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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

In a pre-Christmas surprise that most broadcasters could do without, identical bills were introduced in Congress on Tuesday proposing to impose a performance royalty on the use of sound recordings by terrestrial radio stations.  Currently, broadcasters pay only for the right to use the composition (to ASCAP, BMI and SESAC) and do not pay for the use of sound recordings in their over-the-air operations of the actual recording.  This long-expected bill (see our coverage of the Congressional hearing this summer where the bill was discussed) will no doubt fuel new debate over the need and justification for this new fee, 50% of which would go to the copyright holder of the sound recording (usually the record label) and 50% to the artists (45% to the featured artist and 5% to background musicians).  The proponents of the bill have contended that it is necessary to achieve fairness, as digital music services pay such a fee.  To ease the shock of the transition, the bill proposes flat fees for small and noncommercial broadcasters – fees which themselves undercut the notion of fairness, as they are far lower than fees for comparable digital services.   

While, at the time that this post was written, a complete text of the decision does not seem to be online, a summary can be found on the website of Senator Leahy, one of the bills cosponsors.  The summary states that commercial radio stations with revenues of less than $1.25 million (supposedly over 70% of all radio stations) would pay a flat $5000 per station fee.  Noncommercial stations would pay a flat $1000 annual fee.  The bill also suggests that the fee not affect the amount paid to composers under current rules – so it would be one that would be absorbed by the broadcaster.  Continue Reading Bill Seeking Broadcast Performance Royalty Introduced In Congress

The US Court of Appeal for the District of Columbia has set the briefing dates on the appeal filed by various webcasting groups seeking review of the decision of the Copyright Royalty Board setting Internet radio royalties for the period 2006-2010 for the use of sound recordings (see our coverage of this controversy here, and…

The Copyright Royalty Board today announced that it is taking comments on a settlement to establish royalties for the use of sound recordings to be paid by companies that are planning to provide audio services to be delivered with satellite and cable programming.  In contrast to the "preexisting subscription services" who were in existence at the time of the adoption of the Digital Millennium Copyright Act in 1998, who recently reached a settlement agreeing to pay 7 to 7.5% of gross revenues for royalties (see our post, here), this settlement is with "New Subscription Services" which did not offer these kinds of subscription services in 1998.  This settlement does not apply to subscription services provided through the Internet.  The covered "new subscription services" have agreed to pay the greater of 15% of revenue or a per subscriber fee that will escalate over the 5 years that the agreement is in effect.  Given that these new services will be providing essentially the same service as the Preexisting Services, why the difference in rate?  Perhaps, it is because the difference in the law.

As we wrote earlier this week, the Preexisting Satellite Service pay royalties set based on the standards of Section 801(b) of the Copyright Act, which takes into account a number of factors including the interest of the public in getting access to copyrighted material, the relative contributions and financial risks of the parties in distributing the copyrighted material, the stability of the industry, and the right of the copyright holder to get a fair return on their intellectual property.  By contrast, the new subscription services who entered into the settlement just announced, who weren’t around at the time of the drafting of the DMCA, use the "willing buyer, willing seller" standard also used for Internet radio.  And, because of the applicability of the willing buyer willing seller standard and the apparent uncertainties of the litigation process using it, these new services apparently decided to agree to a royalty double that of the preexisting services, even though they provide essentially the same service.Continue Reading Another Proposed Settlement of Another Copyright Royalty Board Proceeding – New Subscription Services

The Copyright Royalty Board has asked for comments on proposed royalty rates for the use of sound recordings by "Preexisting Subscription Services."  In adopting the Digital Millennium Copyright Act, Congress divided digital music services into various categories, each of which are assessed different royalties for the use of sound recordings. Preexisting subscription services were those digital subscription music services in existence as of the date of the adoption of the DMCA. Basically, these were the digital cable music services that were in operation in 1997.  In the proceeding now being resolved by a settlement between Music Choice (the one remaining service that was in existence in 1997) and SoundExchange, the companies propose a royalty of 7.25% of gross revenues of the service for the period 2008-2011, and 7.5% of gross revenues for 2012. A $100,000 minimum payment is due at the beginning of each year.  Comments on the settlement are due on November 30.  As set forth below, this settlement sets the stage for the upcoming decision on satellite radio royalty rates – as these two services are both governed by a royalty-setting standard that is different than that used for Internet radio.

The Copyright Royalty Board announced the proceeding to set the royalties for Preexisting Subscription Services at the same time as they initiated the proceeding to set new royalties for Satellite Radio Services – which were also considered to be preexisting services at the time of the adoption of the DMCA – not because they were actually operating, but as their services had been announced and construction permits to construct the satellites had been issued by the FCC.  No settlement has been reached with the satellite radio services (except as to limited "new subscription service" that XM and Sirius provide in conjunction with cable and satellite television packages where, according to the CRB website, a settlement has been reached), and a hearing was held earlier this year to take evidence on what the rates for those services should be.  As we’ve written before, SoundExchange has requested royalties that would reach 23% of a satellite radio operator’s gross revenues.  The satellite radio case has been completed, briefs filed, and oral arguments were held in October.  A decision in the case is expected before the end of the year.Continue Reading Copyright Royalty Board Asks for Comment on Music Choice Royalty – Satellite Radio is Next

Website operators planning to allow visitors to post their own "user generated content" can, for the most part, take solace that they will not be held liable for third-party posts if they meet certain criteria.  The Communications Decency Act provides protection against liability for torts (including libel, slander and other forms of defamation) for website operators for third-party content posted on their site.  The Digital Millennium Copyright Act provides protection against copyright infringement claims for the user-generated content, if the site owner observes certain "safe harbor" provisions set out by the law.  The requirements for protection under these statutes, and other cautions for website operators, are set out in detail in our firm’s First Amendment Law Letter, which can be found here.

 As detailed in the Law Letter, the Communications Decency Act has been very broadly applied to protect the operator of a website from liability for the content of the postings of third parties.  Only recently have courts begun to chip away at those protections, finding liability in cases where it appeared that the website operator in effect asked for the offending content – as in a case where the owner of a roommate-finder site gave users a questionnaire that specifically prompted them to indicate a racial preference for a roommate – something which offends the Fair Housing Act.  However, as set forth in the Law Letter, absent such a specific prompt for offending information, the protections afforded by this statute still appear quite broad.Continue Reading Avoiding Liability for Websites that Post User Generated Content

SoundExchange yesterday announced that it had signed agreements with 24 small commercial webcasters.  Contrary to what many press reports have stated, this is not a settlement with Small Commercial Webcasters.  In truth, what was announced was that 24 small webcasters had signed on to the unilateral offer that SoundExchange made to small webcasters, about which we wrote here.  Essentially, this is the same offer that SoundExchange made in May, which was rejected by many independent webcasters as being insufficient to allow for the hoped for growth of  these companies, and insufficient to encourage investment in these companies.  These larger Small Commercial webcasters, including those that participated in the Copyright Royalty Board proceeding, rejected that offer and instead have sought to negotiate a settlement with SoundExchange that would meet their needs.  Instead of reaching a true settlement with these companies that had participated throughout the CRB proceeding and now have an appeal pending before the Court of Appeals, SoundExchange instead announced that their unilateral proposal was accepted by 24 unnamed webcasters.  Thus, rather than negotiating a settlement, if anything this announcement shows that SoundExchange has not been willing to negotiate – as it has not moved substantively off the proposal they announced over 4 months ago.

While 24 webcasters may have signed on, it would seem that these must be entities that don’t expect to grow their revenues to $1.25 million, or grow audiences that reach the 5,000,000 tuning hour limit at which, under the SoundExchange-imposed agreement, the webcaster needs to start paying at the full CRB-imposed royalty rate.  Moreover, the agreements only cover music from SoundExchange members, excluding much independent music that many webcasters play.  For music from companies that are not SoundExchange members, a webcaster has to pay at full CRB rates.  For a small service playing major label music, the agreement may cover their needs, but for the larger companies playing less mainstream music, a different deal is needed.  Continue Reading SoundExchange Announces 24 Agreements – But Not One a Settlement With Small Webcasters