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In one of those year-end decisions that got lost in the holiday rush, in late November, the Copyright Royalty Board issued its final ruling on the rates to be paid to SoundExchange by “business establishment services” for the ephemeral copies of sound recordings when these music services transmit programming to their customers. We wrote about the CRB’s proposal to adopt these rules in May of last year, and our comments on the decision remain relevant to explaining this order. A slightly revised version of our May post follows.

While Copyright Royalty Board decisions on royalties for webcasters, Sirius XM and mechanical royalties get most of the attention, the CRB also sets rates paid by “business establishment services” for the “ephemeral copies” made in their music businesses. Business establishment services are the companies that provide music to businesses to play in retail stores, restaurants and other commercial establishments. These services have come a long way from the elevator music that once was so derided – and now set the mood in all sorts of businesses with formats as varied as the commercial businesses themselves.  While the rates paid by these services pay for music rights is a little off-topic for this blog, these rates are a bit unusual, so they are worth mentioning.  The Copyright Royalty Board in May announced a proposed settlement between the services that were participating in the CRB case and SoundExchange which will raise the rates gradually from the current 12.5% of revenue to 13.5% over the next 5 years, with a minimum annual fee of $20,000, up from $10,000. These rates, which apply to any company that does not negotiate direct royalties with the sound recording copyright holders, went into effect on January 1, 2019 and will be in place through 2023.
Continue Reading Copyright Royalty Board Final Decision on Rates for Business Establishment Services

While Copyright Royalty Board decisions on royalties for webcasters, Sirius XM and mechanical royalties get most of the attention, the CRB also sets rates paid by “business establishment services” for the “ephemeral copies” made in their music businesses. Business establishment services are the companies that provide music to businesses to play in retail stores, restaurants and other commercial establishments. These services have come a long way from the elevator music that once was so derided – and now set the mood in all sorts of businesses with formats as varied as the commercial businesses themselves.  While the rates paid by these services pay for music rights is a little off-topic for this blog, these rates are a bit unusual, so they are worth mentioning.  The Copyright Royalty Board just announced a proposed settlement between the services that were participating in the CRB case and SoundExchange which will raise the rates gradually from the current 12.5% of revenue to 13.5% over the next 5 years, with a minimum annual fee of $20,000, up from $10,000. These rates, which apply to any company that does not negotiate direct royalties with the sound recording copyright holders, go into effect in 2019 and will be in place through 2023. Comments on these proposed rates are due June 18, though CRB rules limit the consideration of comments from those who were not participants in the proceeding.

We have written about the rates paid by these services before (see for instance our articles here, here and here).  What makes them unusual is that the royalties are not paid to SoundExchange for the public performance of sound recordings, as are the royalties paid by other digital music services including webcasters (here and here) or Sirius XM.  That is because, in adopting Section 114 of the Copyright Act, Congress did not want to impose on businesses a new performance right, as there is no general public performance right in sound recordings in the United States.  Businesses and other services that do not digitally transmit performances of audio recordings have no obligation to pay copyright holders in the sound recordings (usually the record companies) or artists for the public performance of music.  Users do, however, pay fees for the public performance of the underlying composition through ASCAP, BMI and SESAC and GMR.  As we wrote here, the Register of Copyrights has suggested that a general public performance right in sound recordings be paid in the United States. But that would impose new fees on all businesses that use recorded music in the US, from stadiums playing “We Will Rock You” at the appropriate point in a big game, to DJs spinning their discs in nightclubs, to the trendy tunes playing in the hip clothing retail stores, to over-the-air radio. This proposal is therefore very controversial.  So, if they are not paying public performance fees, why do background music services have to pay SoundExchange?
Continue Reading Copyright Royalty Board Announces Proposed New SoundExchange Royalties for Business Establishment Services

Early this month, the Copyright Royalty Board announced that it will be starting a new proceeding to set the royalty rates to be paid by “business establishment services” for the rights to make ephemeral copies of sound recordings. The rates will apply for the period 2019-2023. Interested parties must file a Petition to…

Bars and Restaurants, to make their businesses more attractive to customers, often feature music or video, often broadcast radio or TV.  We wrote about the issues for businesses that play the radio on their premises here.  This week, Landslide, the magazine of the American Bar Association’s Intellectual Property Division, published an article that…

Twice this morning, I was faced with the question of whether a business needs a license to play a radio or TV station on their premises, once in a story in one of the broadcast trade publications (see the article here, in the You Can’t Make This Up column toward the bottom of the article) about a gas station that thought that they got around paying ASCAP, BMI and SESAC fees by using “6 or 7” consumer radios around the station. After I saw that article, I thought that it was worth writing this article, as the difference between 6 and 7 radios could make a real difference as to whether the business needs to pay music royalties.

Broadcasters need to be careful about urging their clients to play their stations at their business locations. There are very specific rules, and if the rules are not followed, liability can result. But, as detailed below, there are some exceptions to the obligation of commercial establishments to pay ASCAP, BMI and SESAC that apply specifically to establishments that play only FCC-licensed radio or TV stations. But the details of the exceptions must be observed or there can be issues. All of the performing rights organizations have contractors who travel the country, checking out retailers, bars, restaurants, and other commercial establishments to make sure that they are following the rules. There are periodically press reports about these rights organizations seeking royalties (sometimes through legal actions) from coffee shops, nightclubs, and even farmers markets that publically perform music without signing license deals. So these commercial establishments need to know the rules about music use to avoid becoming a target. As set forth below, the rules are very specific, and broadcasters can actually benefit from the exceptions as, in the limited circumstances set out in the Copyright Act, businesses can play music from FCC licensed outlets without a license, but music from other sources could present an issue. But be careful, as there are very specific rules – and the difference between 6 and 7 radios could be a real issue.
Continue Reading Does a Local Business Need Licenses from ASCAP, BMI and SESAC to Play My Radio or TV Station on Their Premises?

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

“Business Establishment Services” are copyright-speak for those music services that provide background music to commercial establishments.  These services have come a long way from the elevator music that once was so derided – and now set the mood in everything from retail clothing stores to restaurants to department stores with formats as varied as the commercial businesses themselves.  While the rates paid by these services pay for music rights is a little off-topic for this blog, these rates are a bit unusual, so they are worth mentioning.  The Copyright Royalty Board just announced the adoption of a settlement between services and SoundExchange which will raise the rates from the current 10% of revenue to 12.5%, with a minimum annual fee of $10,000, effective January 1.

We have written about the rates paid by these services before (see for instance our articles here and here).  What makes them unusual is that the royalties are not paid to SoundExchange for the public performance of sound recordings, as are the royalties paid by other digital music services including webcasters or Sirius XM.  That is because, in adopting Section 114 of the Copyright Act, Congress did not want to impose on businesses a new performance right, as there is no general public performance right in sound recordings in the United States.  Businesses and other services that do not digitally transmit performances of audio recordings have no obligation to pay copyright holders in the sound recordings (usually the record companies) or artists for the public performance of music.  Users do, however, pay fees for the public performance of the underlying composition through ASCAP, BMI and SESAC.  As we wrote here, the Register of Copyrights has suggested that a general public performance right in sound recordings be paid in the United States, but as that would impose new fees on all businesses that use recorded music in the US, from stadiums playing “We Will Rock You” at the appropriate point in a big game, to DJs spinning their discs in nightclubs, to the trendy tunes playing in the hip clothing retail stores, to over-the-air radio – this proposal is very controversial.  So, if they are not paying public performance fees, why do background music services have to pay SoundExchange?
Continue Reading New Music Royalty Rates for Ephemeral Recordings Used By Business Establishment Services

The Copyright Royalty Board has just announced that it is accepting petitions to participate in the next proceeding to set the royalty rates to be paid for the ephemeral copies made by "business establishment services" in connection with any digital transmission of sound recordings.  Business establishment services are essentially background music services who…

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