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This week, several notices of the intent to audit the records of several webcasters and other digital music services were published in the Federal Register, indicating that SoundExchange was planning on having the royalty payment records of these services reviewed.  Notices were sent to services including Live365, iHeartMedia and CBS).  Those notices have prompted several calls asking what this is all about.  We have written before about these audits (see our article here).  It is a somewhat routine process, where each year SoundExchange picks several webcasters whose records it will have reviewed.  Under the rules adopted by the Copyright Royalty Board, SoundExchange can elect to audit a webcaster (or other digital music service – and some of the notices this week were for services that were not webcasters – one to a background music provider or what is referred to as a “business establishment service”, here).  SoundExchange can, and usually does, elect to review three years of records.  They can only review any service once for the same time period, so effectively a service can be audited only once every three years.

Under the rules, an independent CPA is to do the audit.  Once the audit is complete, it must be provided to the music service for comment.  Then, it is up to SoundExchange and the service to work out what to do if there are discrepancies identified by the audit with which the service does not agree.  The rules do not provide for any independent adjudicator to referee what happens if there is a disagreement.  SoundExchange pays for the audit, unless the audit determines that the service underpaid by 10% or more, in which case the costs can be transferred to the service.
Continue Reading SoundExchange to Audit iHeart, CBS and Other Webcasters and Digital Music Services

Last week, the Copyright Royalty Board asked for comments on a proposed settlement agreement between Sirius XM and SoundExchange, and some articles about that announcement have not been entirely clear about what the deal covers.  It has nothing to do with webcasting royalties for 2016-2020, which are still being litigated (see our article here about the proposals of the parties in that case).  Nor does it have to do with the royalties payable for Sirius’ primary satellite radio service, which were just upheld by the Court of Appeals (see our article here).  Instead, these royalties have to do with a very narrow part of Sirius’ business – providing music channels packaged and sold to consumers along with video services like cable and satellite TV.

Some who closely follow these issues (and the coverage of CRB issues on this blog) may think that the rates for these services were set at the same time as the Sirius rates for their satellite music service, as the CRB at that time set the rates that were applicable to Music Choice, which also offers a music service bundled with cable or satellite video programming (see our articles on the recent decision on the appeal of the rates, and the article on the CRB decision itself here).  Even though Music Choice offers pretty much the same service, their rates are different – as Music Choice was classified as a “preexisting subscription service” in the Digital Millennium Copyright Act, while the service that Sirius provides is classified as a “new subscription service” paying at a different royalty rate set by the CRB using a different royalty standard.  How did this happen?
Continue Reading Copyright Royalty Board Announces Settlement between Sirius and SoundExchange for New Subscription Services Packaged with Cable and Satellite Video – How Different Royalty Standards Result in Different Royalty Rates

Today is Elvis Presley’s 80th birthday, so it seems appropriate to revisit the issue of pre-1972 sound recordings, and to take a deeper look at the recent decisions by courts in New York and California finding that there is a public performance right in these recordings.  The NY decision in a case brought by Flo & Eddie of the band the Turtles, coming after the California cases, is in many ways the more interesting of the cases.  In the California case, the Court interpreted a California statute on copyright ownership as signaling that the California legislature intended to provide the entire bundle of ownership rights that would be accorded to any other piece of property, which the California Courts found would include the right to publically perform the recording.  While that may be debatable (as one does not usually think of a public performance right in connection with the ownership of tangible property – you don’t perform a house or a car), the decision at least is based on statute.  But the NY court did not find any such specific statute to which it could point to find a public performance right, instead concluding that the performance right was somehow inherent in the common law and therefore existed unless there was a specific carve-out of that right by statute.  This reasoning, to me, simply does not stand up to review.

The NY Court itself spends an entire footnote chronicling the history of the public performance right in the United States.  It notes that there was initially no public performance right at all recognized by the Copyright Act, until Congress provided one for dramatic works (e.g. plays) in 1856.  No such right was accorded to musical works (the musical composition – the words and music of a song) until 1897 when Congress specifically provided such a right by law.  For sound recordings, the public performance right did not exist in the US until 1995, when it was first extended to a limited class of digital recordings.  From these facts, the Court goes on to conclude “It was thus an accepted part of the background law that public performance rights would, absent a deliberate effort to exclude them, extend to sound recordings.”  Presumably, the Court is talking about the background law in 1972, when Congress first accorded any protection at all to sound recordings by granting a Federal right to control reproduction and distribution of such works – but Congress specifically excluded any performance right for another 23 years.
Continue Reading On Elvis’ Birthday – Looking at the Issues with Pre-1972 Sound Recordings

A decision by the US Court of Appeals on the appeal of the Copyright Royalty Board decision as to the Sirius XM and Music Choice royalties for the public performance of sound recordings is one of the many year-end decisions important to broadcasters and digital media companies that seems to be flooding out from Courts and agencies in DC and elsewhere. The Court of Appeals rejected the appeal of SoundExchange, which was arguing that the royalties for both services should have been set higher by the CRB, and the Court also rejected the appeal of Music Choice, which argued that the royalties that were set by the CRB should have been lower.  We wrote about the CRB’s decision, here, when it was initially released about 2 years ago.

The proceeding involved the Preexisting Subscription Services (“PSS”) and the Preexisting Satellite Digital Audio Services (“SDARS”), services that were singled out when Congress adopted the Digital Millennium Copyright Act in 1998 by applying a different standard to those services for use by the CRB in determining the amount of sound recording performance royalties.  Instead of using the “willing buyer, willing seller” standard that applies to webcasters and any other digital music service that was not in existence in 1998, these services are evaluated under the 801(b) standard of the Copyright Act, which looks at a variety of factors including the market rate expressed by the willing buyer willing seller standard, but also at the relative financial contributions of the parties to bringing the music to the public, and the effect of royalty changes on the stability of the industries involved (see our articles here, here and here about the differences between these standards)  Using this 801(b) standard, most observers believe that royalties have been set at rates lower than have prevailed in the cases involving services subject the willing buyer willing seller standard.
Continue Reading Court of Appeals Upholds Copyright Royalty Board Decision on Sirius XM and Music Choice Royalties

On Friday, the US District Court in the Southern District of NY found that there is a public performance right in pre-1972 sound recordings in that state, following two decisions from California finding a similar right under California law (though on different grounds).  Like the first decision in California (about which we wrote here), this decision was the result of a law suit by Flo and Eddie of the Turtles against Sirius XM, arguing that Sirius XM was infringing on their rights by playing old Turtles songs without paying the duo (who now own the Turtles’ copyrights) any compensation.  Unlike the California decision which looked to specific language in the California statute about ownership of pre-1972 sound recordings, the NY Court reaches a decision in some ways broader than the California decision, but potentially also in some ways narrower.  What does it mean for the many businesses that play such recordings?

There is no public performance right in sound recordings generally in the United States, with the limited exception of the public performance of such recordings in a digital medium.  Sound recordings had not been covered by Federal copyright law at all until 1972, when they were covered for purposes of protecting reproductions and distributions and other general rights, but Federal law specifically did not include this public performance right in sound recordings until the 1990s.  When sound recordings were added to Federal law in 1972, the regulation of pre-1972 sound recordings was specifically left to state regulation (where it had been prior to Federalization).  The limited digital performance right was adopted in a series of laws enacted in the late 1990s, as fears of digital piracy based on Internet and other digital transmissions grew.  So webcasters, satellite radio, digital cable radio and other digital users of sound recordings have paid a royalty for the performance of such recordings.  That royalty is set by the Copyright Royalty Board (see our article here about the most recent CRB proceeding to set rates), paid by noninteractive services to SoundExchange, and distributed by SoundExchange to copyright holders and artists. For interactive services (like Spotify or iTunes or Rhapsody), the performance rights have to be directly negotiated with the copyright holder, leading to disputes like the recent decision of Taylor Swift to pull her new album from Spotify (see our article here about the difference between interactive and noninteractive services).  As the 1990s adoption of the limited public performance right in sound recordings was a Federal act, most observers believed that there was no public performance right in sound recordings for pre-1972 recordings, as there never had been one prior to Federalization (despite many attempts by artists and labels to have one included in the law)(see our article here when the Flo and Eddie suit was first filed). 
Continue Reading New York Court Finds Public Performance Right in Pre-1972 Sound Recordings – How Will This Affect Businesses that Use Music?

Noncommercial webcasters are often forgotten in the discussion of the current proceeding to set Internet radio sound recording royalties. But, along with the royalties for commercial webcasters (we wrote about the proposed commercial rates here), the current Copyright Royalty Board proceeding will also set the rates for noncommercial webcasters.  Various proposals for noncommercial royalties have been submitted to the Judges.  In fact, one proposed settlement agreement between SoundExchange and CBI (a group that represents college radio stations) has been submitted to the Judges, and last week that proposed settlement was published in the Federal Register, with a request for comments by November 26.  There are other proposals for noncommercial rates that were submitted by other parties, and we talk about those below. 

Setting rates for noncommercial webcasters is not easy.  Colleges and other schools, public radio and religious organizations usually are not motivated by the kinds of commercial considerations that give rise to evidence submitted under the “willing buyer willing seller” standard applicable to all CRB webcasting royalty decisions.  Thus, the noncommercial rates are often set as an afterthought.  In fact, perhaps because noncommercial rates have been such an afterthought, it has been these rates that have led to the greatest number of appellate issues for the CRB.  The decision on noncommercial rates from the 2006 proceeding was just issued by the Judges after an appellate court remand.  In that decision, the Board upheld the decision from the 2006 case setting the minimum fee for noncommercial broadcasters at $500 for the 2006-2010 proceeding – a decision reached after a remand of the case from the Court of Appeals to the Board following an appeal by IBS, another group of noncommercial broadcasters associated with colleges and other schools.  But let’s look at the proposals for the upcoming case, and compare them to the rates currently in effect.
Continue Reading Noncommercial Webcasters Royalty Rate Proposals for 2016-2020

SESAC is the one major performing rights organization whose rates have not, until now, been subject to judicial review as part of an antitrust consent decree.  Perhaps because of that fact, broadcast stations have often complained about the rates they charge for the music that they license, as there is currently no cap on what SESAC can charge, and there is no requirement that SESAC treat all similar licensees in the same way.  In fact, because of this dissatisfaction, both the TV and Radio Music License Committees have filed antitrust suits against SESAC seeking relief from the rates they charge.  In a settlement announced this past week, the Television Music Licensing Committee has entered into a settlement by which SESAC will pay the TVMLC $58.5 million and agree that, over the next 20 years, SESAC will negotiate license agreements with TVMLC.  Under the agreement, if rates can’t be reached as a result of negotiations, SESAC and the TVMLC would submit to an arbitration process to arrive at the appropriate rates.  The full settlement can be found on the TVMLC website, here. 

Under the terms of the settlement, commercial TV stations (except for those owned by Univision, which appear to have opted out of the class of stations covered by the TVMLC settlement) will have their SESAC obligations covered for the rest of this year and next, including website SESAC music use and use in digital multichannel programming.  In 2015, TVMLC will negotiate with SESAC over rates for the period from 2016-2019.  If no rates are agreed to by the parties, an arbitration panel will set the rates.  The same process will continue for 4 year periods through 2035, as long as ASCAP and BMI are also subject to either rate court or arbitration review of the rates charged by those organizations.  While the Department of Justice is reviewing the ASCAP and BMI consent decrees that require rate court review of royalty rates charged by these groups (see our article here), it appears that they are not asking for an end to all rate review.  Instead, they are asking that the review be done by an arbitration panel, not the US District Court that currently reviews such rates.  So it would appear likely that the “out” in the deal would not give SESAC an escape from this agreement to be bound by arbitration any time soon.
Continue Reading TV Music Licensing Committee Settles Antitrust Action with SESAC over Music Licensing Rates and Terms – Radio Watches and Wonders if It Can Get a Similar Deal

The proposals for the royalty rates to be paid by webcasters to SoundExchange for the public performance of sound recordings for 2016-2020 are now on file with the Copyright Royalty Board, and they represent two differing perspectives on the state of the industry and how much Internet radio companies can and should pay to record companies and recording artists.  As we wrote many months ago, the CRB initiated its proceeding to set these royalties back in January, and earlier this month, participating parties, including internet music services and SoundExchange, were required to file their “direct case exhibits” – written witness statements setting out the arguments to justify the proposals of each side, and their proposed royalty rates.  These direct cases (with certain confidential information redacted) are now available on the CRB website. So what are the parties proposing?

SoundExchange provided expert testimony and exhibits from record company executives to contend that there are many new entrants into the streaming industry and that the industry is healthy and growing.  Looking at deals that have been done in the marketplace, including deals for “interactive streaming” (deals negotiated directly between services and copyright holders, and not subject to CRB oversight and review – see our article here), SoundExchange suggests that the royalties should increase from their current rate of $.0023 per performance (e.g. per song per listener).  Their rate proposal is to go from $.0025 in 2016 to $.0029 in 2020. But, in a new wrinkle, they propose that the CRB should adopt a new “greater of” formulation, suggesting that all commercial Internet radio services should pay the greater of the suggested per performance royalty or 55% of revenue related to their streaming.  This greater of formulation is partially justified by SoundExchange based on their witnesses claim that such “greater of’ formulations are common in interactive streaming agreements.
Continue Reading Webcasting Rate Proposals for 2016-2020 Now Public – What Will The Copyright Royalty Board Be Considering in Setting Royalty Rates for Internet Radio?

An Alabama radio station recently received a notice about the new royalty rates that are payable to ReSound, the Canadian equivalent of SoundExchange, a collective set up to receive from webcasters royalties for the public performance of sound recordings and to distribute those royalties to the copyright holders (usually the labels) and the artists who recorded the songs, according to a story in today’s issue of Tom Taylor Now (a radio industry newsletter).  Tom asked me why would a radio station in Alabama get this notice – shouldn’t their payments to SoundExchange take care of the royalties that they owe for their streaming?  In fact, webcasters receiving these notices do need to consider their practices.

The general principle in the Internet world is that a webcaster is liable for paying music royalties for listeners where the listener is located – not where the transmitting entity may be located.  The same principle applies to rights to video and other content made available through the Internet – which is why your US HBO Go or Netflix subscription may not work the next time you visit London or Tokyo and try to watch a movie on your computer in your hotel room.  Rights are usually granted country by country (or sometimes by region), but in many cases rights granted in one country don’t give the Internet service acquiring those rights permission to circulate the content worldwide.  Thus, many large webcasters block their streams outside the US – notably webcasters like Pandora, who pulled their non-US streams back in 2007 (see our article here that we wrote when they took that action, which reminds me how long I have been writing this blog!). 
Continue Reading Why is a US Radio Station Getting a Notice about Webcasting Royalties in Canada? – Why Webcasters Geo-Block Their Streams to Avoid International Music Royalties

As the summer of copyright comes to an end, the music licensing issues which arose causing me to repeatedly write about this extremely contentious season in copyright law are by no means finished (see the most recent of our Summer of Copyright articles here).  In fact, on the first full day of autumn, we received a very interesting decision out of a US District Court in California on the lawsuit brought by Flo and Eddie against Sirius XM, finding that the music service improperly failed to pay royalties for the public performance of pre-1972 sound recordings from the duo’s former band, the Turtles (a copy of the decision can be found in this Billboard article).  As we have written before, Flo and Eddie brought suit against Sirius XM, arguing that the service needs to get permission to make public performances of these recordings and, by not doing so, it violated their California state law copyrights. 

Pre-1972 sound recordings first registered in the US are not covered by Federal law, so the current mechanism for Sirius XM to pay for the digital public performance of sound recordings (paying a royalty, set by the Copyright Royalty Board, to SoundExchange) does not exist.  To the surprise of many (including this author) the Court concluded that there is in fact a public performance right in pre-1972 sound recordings under California state law, and went on to conclude that Sirius XM violated its obligations under the law to pay for the use of music.  This decision, on a summary decision motion, may quite well be appealed.  The issue is also before many other courts, both in California and elsewhere.  But this decision is certainly worth review, as it could have an impact not only on digital services, but also on any other company that publicly performs such recordings – including other digital music services, bars and restaurants, stadiums, and potentially even broadcasters.
Continue Reading Court Rules in Favor of Flo & Eddie in California Suit Against Sirius XM for Public Performance of Pre-1972 Sound Recordings – What Does This Decision Mean for Broadcasters, Digital Media Companies and Other Music Users?