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Both the House and the Senate have now approved the Webcaster Settlement Act of 2008, which will become law when it is signed by the President. Just what does this bill do? It does not announce a settlement of the contentious Internet Radio royalty dispute, about which we have extensively written here. It does not change the standard for judging Internet radio royalties, as had been proposed in the Internet Radio Equality Act, introduced last year and now seemingly dead in the waning days of this Congress, and in the Perform Act, about which we wrote here (the IREA and the Perform Act proposed different standards – the first more favorable to webcasters and the second more favorable to SoundExchange). These issues will seemingly be left to be disputed in a future Congress. Instead, the Webcaster Settlement Act seems to only adopt a simplified process for the approval of settlements that may be reached by the parties on or before February 15, 2009 – a settlement process that had been previously used in the Small Webcaster Settlement Act (the language of which this bill amends).

What is the significance of these new settlement processes? Under current law, any settlement between any group of webcasters and SoundExchange could only be binding on the entire universe of sound recording copyright holders if that settlement was approved by the Copyright Royalty Board. If an agreement is not binding on all copyright holders, then the reason for the statutory royalty – being able to pay one entity and get access to all the music in the world – would not be met.  The current procedures for approving settlements seem to contemplate such settlements only before a decision on royalties is reached by the CRB.   While some have speculated that the Court of Appeals that is currently considering the CRB appeal could remand the case to the CRB to effectuate a settlement and force the CRB to address it, that is by no means certain. For instance, the large webcasters, through their organization DiMA, reached a settlement with SoundExchange to cap minimum fees at $50,000 per webcaster. In their briefs filed with the Court of Appeals, both DiMA and SoundExchange have asked the Court to remand that aspect of the case to the CRB for adoption – yet that request has been opposed by the Department of Justice acting on behalf of the CRB. Thus, voluntary settlements may not be easy to obtain.Continue Reading Webcaster Settlement Act – What Does It Mean?

Today, the National Music Publishers Association ("NMPA"), DiMA, the RIAA and other music publishing groups issued a press release announcing a settlement of certain aspects of the current Copyright Royalty Board proceeding to determine the royalties due under Section 115 of the Copyright Act for the mechanical royalty for the reproduction and distribution…

In a recent article in Silicon Valley Insider, TargetSpot’s CEO, Doug Perlson, suggests that the financial savior of Internet Radio might be payola – taking money from record companies or artists to play their songs.  Putting aside any issues of the financial benefits of such a plan, and the creative and aesthetic issues that pay for play may raise, and since this is a blog written by lawyers, we’ll deal with the legal implications.  And as lawyers, we’re forced to play the spoilsport.  As set forth below, such a scheme can be done legally (just as it could be on terrestrial radio with the proper disclosures).  But, while there has been no legal enforcement of such activities, careful Internet radio operators would best be advised to be careful about just taking the money and playing songs, but instead should make some disclosure of the nature of the service that they are providing.

The payola statute, 47 USC Section 508, applies to radio stations and their employees, so by its terms it does not apply to Internet radio (at least to the extent that Internet Radio is not transmitted by radio waves – we’ll ignore questions of whether Internet radio transmitted by wi-fi, WiMax or cellular technology might be considered a "radio" service for purposes of this statute).  But that does not end the inquiry.  Note that neither the prosecutions brought by Eliot Spitzer in New York state a few years ago nor the prosecution of legendary disc jockey Alan Fried in the 1950s were brought under the payola statute.  Instead, both were based on state law commercial bribery statutes on the theory that improper payments were being received for a commercial advantage.  Such statutes are in no way limited to radio, but can apply to any business.  Thus, Internet radio stations would need to be concerned.Continue Reading Payola on Internet Radio – Legal?

The Copyright Office today issued an Order extending the dates for comments on the Notice of Proposed Rulemaking to determine if, in addition to royalties to ASCAP, BMI and SESAC for the public performance of a musical composition, a royalty is also be due for reproductions of the composition made by real-time webcasting such as…

Last week, we wrote about one issue that was addressed at last week’s Senate Judiciary Committee hearing on music royalties – the standards used to derive the royalties, and expressed hope that there was at least some interest in compromise on behalf of the Senators and industry representatives.  However, another issue which came out of those hearings suggests that compromise may not be so easy if the parties really believe what they say – as there is a fundamental distinction in both how the parties view the health of the Internet radio business, and how they view the relationship between royalties and the music business generally.  One can only hope that the gulf that was evident was just due to public posturing as, if it was not, there may well be an insurmountable differences between the parties that cannot be bridged in any settlement negotiations over the royalties that Internet radio pays for the use of sound recordings.

The gap became evident from the opening statements of the first panel – comprised of two Senators interested in the issue- Senator Wyden on behalf of the Internet Radio Equality Act stating that it was necessary to avoid having the high royalties decided by the Copyright Royalty Board destroy a fledgling technology, while Senator Corker of Tennessee talked about the importance of music to radio and the exhaustive process that the CRB had gone through in arriving at the royalties that it approved.  But in the day’s principal panel, the issues became crystal clear, as John Simson of SoundExchange talked about the "vibrant" business of Internet radio, citing an analyst’s report that Internet radio would be a $20 billion advertising market by 2020, and the statement of an employee of CBS that Internet radio was a great business and that CBS was going to "own it."  Speaking next, Joe Kennedy, CEO of Internet radio company Pandora had a dramatically different perspective – talking about an industry analyst who stated that the royalties that would result from the CRB royalties would exceed the revenue of the Internet Radio industry, and that, for Pandora, the failure to find a compromise solution to the CRB-imposed royalties would mean that his service would "die."  He pointed to Pandora’s position as the largest of the Internet radio companies in terms of listenership, the $25 million in revenue that it expects to make this year, and how $18,000,000 of that would go just to the SoundExchange royalties – 75% of its revenue to this one expense.  Continue Reading Senate Hearing: The Search for Compromise on Music Performance Royalties – Part Two: The Issue of Perspective

Tuesday, the Senate Judiciary Committee held a hearing on the sound recording performance royalty, titling the hearing  "Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms" (a webcast of which can be accessed here).  While the hearing was ostensibly to search for a way to come up with a uniform system of determining music royalties across various digital media platforms (though the broadcast analog performance royalty snuck into the discussion from time to time), in reality it appeared to be two things – a search for compromise and a demonstration of the dramatically different perspectives from which the recording industry and the digital radio industry approach the topic.  While one might assume that the dramatically different approaches would mean that no compromise was possible, there were a few areas of commonality that perhaps reflect the potential that, at some point, common ground can be found.  We will review the hearing’s discussions in multiple parts – today dealing with the issue of the standard to be used in assessing royalties for the public performance of sound recordings and, in a subsequent post, we will summarize the differing world views of the participants and why the dramatically different ways that they see the business make for difficulty in compromise.

But first, a summary of the issues that were to be discussed at the hearing. Essentially, the hearing was to discuss two bills addressing different aspects of the royalty issues.  Senator Feinstein of California, who chaired the hearing, was looking for any common ground that might exist that would allow for movement on the Perform Act that she has introduced.  That act would attempt to do two things – (1) assure that a common standard was used to assess sound recording royalties in all digital media and (2) adopt standards that would require digital services to use some form of security or encryption that would make "stream ripping" more difficult.  The first goal of her bill, looking for a common standard, was an attempt to avoid some of the problems that have been evident in the royalty proceedings that have thus far been held before the Copyright Royalty Board which have resulted in dramatically different royalties – ranging from 6 to 8% of revenue for satellite radio companies and a similar royalty for digital cable music services (see our posts on those rates here and here) derived under an "801(b) standard" (after section 801b of the Copyright Act) , and the royalty for Internet radio that has been estimated to range between 75% and 300% of gross revenues of those services, derived from a "willing buyer, willing seller" royalty standard.  The Perform Act would subject all to a single standard – and it currently proposes a new standard – "fair market value."Continue Reading Senate Hearing: The Search for Compromise on Music Performance Royalties – Part One: The Issue of Standards

The new iPhone, connecting as it does to ATT’s high speed wireless network, has allowed Internet radio to go wireless.  While this has been possible on many platforms in the past, it has never been as easy, seamless, ubiquitous and as promoted as with the new iPhone.  The CBS radio  stations on AOL Radio, Pandora and Soma FM are all available, as are add-on applications that open the door to streaming many other Internet radio stations.  Tim Westergrin of Pandora  was quoted as stating that the iPhone would change people’s expectations of Internet radio, making it "a 360-degree solution – in the car, in the home, on the go."  But, as with any application that increases the audience of Internet radio, it comes with a cost, as the delivery of Internet radio by a mobile device, like a wireless phone, is subject to the same royalties established by the Copyright Royalty Board last year and currently in effect while on appeal – rates that are computed by the "performance," i.e. one song streamed to one listener (see our reminder on the per performance payment, here).

In the requests for reconsideration of last year’s CRB decision, SoundExchange had asked that the Board make clear that its decision applied to noninteractive streams (i.e. Internet radio) delivered to wireless devices like mobile phones.  In one of the few actions taken on reconsideration, the Board granted that request (see our summary of the reconsideration, here, and the CRB decision here).  Thus, services making their streams available to the iPhone (except for those covered under the special percentage of revenue offer that SoundExchange made to a limited class of small webcasters, and noncommercial webcasters under 159,140 aggregate tuning hours a month), must count performances and pay the per-performance royalties due to SoundExchange.Continue Reading Internet Radio on the iPhone – Remember the CRB Royalties Apply

Broadcasters and other digital media companies have recently been focused on the royalties that are to be charged by the record labels for public performance of a sound recording in a digital transmission (under the Section 114 compulsory license administered by SoundExchange).  In a Notice of Proposed Rulemaking issued this week, the Copyright Office tentatively concludes that there could be yet another royalty due for streaming – a royalty to be paid to music publishers for the reproductions of the musical compositions being made in the streaming process under Section 115 of the Copyright Act.  This notice was released just as the Copyright Royalty Board is concluding its proceeding to determine the rates that are to be paid for the Section 115 royalty.  While there have been reports of a settlement of some portions of that proceeding, the details of any settlement is not public, so whether it even contemplated noninteractive streaming as part of the agreement is unknown.

How did the Copyright Office reach its tentative conclusion?  First, some background.  The Office for years has been struggling with the question of just what the section 115 royalty covered.  Traditionally, the royalty was paid by record companies to the music publishers for rights to use the compositions in the pressing of records.  This was referred to as the "mechanical royalty" paid for the rights to reproduce and distribute the composition used in a making copies of a sound recording (a record, tape or CD).  These copies were referred to as "phonorecords."  However, in the digital world, things get more complicated, as there is not necessarily a tangible copy being made when there is a reproduction of a sound recording.  Thus, Congress came up with the concept of a Digital Phonorecord Delivery (a "DPD") as essentially the equivalent of the tangible phonorecord.  But just what is a DPD?Continue Reading Copyright Office Issues Notice of Proposed Rulemaking That Could Make Section 115 Royalty Applicable to Internet Radio

Once again, the extension of the sound recording performance royalty to broadcasters has become a hot topic in Washington. The subcommittee on Courts, the Internet and Intellectual Property of the  House Judiciary Committee yesterday approved the bill introduced by Congressman Berman (about which we first reported here).  That bill would include broadcasters in the Section 114 sound recoding royalty currently applicable to digital music users including Internet radio, satellite radio and cable radio. Under the bill, the Copyright Royalty Board would be charged with the responsibility of determining what a royalty would be using the "willing buyer, willing seller" standard. Following this subcommittee approval, the bill would next be considered by the full committee. To become law, the Committee and the full House of Representatives would have to approve it, and similar legislation would need to be enacted by the Senate. As the NAB has garnered the support of a majority of the members of the House on a non-binding resolution opposing the imposition of the royalty on broadcasters, and as there is not much time remaining in the legislative session before the election and the end of this Congress, the whole process may well have to start fresh in 2009 (bills have to be reintroduced after the end of each two-year Congressional session). Yet, with all of the controversy over the issue in recent weeks, it appears certain that the issue will arise again, so it is important to look at some of the recent action.

Two weeks ago, the House subcommittee held a hearing on the issue. Prior to the hearing, the MusicFirst Coalition (principally supported by the RIAA and the affiliated record companies as 50% of any royalty goes to the copyright holders who are usually the labels) had Nancy Sinatra and the Nitty Gritty Dirt Band making the rounds on Capitol Hill in support of the royalty. These appearances follow the precedent set in earlier Capitol Hill proceedings, where the Coalition has brought in niche or oldies artists to address Congress – not major popular current acts. The artists who have testified (who have included Judy Collins, Sam Moore, Lyle Lovett, and Alice Peacock) have argued that the additional income that they would receive from a performance royalty would supplement their incomes which, in some cases, has either never been great or has declined as the demand or ability to tour has declined. The argument is always made that the royalty will encourage musicians to produce their music – though it is rarely if ever claimed that music wouldn’t be made if the royalty is not adopted, as songs have been written and sung for time immemorial, well before any royalty existed, merely for the pleasure or to fulfill the need for self-expression. The question is not one of ensuring the availability of music, but instead it is one about who should get how much of whatever money is made, directly or indirectly, from the use of that music. Continue Reading Broadcast Performance Royalty Passes House Subcommittee – But It’s Not Done Yet