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SoundExchange claims on its website that webcaster SWCast.net was shut down when SoundExchange complained to its ISP that the service was not paying royalties for the use of the music played by the site.  SWCast was an aggregator of webcast channels created by other individuals, who paid the company – allegedly for the streaming and for the royalties that were due for that streaming.  According to the SoundExchange press release, the webcaster was shut down when SoundExchange "sent a letter requesting that the hosting ISP disable access to the SWCast site."  SoundExchange’s statement says that, despite repeated attempts to engage the webcaster, SWCast neither paid royalties nor filed reports of use for the songs streamed by the service, leading to SoundExchange’s action.  As far as we know, this is the first time that SoundExchange has taken such an action. 

How did this work?  While we have not seen the letter that SoundExchange sent to the ISP, we can assume that it alleged that SWCast was infringing on copyrighted materials by not paying the required royalties.  ISPs have a safe harbor under the Digital Millennium Copyright Act, protecting them from liability for the infringement of users of their services, if the ISP does not encourage the infringement, registers an agent with the Copyright Office, and agrees to take down infringing content when properly notified by a copyright holder (see our post here).  We can only assume that SoundExchange or the copyright holders themselves notified the ISP that the material streamed by this webcaster was infringing as no royalties were being paid and, to protect itself, the ISP blocked access to the site.Continue Reading SoundExchange Claims Credit for Shutting Down Webcaster Who Was Not Paying Royalties

Yesterday, it was announced that CBS would be operating Yahoo’s Launchcast Internet Radio operations.  This is ironic as the industry seems to have now come full circle, as Yahoo’s Internet Radio operations include the interests that they received when they purchased Mark Cuban’s Broadcast.com, which had a substantial part of its business in the streaming of terrestrial radio stations.  While Yahoo long ago stopped streaming the broadcast signals retransmitted by Broadcast.com, it is ironic that a traditional broadcast company has now taken much of the control of not only the Internet radio operations of Yahoo, but also those of AOL and Last.FM (see our post on the AOL deal here).  Explicitly blamed for Yahoo’s decision to turn its Internet radio operations over to CBS was, according to press reports, its concerns over the Internet radio royalties as set by the Copyright Royalty Board last year, a decision about which we have written extensively.  How will this transaction affect the debate over those royalties?

Initially, this action once again shows that assumptions about the state of the Internet radio industry that colored the perception of the Copyright Royalty Judges in their determination of the royalty rates were incorrect.  While not explicitly part of the grounds of the CRB decision on the webcaster’s royalty, there was much testimony in the CRB proceeding that suggested that Internet radio brought customers to portal sites, and that higher royalties were justified by the value that these visitors added to the portals when the listeners engaged in other activities at the portal.   Yet, that model now seems in tatters, as both AOL and Yahoo have turned their operations over to CBS.  This seems to emphatically demonstrate that the economics of Internet radio operations, whether stand-alone or as part of portals, simply do not justify the royalties that were imposed (see our discussion of the Pandora economic and the royalties here).Continue Reading CBS to Run Yahoo Launchcast Internet Radio – How It Impacts the Royalty Debate

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

Just when Internet music companies were starting to understand one set of royalties applicable to the use of music on the Internet through the controversy over the Copyright Royalty board decision on royalties for the public performance of sound recordings in a digital delivery system, the Copyright Office held a hearing on Friday to discuss an entirely different royalty – the "mechanical" royalty for the use of the "musical work" in making a "phonorecord."  In plain English, the copyright holder in the publishing rights in a musical composition (the underlying words and music in a song) is entitled to a royalty when a copy of a song using that composition is made.  While that doesn’t sound too complicated, when copies are made in the digital transmission of music over the Internet (and even in other digital media), all sorts of questions arise.  And in the conversations on Friday, questions were raised as to whether the obligation to pay a royalty for making a digital copy even applied to the streaming of a song on the Internet or possibly even the playing of a song on an HD Radio station.  These stations already pay (to ASCAP, BMI and SESAC) for the public performance of a musical composition, but the mechanical royalty is for a different right, and is collected by a different group, and the question being raised was whether a different royalty is also due when music is used a digital context.  This is also different than the SoundExchange royalty that is paid for the public performance of a sound recording (a particular song as recorded by a particular artist).

The Copyright Office held this Roundtable to update the record in a proceeding begun by a Notice of Inquiry issued in 2001 to try to determine how to apply in a digital world the mechanical royalty and the compulsory license for that royalty under Section 115 of the Copyright Act.  That section applies to the use of a composition in the making of a record or CD.  The artist or record company would have to pay the publishing company a flat fee per copy to obtain the rights to use the underlying song.  That fee is currently about 9 cents per copy, though the Copyright Royalty Board is is in the midst of a proceeding that is to determine whether that royalty should be changed.  When applied to the making of a physical copy, that concept is not hard to understand (though, as set forth below, it is not easy to administer).  But, in a digital world, questions arise as to when the obligation to pay a royalty arises.Continue Reading Copyright Office Holds a Roundtable Discussion of the Mechanical Royalty – Another Confusing Royalty for the Use of Music on the Internet