Broadcast Performance Royalty

In the last few weeks, the press has been buzzing with speculation that the Department of Justice is moving toward suggesting changes in the antitrust consent decrees that govern the operations of ASCAP and BMI.  Those consent decrees, which have been in place since the 1940s, among other things require that these Performing Rights Organizations treat all songwriters alike in distributions based on how often their songs are played, and that they treat all services alike with users that provide the same kind of service all paying the same rate structure.  Rates are also reviewed by a court with oversight over the decrees when the PROs and music services cannot come to a voluntary agreement to arrive at reasonable rates.  The decrees have also been read to mean that songwriters, once part of the ASCAP or BMI collective, cannot withdraw with respect to certain services and negotiate with those services themselves while still remaining part of the collective with respect to other music users (see, e.g., our articles here and here about the desires of certain publishing companies to withdraw from these PROs to negotiate directly with certain digital services while still remaining in these PROs for licensing broadcasting and retail music users).

With this talk of reform of the consent decrees, Congress, particularly the Senate Judiciary Committee under the leadership of Senator Lindsey Graham, has reportedly stepped in, telling DOJ not to move to change the consent decrees without giving Congress the chance to intervene and devise a replacement system.  In fact, under the recently passed Music Modernization Act, notice to Congress is required before the DOJ acts.  Already, both the PROs and user’s groups are staking out sides.  What are they asking for?
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This week, the Radio Music License Committee issued a press release that states that Global Music Rights (“GMR”), the new performing rights organization that collects royalties for the public performance of songs written by a number of popular songwriters (including Bruce Springsteen, members of the Eagles, Pharrell Williams and others) has agreed to extend their

Last week, we noted that the Copyright Royalty Board had a notice on its website saying that, because of the government shutdown, it could not publish its notice soliciting petitions to participate in WEB V, the case to set webcasting royalties paid to SoundExchange by noninteractive webcasters (including broadcasters who simulcast their programming on the

Yesterday, I noted a news story about a bar that stopped hosting live music when it was hit with a lawsuit by BMI because it had not paid royalties for its use of music.  The issue of music in bars and restaurants also came up in a continuing legal education seminar on music licensing that I moderated the week before last.  Given that I have not written on this topic in some time, I thought that it was worth a reminder that retail outlets, including bars and restaurants, have to pay music royalties to ASCAP, BMI, SESAC and perhaps GMR for the performance of music in their venues, except if they fit within very detailed exceptions that allow for certain businesses to avoid those payments.

We wrote an article here that goes into detail on the exceptions.  Basically, for very small businesses, their employees can use a single device of the type used in a home to play music.  This exception was designed to allow businesses to allow their employees to have personal audio devices to entertain themselves.  So that portable radio on the counter of the dry cleaner or at the secretary’s desk can play music without paying royalties.  For larger businesses there is a different exception that allows them to avoid liability but only if they meet very specific rules. 
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Last week, the Copyright Royalty Board announced its calculations for whether there would be a cost of living increase in the 2019 rates that Internet radio stations pay to SoundExchange for the public performance of sound recordings. In its initial release on the subject, the CRB’s announcement indicated that commercial webcasters would continue to pay at the rate of $.0018 per performance (set after a cost of living increase last year – see our post here). But that same notice indicated that the per performance rate would be $.0019 for noncommercial webcasters with substantial listening (i.e., those that stream more than the 159,140 aggregate monthly tuning hours that noncommercial webcasters receive for a $500 yearly payment), causing some concern among noncommercial webcasters as their per performance rates were supposed to be based on what commercial webcasters paid. That notice was revealed to be a typo according to a Federal Register correction published today – keeping the noncommercial rates at $.0018 once the noncommercial webcaster exceeds the initial complement of streaming hours it gets for the $500 yearly minimum payment (see our initial article on that decision here, and one that provided more details here).

While the rates stay the same for 2019, and will stay substantially the same for 2020 (subject only to a cost of living increase, if any), 2019 will begin the CRB proceeding for the setting of webcaster’s SoundExchange royalty rates for 2021-2026. The CRB sets rates in 5 year increments. But the proceedings to set those rates normally take two years to complete, so the proceeding to set the rates to be effective in 2021 will begin with interested parties filing petitions to participate in the proceeding following a CRB invitation to file, likely to be released at the beginning of 2019. Once parties have filed to participate, the CRB will announce a mandatory 90 day period in which the parties are to try to settle the case. If there is no settlement, the litigation will run through the remainder of 2019 and 2020, with a decision to be issued by the end of 2020.
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At almost every broadcast conference, there is a discussion of using Alexa, Google Home and other smart speakers and digital assistants to increase the reach of broadcast radio stations. Discussions of how to get listeners to tune in and how to monetize the listeners on these new platforms are regularly included. But rarely is there a discussion of the music royalty impact of transitioning radio listeners to these digital platforms. Given these continuing discussions about smart speakers, and the apparent lack of focus on royalty issues, I thought that it was worth re-running this article that I posted earlier this year.

In the last year, the popularity of Alexa, Google Home and similar “smart speaker” devices has led to discussions at almost every broadcast conference of how radio broadcasters should embrace the technology as the new way for listeners to access radio programming in their homes. Broadcasters are urged to adopt strategies to take advantage of the technology to keep listeners listening to their radio stations through these new devices. Obviously, broadcasters want their content where the listeners are, and they have to take advantage of new platforms like the smart speaker. But in doing so, they also need to be cognizant that the technology imposes new costs on their operations – in particular increased fees payable to SoundExchange.

Never mentioned at these broadcast conferences that urge broadcasters to take advantage of these smart speakers is the fact that these speakers, when asked to play a radio station, end up playing that station’s stream, not its over-the-air signal. For the most part, these devices are not equipped with FM chips or any other technology to receive over-the-air signals. So, when you ask Alexa or Google to play your station, you are calling up a digital stream, and each digital stream gives rise to the same royalties to SoundExchange that a station pays for its webcast stream on its app or through a platform like TuneIn or the iHeartRadio. For 2018, those royalties are $.0018 per song per listener (see our article here). In other words, for each song you play, you pay SoundExchange about one-fifth of a cent for each listener who hears it. These royalties are in addition to the royalties paid to ASCAP, BMI, SESAC and, for most commercial stations, GMR.
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Last week, after passage by both chambers of Congress and signature by the President, the ‘‘Orrin G. Hatch–Bob Goodlatte Music Modernization Act’’ became law. The law underwent a few changes on its journey to approval, adding new provisions in the Senate to those which we summarized here upon its initial passage by the House. The Act retained its same principal purposes. The driving force behind the Act was the desire to simplify the payment of “mechanical royalties” by digital music services for the reproduction and distribution of the millions of musical compositions that they use in the songs that they serve up to more and more consumers across the country. That simplification was accomplished through the creation of a new collective through which these royalties will be paid – essentially a one-stop shop where the statutory royalty will be paid. The collective will have the responsibility for finding the copyright holders and songwriters who share in the royalties – removing the need for the music services to have to identify and pay all of the appropriate rightsholders, a process that has resulted in legal claims for hundreds of millions of dollars against these services for not being able to find all the parties who are supposed to be paid for the mechanical royalties.

The general layout of the system for dealing with the payment of these royalties, through a collective to be established, remains essentially the same as in the initial House Bill. Other provisions were added in the Senate (and then approved again by the House) dealing with matters including pre-1972 sound recordings, Sirius-XM royalties, and the ability of existing music organizations to continue to do direct licenses for mechanical and other rights outside the new statutory system. We may write about those issues later. But the Senate addition likely to have the most significance for the most music users was one having nothing to do with mechanical royalties, but instead with the performance royalty for music works (musical compositions) that is paid by music services, radio stations, bars and restaurants and any other location that plays music that is heard by the public at large. The new language added by the Senate requires that, before the Department of Justice recommends any changes to the consent decrees governing ASCAP and BMI, the DOJ must first notify Congress of any changes that it will be suggesting to the courts that administer the decrees, so that Congress can decide if it wants to take action to block or modify any such changes. Why is that significant?
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While September is one of those months with neither EEO reports nor Quarterly Issues Programs or Children’s Television Reports, that does not mean that there are no regulatory matters of importance to broadcasters. Quite the contrary – as there are many deadlines to which broadcasters should be paying attention. The one regulatory obligation that in recent years has come to regularly fall in September is the requirement for commercial broadcasters to pay their regulatory fees – the fees that they pay to the US Treasury to reimburse the government for the costs of the FCC’s operations. We don’t know the specific window for filing those fees yet, nor do we know the exact amount of the fees. But we do know that the FCC will require that the fees be paid before the October 1 start of the next fiscal year, so be on the alert for the announcement of the filing deadline which should be released any day now.

September 20 brings the next Nationwide Test of the EAS system, and the obligations to submit information about that test to the FCC. As we have written before (here and here), the first of those forms, ETRS Form One, providing basic information about each station’s EAS status is due today, August 27. Form Two is due the day of the test – reporting as to whether or not the alert was received and transmitted. More detailed information about a station’s participation in the test is due by November 5 with the filing of ETRS Form Three. Also on the EAS front, comments are due by September 10 on the FCC’s proposal to require stations to report on any false or inaccurate EAS reports originated from their stations. See our articles here and here.
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Two years ago, a District Court Judge, in a case brought against a broadcaster alleging that the broadcaster owed money under California state law for playing pre-1972 sound recordings, dismissed the suit finding that the broadcaster was playing digitized versions of those songs, created after 1972, which were covered under Federal copyright law (we wrote about that decision here). Yesterday, the US Court of Appeals for the Ninth Circuit issued its decision reversing the District Court’s opinion and sending the case back to the District Court for additional hearings. The Court of Appeals concluded, for several reasons, that there was likely insufficient creativity in the remastering of the pre-1972 sound recordings to make them new post-1972 copyrighted works and that, even if they were creative enough to merit copyright protection as a derivative work, that did not end the discussion, as portions of the original pre-1972 work were included in any new work and those portions themselves had to be licensed. The decision looks like a simple premise that digitization is no magic bullet to defeat pre-1972 sound recording claims, but there is much to unpack in this seemingly straightforward decision.

First, we need to provide a little background on the litigation over pre-1972 sound recordings. Federal law did not recognize a copyright in sound recordings until 1972. So while the underlying musical composition in a song was protected under Federal law, a recording by a particular band or singer was not. When these recordings were federalized, the Copyright Act explicitly left all rights regarding pre-1972 sound recordings in the hands of state law until 2067. For over 40 years, that quirk in copyright law did not seem to have much relevance, though some US digital music services did not pay royalties to SoundExchange for digital performances of those recordings as they were not covered by Section 114 of the Copyright Act (the section creating the statutory royalty for sound recordings). About 5 years ago, the singers Flo and Eddie (formerly of the 1960s band the Turtles) started bringing lawsuits throughout the country alleging that they were owed performance royalties under state law for these pre-1972 recordings from both digital and analog services (see our article here when the first suit was filed). In most states, those suits have been dismissed with courts finding that state law did not provide for a performance right in these pre-1972 recordings (see our articles about decisions in New York, Florida and Georgia reaching that conclusion). The issue in California, however, is still open. For a deeper dive into these issues, see our article here.
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In the last year, the popularity of Alexa, Google Home and similar “smart speaker” devices has led to discussions at almost every broadcast conference of how radio broadcasters should embrace the technology as the new way for listeners to access radio programming in their homes. Broadcasters are urged to adopt strategies to take advantage of the technology to keep listeners listening to their radio stations through these new devices. Obviously, broadcasters want their content where the listeners are, and they have to take advantage of new platforms like the smart speaker. But in doing so, they also need to be cognizant that the technology imposes new costs on their operations – in particular increased fees payable to SoundExchange.

Never mentioned at these broadcast conferences that urge broadcasters to take advantage of these smart speakers is the fact that these speakers, when asked to play a radio station, end up playing that station’s stream, not its over-the-air signal. For the most part, these devices are not equipped with FM chips or any other technology to receive over-the-air signals. So, when you ask Alexa or Google to play your station, you are calling up a digital stream, and each digital stream gives rise to the same royalties to SoundExchange that a station pays for its webcast stream on its app or through a platform like TuneIn or the iHeartRadio. For 2018, those royalties are $.0018 per song per listener (see our article here). In other words, for each song you play, you pay SoundExchange about one-fifth of a cent for each listener who hears it. These royalties are in addition to the royalties paid to ASCAP, BMI, SESAC and, for most commercial stations, GMR.
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