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The Copyright Royalty Board has announced the royalties that will be paid for the public performance of sound recordings by Sirius XM for the period 2013-2017. The decision also covers the "Preexisting Subscription Services", i.e. Music Choice in connection with its cable radio service delivered with listener’s cable television packages. The full text of the decision is not released yet, as the parties have an opportunity to request that certain portions be redacted to protect private business and competitive information. The parties can request such redactions through December 19, so the decision may be Christmas reading for many. However, the Board did announce the rates as follows:

Section 112 Rates: The Judges adopted the Parties’ Stipulation regarding the rates and terms for the Section 112 rates, which will require a minimum fee advance payment of $100,000 per year, with royalties accruing during the year recoupable against the advance. The parties agreed that the value of the royalties allocated to the Section 112 license holders is 5% of the total royalty obligation, with the remaining 95% going to the Section 114 license holders.

Section 114 Rates: The Judges determined that the appropriate Section 114(f)(1) rates for Preexisting Subscription Services for 2013-2017 are 8% of Gross Revenues for 2013 and 8.5% for 2014 through 2017.

The Judges determined that the appropriate Section 114(f)(1) rates for Preexisting Satellite Digital Audio Radio Services for 2013-2017 are 9% of Gross Revenues for 2013, 9.5% for 2014, 10.0% for 2015, 10.5% for 2016 and 11.0% for 2017.

Both decisions represent modest, incremental raises in the current rates (see the description of the last CRB decisions on satellite radio rates here, and on cable radio here).  These decisions are made under the 801(b) factors, from Section 801(b) of the Copyright Act, that Internet radio currently is seeking, through the Internet Radio Fairness Act ("IRFA"), to have applied to the decisions as to the royalties paid by webcasters (see our summary here). We will not know how the standard was applied in reaching the decision to raise rates, and what guidance this decision provides for webcasters and their rates, until the full decision is released (see our summary of the arguments of the parties in this case, here).Continue Reading Copyright Royalty Board Releases New Rates for Sirius XM and Cable Radio – They are Going Up, Full Reasoning of the Decision to Come

The royalties that Sirius XM will pay to SoundExchange for the next 5 years will be decided by the Copyright Royalty Board ("CRB") in December. To summarize the hearings that have been held over the last year, the CRB held an oral argument last week, where Sirius XM and SoundExchange presented their arguments as to what those royalties should be. Sirius argued that the rates should be decreased, while SoundExchange contended that the rates should go up significantly from the 8% of revenue that the service now pays (see our summary of the current Sirius XM rates here). How can these parties have such different perspectives on the value of music, and what did this argument say about the application of the 801(b) standard that applies to Sirius?  This standard is the standard that webcasters are seeking to apply to Internet Radio services through the Internet Radio Fairness Act which we wrote about here.  If the IRFA is adopted, it would apply when the CRB next reviews webcasting rates in a case that will be decided by the end of 2015.

Sirius XM and cable music provider Music Choice, which was also part of the proceeding, are both governed by the 801(b) standard rather than the “willing buyer, willing seller” standard that applies to Internet Radio. The oral argument made clear that the adoption of the 801(b) standard is not in and of itself a panacea for the concerns about the royalties that have been set by the Copyright Royalty Board. Last week’s argument focused on the value of music in a marketplace – essentially the “willing buyer, willing seller” question. While other 801(b) factors were discussed, they were seemingly passed over quickly, with most of the focus being on the questions of the marketplace value of the music.Continue Reading Copyright Royalty Board Oral Argument on Sirius XM SoundExchange Royalties – A View of the Application of the 801(b) Standard Proposed for Internet Radio

The recent introduction of a bill by Congressman Jason Chaffetz offers proposals for reform of the operations of the Copyright Royalty Board – reforms that many in the Internet Radio industry have hailed as promising real change in the way that royalty decisions for webcasters have been made. While some webcasters seem to think that relief is at hand, in fact, the bill has simply been introduced into Congress co-sponsored by four congressmen, so it has a long way to go before it can be adopted by Congress and become the law of the land. But it is worth looking at the many issues that the Bill addresses so that webcasters know what it says so that they can rationally argue for its passage.

Most webcasters have focused on the provisions of the bill that would substitute the standards set out in Section 801(b) of the Copyright Act for the standard that currently applies – "the willing buyer, willing seller" standard. 801(b) sets out five factors to be considered in determining the rates to be set for a statutory royalty. These factors are:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices. 

In contrast, the current “willing buyer, willing seller” standard looks only at one question – what a willing buyer and willing seller would agree to in a marketplace transaction.   What is the difference between these two standards?Continue Reading Chaffetz Bill Introduced in House of Representatives to Adopt 801(b) Standard for Internet Radio Royalty Decisions of Copyright Royalty Board – What’s It All About?

Last week, we wrote about the recently announced deal between Big Machine Records and Entercom Communications.  The day after we posted that article, Clear Channel announced another label deal – this time with Glassnote Entertainment Group, the home of bands including Mumford & Sons and Phoenix.  As with its Big Machine deal, the public releases suggest that the label agreed to lower digital performance royalties in exchange for a royalty on over-the-air performances by the company.  What impact do these deals have on the threat of a broadcast performance royalty, and why do the parties enter into these deals?

When the Entercom deal was discussed at the NAB Radio Show, the host of the session asked for a show of hands from broadcasters in the audience who were absolutely opposed to any performance royalty – and about a quarter of the hands in the room went up.  This is probably reflective of concerns that the break in the almost unanimous opposition of radio broadcasters to an over-the-air performance royalty for record labels and musicians could mean that the broadcast performance royalty (what used to be referred to as the "performance tax") would become inevitable. Will these deals embolden the recording industry to once again push Congress to move on the stalled effort to institute a performance royalty?  Perhaps not. At a Congressional hearing soon after the announcement of the original Big Machine-Clear Channel deal, Congressional Representatives were asking witnesses from the broadcast and music industries if the deal reflected a marketplace solution to the royalty issue, obviating the need for any government involvement. And that was certainly the message of the NAB at the Radio Show – these deals are unique deals by companies that can uniquely benefit from them as they have a large digital presence, not a template for universal extension to all broadcasters.Continue Reading Another Music Royalty Deal By Clear Channel and a Record Company – Why Broadcaster Deals With Record Companies May Be a Good Thing

A deal between Big Machine Records and a broadcaster, this time Entercom Communications, was announced at the NAB Radio Show giving the record company a royalty on the broadcaster’s revenue from over-the-air broadcasting in exchange for lower royalties on digital operations. This deal follows one announced by Clear Channel back in June. Talking to broadcasters around the country, many seem confused by the deals, not understanding why they were done, how they work, or what they accomplish. More than anything, many broadcasters fear that the deals will lead to a generally applicable royalty payable to sound recording copyright holders (i.e. the record companies) on over-the-air broadcasting.  Let’s start with an explanation of how these deals work. 

While the details of these deals are not public, a session at the NAB Radio Show shed a little more light on the subject.  The session also included a promise from a Clear Channel representative that more deals are on the way. Perhaps the biggest news was at least some indication of the parameters of the financial terms of the agreements, with the President of Big Machine saying, in response to the question of whether the deal was an agreement to pay 1% of over-the-air revenues in exchange for a 3% digital royalty, that these numbers were certainly in the ballpark. If those numbers are in fact accurate, the digital royalty is substantially smaller than that paid by most webcasters, where royalties computed on the usual per song per listener basis can range from 45% of revenue to several times the total revenue of most webcasters.  Continue Reading A Deal Between Entercom and Big Machine Records To Give the Record Company a Royalty on Over-the-Air Broadcasting

At this year’s NAB Convention, digital issues were much talked about.  In fact, the NAB held, for the first time, a day and a half session focusing on radio stations and their digital efforts, called the Digital Strategies Exchange.  I was on a panel called the Consultant’s Corner, and discussed legal issues that…

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.Continue Reading Librarian of Congress Appoints New Chief Judge of Copyright Royalty Board

The broadcast and music trade press brought news of a settlement between music companies and digital media services regrading digital music royalties.  Some press reports jumped to the conclusion that the decision had something to do with the royalty rates that Internet radio companies pay SoundExchange for streaming their music on the Internet.  Others expressed disappointment that it did not seem to address that issue at all.  In fact, the reason that the settlement had nothing to do with webcasting was because it was a settlement of a Copyright Royalty Board proceeding involving a totally different right – essentially the right to reproduce a the musical work, i.e. the words and music to a song – not any public performance right that is involved in Internet radio streaming.

As we have written before (including the last time a similar settlement was announced), webcasters pay their royalties principally under Section 114 of the Copyright Act, which sets up a "statutory license" requiring that all copyright holders in a "sound recording" (a recording of a song by a particular artist) make their songs available for public performance to any digital music service that meets certain criteria – including principally that their service is a non-interactive one, where listeners cannot pick the particular song that they want to hear.  In exchange for this right, digital music services pay a fee set by the Copyright Royalty Board.  These fees cover liabilities for music use in a process where a service generates a product that goes from the service to many people, much like radio does in the traditional world, without making any sort of lasting digital copy that would be akin, in the physical world, to a CD or record.  The settlement that was just announced deals with rights that like those paid, in the physical world, by a record company to a music publisher for using a musical composition in a record or CD that the record company is recording with a particular artist, not with the public performance right.Continue Reading Music Royalty Settlement Announced on Mechanical Royalties – Not A Decision on Webcasting Rates

SiriusXM announced that is has filed a legal action, including antitrust claims, against SoundExchange and A2IM (the American Association of Independent Music – the association of independent record labels), charging, according to a press release, these two organizations "with unlawfully interfering in SiriusXM’s efforts to secure, through a competitive market, copyrights critical to its business. The complaint contends that the conduct violates federal antitrust, as well as New York state law." The claim is essentially that these defendants conspired to prevent SiriusXM from negotiating direct licenses with musicians, licenses that could take music out of the royalty scheme administered by the Copyright Royalty Board, where royalties are paid to SoundExchange.  We wrote about the attempts by SiriusXM to negotiate such direct licenses, and the opposition of music groups to these agreements, last year. 

Why would SoundExchange and A2IM oppose direct music licensing?  One reason is that music licenses that are directly negotiated between music users and rights holders are traditionally the best evidence of the value of music.  In recent rate court cases involving performing rights organizations, direct licenses formed crucial evidence of the value of music rights.  In cases dealing with ASCAP and BMI royalties for "business establishment" or "background music" services, evidence of direct licenses at rates significantly lower than previously established resulted in court decisions dropping rates by as much as two-thirds from the rates that ASCAP and BMI had previously been charging.  Were SiriusXM to be successful in its suit, and if it is in fact able to negotiate direct music licenses for substantial catalogs of music at rates lower than what it has paid under previous rate decisions, it would presumably introduce such evidence in proceedings before the Copyright Royalty Board (which is now in the process of setting the rates for the public performance of sound recordings by SiriusXM over its satellite service for the next 5 years), and argue that these direct deals are the best evidence of what a willing buyer and willing seller would agree to in a competitive marketplace. While the rates set by the CRB for SiriusXM are not like Internet radio rates and established solely based on a willing buyer, willing seller test, the question of marketplace rates is still a very important component to any CRB decision setting those rates (see our article here on the rates that SiriusXM currently pays to SoundExchange and the standard used to set such rates). Continue Reading Sirius XM Brings Law Suit Against SoundExchange Alleging Collusion to Stop Direct Licensing of Music – Impact on Royalties?

The Copyright Royalty Board makes many important decisions, yet for the last several years, there has been a cloud over its operations, as there have been questions as to whether its members were constitutionally appointed (see our articles here, here and here). Well, the question is before the Courts again – this time squarely in front of the US Court of Appeals for the District of Columbia – a Court one step below the Supreme Court. The Copyright Royalty Board sets the royalty rates to be paid by Internet radio stations for the public performance of sound recordings, and in doing so, they have made some controversial decisions over the last few years. They also set royalties for other digital non-interactive music services, including Sirius XM, music services that come with cable and satellite television services, and background music services. The Board also oversees the distribution of funds that are collected for the retransmission of distant television signals by cable systems. It also sets the rates under Section 115 of the Copyright Act for the reproductions of musical compositions made by record companies when producing musical recordings or downloads, by digital music companies in connection with on-demand music services, and by wireless carriers in selling ringtones. 

The case before the Court involves a seemingly small matter – the appeal of Intercollegiate Broadcasting Services from the CRB decision setting default rates for Internet radio services that are not covered by one of the many Webcaster Settlement Act agreements (about which we wrote here and here). IBS essentially is objecting to the fact that the Board would not lower the annual minimum royalty fee paid by some of IBS’ smaller members below $500. But, in connection with its appeal, IBS raised the issue of the constitutionality of the appointment of the Judges, and the Court this week heard an oral argument on the issue – mentioning the rate questions only in passing while concentrating on the constitutionality of the appointment of the Judges.Continue Reading Constitutionality of Copyright Royalty Board Argued Before the US Court of Appeals – How Will It Affect Future Music Royalty Rate-Setting?