain very small webcasters, are based on a per performance royalty – paying a fraction of a penny “per song, per listener”. But several times in the new decision the Board suggested that they would be open to percentage of revenue rates in the future. At one point in summarizing the rates that had been proposed by the parties that had originally participated in the case, the Board noted that all had proposed per song per listener rates, surmising that no percentage of revenue rate was offered based on the perception that the Board had not in the past been open to such a royalty plan. However, the new Board stated:
The Judges recognize, however, that as a practical and strategic matter, participants in these proceedings carefully consider prior rate proceedings as roadmaps to ascertain the structure of the rates they propose. Mindful of that fact, the Judges wish to emphasize that by deferring to the present parties’ decision to propose only a per-performance rate structure, the Judges do not per se reject future consideration of rate structures predicated upon other measurements, such as a percentage of revenue realized by webcasters
When we wrote about the CRB’s call for Petitions to Participate in the new proceeding for 2016-2020 rates, we noted that the Judges had specifically suggested that the parties consider a percentage of revenue royalty. Together with this new decision, it appears that the Board is asking that serious consideration be given to this structure for Internet radio royalties.
One of the other interesting facets of the decision was the Board’s careful analysis of the testimony of the expert witnesses who had testified back in 2010. While the original board had rejected the webcaster’s witness, it did place some weight on the expert economic witness for SoundExchange. In this decision, the new CRB carefully analyzed and adjusted the rates proposed by that witness, finding fault with his attempt to deduce royalties for advertising based-noninteractive webcasters from the rates paid by subscription-based interactive services that need to negotiate directly with the record labels for licenses to use the labels music. This kind of analysis, having an economist predict what noninteractive rates should be based on interactive rates, had been used in the prior rate setting case which set the rates for 2006-2010, and it is interesting that the current CRB questioned some of its premises.
But the Board was not shy in questioning other premises, including any arguments that the rates that are set should guarantee a financial return for webcasters, or that all webcasters needed to be able to succeed at the rates that are set. The Board also looked closely at the proposed terms that govern webcasters, such as the reporting of the songs that are played, but also left those in place and suggested that some should be decided in a separate proceeding – perhaps a rulemaking.
The new decision raised many interesting issues that may or may not be instructive in the current webcasting case. 29 parties filed Petitions to Participate in the new proceeding (see the list here), including many of the biggest names in digital music. If that case is not settled before trial, the CRB is charged with reaching a decision as to the 2016-2020 royalties by the end of 2015. So keep watching as this decision may have very important ramifications for the Internet radio industry’s development in the near future.