internet radio royalty

The Librarian of Congress today announced the appointment of a new Chief Judge for the Copyright Royalty Board.  The new Chief Judge will be Suzanne Barnett, a superior court judge of King County in Seattle, Washington.  This is the first new judge on the three-judge CRB since the judges were first appointed in January 2006, soon after Congress first created the CRB. 

The law governing the Copyright Royalty Board requires that the three judges have different experience.  One must have a background in Copyright law, a position filled by Judge William Roberts.  A second must have a background in economics.  That is the position filled by Judge Stanley C. Wisniewski.  Each Judge is appointed for a six-year term, with the terms staggered so that one seat is subject to reappointment every two years.  The Chief Judge is required to be someone with "at least five years of experience in adjudications, arbitrations, or court trials."  The press release issued by the Librarian of Congress stated that Judge Barnett "hears cases of all types and presides over both jury and non-jury trials. Barnett "has served on all the King County calendars – civil, criminal, family, and juvenile – and at all three superior court locations."  Prior to her appointment to the Bench, she was an attorney in private practice for 16 years.


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There have been many reports about the attempts by Sirius XM Radio to license music directly from record labels, bypassing any royalty rates set by the Copyright Royalty Board.  Direct licensing would have Sirius pay the record labels or copyright holders for the rights to use music, avoiding any dealings with SoundExchange, which normally collects the royalties for the public performance of sound recordings under the statutory license.  The most recent report about Sirius’ efforts was in the New York Times, here.  Sirius, like webcasters, pays royalties set by the CRB (if they cannot be negotiated among the parties) that cover the public performance of all legally released sound recordings.  While webcasters currently have royalties that are in place through 2015, the royalties for Sirius end in 2012, and are being litigated now (see our story here on the last royalties set by the CRB for Sirius).  To avoid the uncertainty of litigation, with which webcasters are very familiar, Sirius has been attempting to license music directly from the copyright holders.  This is not a new story – Rhapsody reportedly tried the same thing earlier this year, and Clear Channel tried to get royalty waivers from independent artists several years ago in exchange for more exposure for their music (see our stories, here and here).  Each time a music service suggests that it might want to license music directly to try to recognize some savings over the rates established through CRB litigation, the music community objects – see, for instance, the statements of unions AFTRA and AFM here, that of SoundExchange here, and that of A2IM (the association of independent record labels), here.  But what is really wrong with the efforts of services to negotiate lower royalties?  If you believe the testimony of SoundExchange’s own witness in the Copyright Royalty Board proceedings – nothing at all.  In fact it is to be expected. 

In the CRB proceeding that was held in 2005-2006 (and from which, most of the settlements arose that now govern the royalties for sound recordings played by Internet radio stations), SoundExchange relied on a number of witnesses, including one expert, Michael Pelcovits, an economist whose model was the principal testimony relied on by the CRB in establishing the rates they determined to be reasonable.  In his written testimony, Mr. Pelcovits stated as follows:

…a rate that is set too low may have serious economic dangers.  By setting a rate too low, inefficient entry may be encouraged, and inefficient levels of production will be encouraged, which can hinder the development of an efficient market.  It is also worth noting that setting the statutory rate too high will not necessarily be harmful to the market.  If the price is too high, parties can (and are almost certain to) negotiate agreements for rates lower than the statutory standard.  Thus, a rate that is set too high is likely to "self-adjust" because of the sellers’ natural incentive to meet the market. 

(Emphasis added).  The statutory rate referred to in this quote is the rate that is set by the CRB.  What this quote says is that, if that rate is set too high, then parties will naturally negotiate after-the-fact to try to find what the real market rate should be, and that such negotiations should be expected – not feared as many seem to be claiming as these attempts to cut deals come to light.  In other words, the music community seemed to favor (and expect) such negotiations, before they were against them it in their statements today. 


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Last week, the Copyright Office published in the Federal Register the final decision of the Copyright Royalty Board on the statutory rates for Internet radio royalties – royalties paid by webcasters for the noninteractive streaming of sound recordings.  As we have made clear before, these are royalties that are paid in addition to the royalties paid to ASCAP, BMI and SESAC for the public performance of the musical compositions (see our memo on Using Music in Digital Media, here, that explains the difference between the sound recording and musical composition royalties).  The rates adopted by the CRB are the rates to be paid by any webcaster who has not elected alternative rates available under one of the many settlement agreements between SoundExchange and groups of webcasters, which were entered into under the Webcaster Settlement Acts.  The Final Decision corrects a few typos in the initial decision, but otherwise leaves the substantive holdings of the decision unchanged.  We described those holdings here.  While the publication of the final decision starts the clock running on filing an appeal, the new rates are unchanged from those that were in effect for 2010 for commercial webcasters who had not elected any available alternative set of rates.  Thus, these webcasters will continue to pay at the rate of $.0019 per “performance” (a performance being one listener listening to one song – e.g. if there are 100 people listening to a stream that plays 10 songs in an hour – there are 1000 performances in that hour) for the remainder of 2011.   The publication of these rates has, however, triggered a number of questions about the comparative royalties that different Internet radio services pay for streaming music on the Internet – rates summarized below.

As set out below in detail, there are significant differences in the royalties paid by different services for the 2011-2015 royalty period.  Broadcasters who are streaming their programming on the Internet pay lower per performance royalties than webcasters paying the statutory rate in the first years of the 5 year period, but higher rates at the end of the period. (See a summary of the Broadcaster royalty agreement here).  “Pureplay” webcasters, like Pandora, pay significantly lower per performance royalties than either broadcasters or those paying under the statutory rate, but are required to pay a minimum fee of 25% of the gross revenue of their entire business – ruling out these lower rates as an option for any service that has lines of business other than webcasting.  (See a summary of the Pureplay deal here).  The broadcaster deal and that which applies to the Pureplay webcasters were both arrived at pursuant to settlements reached under the two Webcaster Settlement Acts, passed in 2008 and 2009.  These allowed the groups covered by these agreements to negotiate with SoundExchange over the rates that would cover the industry for the digital noninteractive performances of sound recordings.  The statutory rates were arrived at by a decision of the Copyright Royalty Judges after litigation which took place last year.


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The Copyright Royalty Board today released its Determination of Rates for noninteractive webcasting services for the period from 2011-2015. These rates will form the default rates for webcasters who have not opted into one of the many voluntary agreements negotiated last year under the Webcaster Settlement Act (see our summaries of the Pureplay webcaster deal here, the Broadcasters settlement here, the Small Webcasters or "microcaster" settlement here, the noncommercial webcasters settlements here, the Sirius XM settlement here, and the CPB/NPR settlement here).  The Board set the following per performance royalty rates as the default rates for webcasters who are not terrestrial broadcasters:

  • 2011 – $.0019 per performance
  • 2012 – $.0021 per performance
  • 2013 – $.0021 per performance
  • 2014 – $.0023 per performance
  • 2015 – $.0023 per performance

Thus, the rates for this coming year will remain at the same level at which they are now set for 2010, and will increase slightly every other  year.  A performance is one song played to one listener. 

The decision also adopted default rates for noncommercial webcasters, setting those rates at the levels agreed to in a settlement between SoundExchange and certain noncommercial educational webcasters reached last year. Those rates establish a minimum fee of $500 for each individual channel offered by a noncommercial webcaster. If the listening on any channel exceeds 159,140 Aggregate Tuning Hours in any month, the webcaster would pay for such overage on a per performance basis at the following rates:

  • 2011 – $.0017 per performance 
  • 2012 – $.0020 per performance
  • 2013 – $.0022 per performance
  • 2014 – $.0023 per performance
  • 2015 – $.0025 per performance


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The Copyright Office has just released a Notice of Inquiry asking whether Federal protection should be extended to sound recordings recorded prior to 1972.  A sound recording is a song as recorded by a particular artist.  Sound recordings were first protected under Federal law in 1972.  Prior to that, unauthorized recordings or reproductions of an artist’s recoding were policed under various state criminal and civil law.  While the Copyright Act has provided for the protection of pre-1972 sound recordings first registered in other countries, US sound recordings recorded prior to 1972, have not received Federal copyright protections.  Many have assumed that this also exempts pre-1972 sound recordings from royalty requirements under Section 114 of the Copyright Act – i.e. the royalties paid by Internet and satellite radio and other digital music providers under the statutory license.  How would a change in the law affect Internet radio operators?

That is one of the questions that is asked by the Notice of Inquiry.  Many Internet radio operators have not excluded pre-1972 recordings from royalty payments based on any exception that may exist for pre-1972 sound recordings, as the possibility has not been widely publicized.  Moreover, some copyright holders have suggested that the digitization of older songs may somehow bring pre-1972 recordings under the coverage of the Copyright Act, or that there may be state remedies that are somehow the equivalent of the Federal public performance right.  Others may just not want to go to the trouble of determining which copyrighted songs are subject to the Uruguay Round Agreements Act (making the non-US pre-1972 sound recordings subject to US Federal law).  The Copyright Office’s Notice of Inquiry asks what impact the inclusion of pre-1972 sound recordings would have on many undertakings – including the archiving and restoration of sound recordings, and on the current benefits that copyright holders and others enjoy under state laws.  In addition, it asks about the benefits and issues that would arise under Section 114 of the Copyright Act – the section that sets out the statutory license under which most Internet radio companies operate.


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The question of when a digital music service is “interactive” and therefore requires direct negotiations with a copyright holder in order to secure permission to use a sound recording is a difficult one that has been debated since the Digital Millennium Copyright Act was adopted in 1998. In a decision of the Second Circuit Court of Appeals released today, upholding a jury decision in 2007, the Court concluded that Yahoo’s Launchcast service (now operated by CBS) is not so “interactive” as to take it outside of the statutory royalty despite the fact that the service does customize its music offerings to the tastes of individual listeners. To reach its decision, the Court went through an extensive analysis of both the history of the sound recording copyright and of the details of the criteria used by Launchcast to select music for a stream sent to a specific user. By determining that the service is not interactive, the service need only pay the SoundExchange statutory royalty to secure permission to use all legally recorded and publicly released music.  Had the service been found to be interactive within the meaning of the statute, the service would have to negotiate with each sound recording copyright holder for each and every song that it wanted to use on its service to get specific rights to use each song – potentially resulting in hundreds of negotiations and undoubtedly higher fees than those paid under the statutory license.

The issue in the case turned on an analysis of the DMCA’s definition of an interactive service.  The statute defines an interactive service as one where a user can select a specific song or “receive a transmission of a program specially created for the recipient.” It is clear that Launchcast did not allow a user to request and hear a specific song.  But, by specifying a genre of music, and by specifying favorite artists and songs and rating other songs played by the service, a listener could influence the music that was provided to it.  Was this ability to influence the music sufficient to make it an “interactive service” and thus take it out of the coverage of the statutory royalty?


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