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A decision by a US District Court in New York was just released, setting the rates to be paid to ASCAP for the use of their composers’ music by Yahoo!, AOL and Real Networks.  The decision set the ASCAP rates at 2.5% of the revenues that were received by these services in connection with the music portions of their websites.  These rates were set by the Court, acting as a rate court under the antitrust consent decree that was originally imposed on ASCAP in 1941.  Under the Consent Decree, if a new service and ASCAP cannot voluntarily agree to a rate for the use of the compositions represented by ASCAP, the rates will be set by the rate court.  The Court explained that they used a "willing buyer, willing seller" model to determine the rates that parties would have negotiated in a marketplace transaction  – essentially the same standard used by the Copyright Royalty Board in setting the rates to be paid to SoundExchange for the use of sound recordings by non-interactive webcasters (see our post here for details of the CRB decision).  The ASCAP decision, if nothing else, is interesting for the contrasts between many of the underlying assumptions of the Court in this rate-setting proceeding and the assumptions used by the Copyright Royalty Board in setting sound recording royalty rates.

First, some basics on this decision.  ASCAP represents the composers of music (as do BMI and SESAC) in connection with the public performance of any composition.  This decision covered all performances of music by these services – not just Internet radio type services.  Thus, on-demand streams (where a listener can pick the music that he or she wants to hear), music videos, music in user-generated content, karaoke type uses, and music in the background of news or other video programming, are all covered by the rate set in this decision.  Note that the decision does not cover downloads, presumably based on a prior court decision that concluded that downloads do not involve a public performance (see our post here).  In contrast, the CRB decision covered the use of the "sound recording" – the song as actually recorded by a particular artist – and covers only "non-interactive services," essentially Internet radio services where users cannot pick the music that they will be hearing.Continue Reading Rate Court Determines ASCAP Fees for Large Webcasters – Some Interesting Contrasts with The Copyright Royalty Board Decision

The deadline for submitting comments in the Commission’s Localism rule making proceeding is fast approaching.  Comments are due by April 28th, and can be filed electronically through the FCC’s Electronic Comment Filing System.  This proceeding contains a number of significant proposals and could possibly re-institute regulations that were lifted from the broadcast industry decades ago.  Formal ascertainment through community advisory boards and possibly other means, requirements for manning main studios during all hours of operation of broadcast stations, imposing quantitative programming requirements, and requiring that main studios be maintained within a station’s community of license are just a few of the many proposals the FCC is considering.  See our more detailed summary here.  This proceeding seeks input on these and other potentially burdensome requirements, many of which were eliminated by the Commission long ago, and some of which go beyond what the FCC has ever required before.   Given the potential impact this proceeding could have on broadcast stations, broadcasters are encouraged to file comments in this important rule making proceeding.   When submitting comments, commenters should be sure to reference the docket number for this rule making, MB Docket No. 04-233.

Some members of Congress have already chimed in in this proceeding and submitted comments opposing the Commission’s localism proposals.  Over 120 members of Congress signed on to a letter addressed to Chairman Martin urging the Commission to avoid imposing additional regulations on broadcasters and to carefully consider the cost and effect that such regulation would have on the industry.  A copy of the letter is available here.  A summary of the letter posted on Rep. Marsha Blackburn’s web site characterizes the localism proceeding as an attempt to "restore a 1970s era regulatory regime for local broadcasters."  Continue Reading Comments on Localism Proceeding Due April 28; Congress Chimes In

Under the compulsory license for the use of sound recordings – the license which allows Internet radio services to use all legally recorded sound recordings by paying a royalty set by the Copyright Royalty Board – the designated collection agency can, once each year, audit a licensee to assess its compliance with the royalty requirements.  Under the law, when the collective decides to audit a company, it must notify the Copyright Royalty Board, who then gives public notice of the fact that an audit is to take place.  The Copyright Royalty Board has just announced that SoundExchange has decided to audit Last.FM.  Based on a number of public statements, SoundExchange has been citing Last.FM as an example of problems with royalties – contending that Last.FM had paid royalties of only a couple of thousand dollars a year, under the Small Webcasters Settlement Act, just before selling out to CBS for over $200 million.  Given SoundExchange’s tough talk about Last.FM, this notice of an audit is not surprising.  SoundExchange’s focus on this company illustrates the difficulty of valuing music use, and the different perceptions of music users and copyright holders as to what that value should be.

 In past years, SoundExchange has audited a number of webcasters – usually large webcasters.  As SoundExchange must bear the cost of the audit unless a significant underpayment is discovered, it is unlikely that more than a few companies will be audited each year.  However, as SoundExchange has made such a big deal of Last.FM, with witnesses on performance royalty issues mentioning it at Congressional hearings, and representatives mentioning it on various industry conferences (including SoundExchange President John Simson’s reference to the company on a panel on which we jointly appeared at Canadian Music Week earlier this month), many expected that an audit would be forthcoming.Continue Reading SoundExchange to Audit Internet Radio Royalty Payments of Last.FM – What is the Value of Music?

A full year ago, the Copyright Royalty Board released its decision setting royalties for the use of sound recordings by Internet Radio webcasters (see various posts on the subject here).  As an article this week in the Boston Globe sets out, despite much talk of a post-decision settlement to lower the royalties set by the CRB that many Internet Radio operators claim will put their stations out of business, no such settlement has yet been announced.  And, in a week that brought about the transfer of the operations of one of the largest webcaster’s operations to a traditional radio company (as CBS took over operations of AOL’s Internet Radio service), appeals of the decision were filed with the US Court of Appeals for the District of Columbia.  A busy week, but still no resolution of the Internet radio controversy.

Four separate appeals briefs were submitted to the Court.  One was a combined brief of the large Webcasters (represented by DiMA, the Digital Media Association) and the Small Webcasters(Accuradio, Radioio, Digitally Imported Radio, Radio Paradise), another was submitted by several commercial broadcast groups (Bonneville, the NAB and the National Religious Broadcasters Association) and a third by several noncommercial groups (including college broadcasters, NPR, and noncommercial religious broadcasters).  A final brief was submitted by Royalty Logic, a company that wants to become an alternative to SoundExchange as the collection agent for performers.  These briefs will be answered by the Department of Justice (defending the CRB and its decision before the Court) and SoundExchange.  The briefing process will continue for several months, with an oral argument to follow, quite possibly not until the Fall.  Thus, a decision in the case may well not be reached until 2009. Continue Reading A Year After the Webcasting Royalty Decision – No Settlement, Appeal Briefs Filed

Last week, the Copyright Royalty Board published an order seeking comments on a proposed settlement establishing the royalties for "Business Establishment Services."  Essentially, this is the royalty paid by a service which digitally delivers music to businesses to be played in stores, restaurants, retail establishments, offices and similar establishments (sometimes referred to as "background" or "elevator" music, though it comes in many formats and flavors, and may sometime include the rebroadcast of programming produced for other digital services).  The proposed settlement would essentially carry the current rates forward for the period 2009-2013.  These rates require the payment of 10% of a services revenue (essentially what they are paid by the businesses for the delivery of the music) with a minimum annual payment of $10,000.

Some might wonder how a royalty of 10% royalty can be justified – and why it shouldn’t set some sort of precedent for the Internet radio services about which we have written so much here.  Once again, as we’ve written before, the Digital Millennium Copyright Act sets different standards for different kinds of music use.  For many consumer-oriented services (like satellite radio, digital cable radio and Internet radio), there are different standards used to determine the royalty rate.  For Business Establishment Services, it’s not the standard that is different – it’s the royalty itself.  Under the DMCA, there is no performance royalty paid either by the business or the service provider.  Instead, under the statute, the royalty is paid only for the "ephemeral copies" – those transitory copies made in the digital transmission process.  That is different than the royalty for all of the other digital services, where fees are paid for both the performance (under Section 114 of the Copyright Act) and the ephemeral copies (under Section 112).Continue Reading Copyright Royalty Board Requests Comments on Business Establishment Service Royalty Rate

At its December meeting, the FCC adopted a Notice of Proposed Rulemaking on Localism.  At that meeting, while the Commissioners discussed the generalities of the proposals being made, the specifics of the proposals were unknown.  The full text of the NPRM has now been released, and it sets out the areas in which the Commission proposes to re-regulate broadcast stations.  The order also hints at a number of other proceedings that the Commission intends to launch in the near future, and reminds broadcasters of a number of other existing proceedings that will potentially bring about greater regulation.  From the discussion in the NPRM, new rules will apply to all broadcasters – large and small – and potentially place significant burdens on all stations which, as always, are hardest for small stations to deal with.  Given the number of new regulatory initiatives discussed by the Commission, the NPRM is a must-read for all broadcasters, and this proceeding is one in which all broadcasters should participate.

Among the specific proposals on which the Commission asks for comments include the following:

Community Advisory Boards:  The Commission tentatively concludes that all stations will be required to establish a community advisory board to advise the station on the issues of importance to the community that can be addressed in the station’s programming.  The Commission indicated that it did not want to bring back the burden of the ascertainment process that was abolished in the 1980s, but asks how the Board should be established so as to represent the entire community, suggesting that the categories of community leaders that were used in the ascertainment process could be used as a standard to guide the licensee in determining the make-up of the board.  Other questions include how often the board should meet, and how the board members should be selected (or elected – though by whom, the Commission does not suggest).

Other Community Outreach Efforts.  The Commission also suggests that other community outreach efforts should be considered as possible mandates for broadcasters.  These would include the following:

  • Listener surveys by telephone or other electronic means (general public surveys were also part of the ascertainment process abolished in the 1980s, so if this were adopted together with the Community Advisory Board, ascertainment would effectively be back)
  • Focus sessions or town hall meetings
  • Participation of management personnel on community boards, committees, councils and commissions (mandatory civic participation?)
  • Specific phone numbers or email addresses, publicized during programming, for the public to register their comments on station operations.

Remote Station Operations.  Comments are sought as to whether television stations should be forbidden to operate without being manned during all hours of operation.  Radio operations will be addressed in the proceeding to consider the public interest issues posed in the Digital Radio Proceeding (see our summary here).

Quantitative Programming Guidelines.  The Commission proposes to adopt quantitative standards for programming that a station would have to meet to avoid extra processing and scrutiny at license renewal time.  Questions include what categories of standards should be established (just local programs – or more specific requirements to set required amounts of news, public affairs and other categories – and how to define what programming would qualify in each category), should requirements be established as specific numbers of minutes or hours per day or per week or by a percentage of programming or through some other metric, should other specific requirements or measurements be established?

Main Studios.  The commission suggests reverting to the pre-1987 requirement that each station maintain a main studio in its community of license

Network Programming Review.  The Commission asks whether rules should be adopted to require that local network affiliates have some ability to review all network programming before it is aired.  If so, what programs would be exempt from the requirement (e.g. live programs), how much prior review is necessary, would such a right disrupt network operations?

Voice Tracking.  The Commission asks if "voice-tracking," (i.e. a radio announcer who provides announcing on a radio station from outside a local market, sometimes including local inserts to make it sound as if the announcer is local) should be limited or prohibited, or if disclosure should be required.

Local Music.  While the Commission indicates that it did not think that a ban on national playlists was required, it did ask whether broadcasters should be required to report the songs that they play, and how they choose their music.  With that information, the Commission asks if it should consider the amount of local music played when assessing whether a station has served the needs of its community at license renewal time.

Class A TV.  The Commission asks whether it should adopt rules that permit more LPTV stations to achieve Class A status, meaning that they would no longer be secondary stations subject to being forced off the air by interfering uses of the TV spectrum by full-power TV stations.

 

Continue Reading FCC Releases Specifics of Localism Rulemaking – Proposing Lots of New Rules For Broadcasters

This week, the Copyright Royalty Board issued an Order denying a request by SoundExchange for rehearing of certain aspects of the decision released last month setting the royalties for satellite radio – XM and Sirius.  These are the royalties for the use of sound recordings by these services on their digital systems.  The decision, which set royalties at 6 to 8% of revenues of these services, and the denial of the rehearing motion, provide examples of how the CRB applies the 801(b) standard of the Copyright Act.  In setting royalties, that standard assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music.  The satellite radio decision sets a royalty far lower than that assessed on Internet radio – where the royalty is set using a "willing buyer, willing seller" standard looking only at the perceived economic value of the sound recording.  That willing buyer, willing seller standard is also proposed for broadcast radio in the recently introduced performance royalty bills now pending before Congress (see our summary here) – so it could be expected that any royalty set using that standard would be higher than that set for satellite radio. 

The initial Copyright Royalty Board decision, the full text of which is available here, first made a determination of how to compute the royalty.  While both the satellite radio companies and SoundExchange initially suggested a percentage of revenue royalty given that satellite radio can’t count specific listeners, the parties later amended their proposals (after the Internet radio decision) to include a computation based on the frequency of a song’s play, to try to more closely approximate the Internet radio performance-based model (about which we wrote here).  In addition to the suggestion that this metric more closely approximated that used in the Internet radio decision, the satellite radio companies suggested that a metric based on the songs played would give them the opportunity to adjust their use of music to reduce their royalty obligation.  The satellite companies suggested that, if the royalty was too high, they could reduce the number of different songs that they played.  While not specifically referenced in the decision, it is possible that they also considered the possibility of getting waivers from artists to encourage playing particular songs, which could further reduce a royalty based on a per song computation.  The Board declined to provide that option, finding that the percentage of revenue option best took into account the business of the companies.  The Board also suggested that it doubted that satellite radio really had the ability to lessen the use of music in reaction to a high royalty rate.  (The Board does not discuss the possibility of royalty waivers, which are essentially worth nothing in a situation where the royalties are based on a percentage of a service’s entire revenue).  Continue Reading Satellite Radio Music Royalty Reconsideration Denied By Copyright Royalty Board – What a Difference A Standard Makes

With 2008 almost upon us, webcasters streaming music on the Internet need to remember that the way of computing and paying royalties to SoundExchange will shift on January 1- a change that may be especially important for broadcast stations.  Under the Copyright Royalty Board decision reached last March, webcasters must pay royalties computed on a per "performance" basis.  A performance is a per song, per listener computation.  In other words, if an Internet radio station plays a song and 15 listeners are logged into the station at the time that the song plays, there would be 15 performances on which the royalty would need to be paid.  While broadcasters objected that they did not (and in many cases could not) track the number of performances that were made by their stations on the Internet, the CRB, on reconsideration of their initial decision, only went so far as the give stations an interim rate based on the number of  "Aggregate tuning hours" that a station served (e.g. one listener listening for one hour, or two for a half hour each would both be the equivalent of one aggregate tuning hour).   See our post, here, on the CRB’s reconsideration decision.  The aggregate tuning hour (or ATH) metric is one that is more readily obtain from a content delivery network or other bandwidth provider, and a metric that has been used since the first royalties were established in 2002.  Yet as of January 1, as the interim ATH rate applied only to 2006 and 2007, that method of payment will no longer be available, and many webcasters are wondering what to do to compute the per performance royalty.

Neither the CRB decision nor SoundExchange, which collects the royalties, explained what a webcaster who cannot count performances is to do when the option to pay based on aggregate tuning hours disappears.   The royalty for January performances is due to be paid to SoundExchange on March 16 (45 days after the end of the month), and a webcaster preparing to file its royalty statement on that day will need to have a performance count to include on its statement.  Many Internet radio companies have been trying to determine how to count performances and, while there are some services that offer to provide software to do so, it is my understanding that none are foolproof and, in some cases, they may not be able to get a complete count of performances.  And many smaller stations may not be able to afford such systems.Continue Reading Internet Radio Reminder – No More Aggregate Tuning Hour Royalty After January 1

We wrote yesterday about the introduction of a bill in the House and the Senate proposing to impose a performance royalty on broadcasters for the use of sound recordings on their over-the-air signals.  At that time, we did not have a copy of the bill itself, but were basing our post on press releases and a summary of the provisions of the bill that was available on Senator Leahy’s website.  We have been able to obtain copies of the bill titled the  "Performance Rights Act" – or actually of the "bills," as the House and Senate versions are slightly different.  Reading those bills, many of the questions that we had yesterday are answered, and some new questions are raised as to how this bill, if enacted, would affect radio broadcasters.

One question about which we wrote yesterday was whether these bills would require that any royalty be determined by the Copyright Royalty Board using a "willing buyer, willing seller" standard or the 801(b) standard that takes into account more than a simple economic analysis in determining the royalty.  The 801(b) standard is used for services in existence at the time of the adoption of the Digital Millennium Copyright Act (essentially cable audio and satellite radio) and evaluates not only the economics of the proposed royalty, but also factors including the interest of the public in the dissemination of copyrighted material and the disruption of the industry that could be caused by a high royalty.  In connection with the recent CRB decision on the satellite radio royalties, the potential disruption of the industry caused the CRB to reduce the royalty from what the Board had determined to be the reasonable marketplace value of the sound recordings (13% of gross revenues) to a figure rising from 6 to 8 % of gross revenues over the 5 year term of the royalty.  In the Internet radio proceeding, using the willing buyer, willing seller model, no such adjustment was made.

In these bills, the proposal is to use the willing buyer, willing seller standard for broadcasting.  For a service that has been around far longer than any other audio service, it would seem that a standard that assesses the impact of a royalty on the industry on which it is being imposed would be mandatory.  Who wants to disrupt an entire, well-established industry that has served the public for over 80 years?.  But such a reasonable term is not part of the proposal here.Continue Reading More on the Broadcast Performance Royalty Bills