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The full decision of the Copyright Royalty Board setting the royalty rates to be paid to SoundExchange by Sirius XM and Music Choice from 2013 through 2017 has now been released.  We wrote about the initial release of the summary of the decision before Christmas.  The final decision is interesting in many respects. First, it is the first decision to be released since two of the original three Copyright Royalty Judges left the bench. The decision, as released was actually two decisions – one signed by the new Chief Judge and an acting judge who filled in for Judge Wisniewski, the Board’s economic expert, when he had to retire for health reasons. The second decision, reaching the same result but based on different reasoning, was signed by the Board’s lone holdover, Judge Roberts, a long-time fixture at the Copyright Office before joining the Board. In addition, the decision seems to reject some premises that had long been used to justify royalty rates in other proceedings – and thus may give some insights on approaches to be used in the webcasting royalty proceeding that will begin in 2014 and conclude in 2015. The majority decision also, for the first time, gives at least some weight to direct licensing deals for the public performance of sound recordings by a noninteractive service. Finally, the decision provides explicitly for carve-outs from the established royalties for music on which no royalties need to be paid, including music that is directly licensed, and for pre-1972 sound recordings.

Before looking at the decision, it needs to be noted that these royalties are theoretically decided not just for Sirius XM and for Music Choice, but also for other services that fit into their class of service as defined by Sections 112 and 114 of the Copyright Act. Thus, the Music Choice decision applied theoretically to all "Preexisting Subscription Services" (or a "PSS") and the Sirius XM decision to all "preexisting satellite digital audio services" (or, as used in the decision, "SDARS" – satellite digital audio services). The "pre-existing language means that these services were either in existence or authorized by the FCC (for the SDARS services) at the time of the adoption of the Digital Millennium Copyright Act in 1998.  Of course, since 1998, all of Music Choices then-existing competitors in the cable audio business have gone out of business with one exception, and the second SDARS service – XM Radio – has merged with Sirius. So, effectively, these rates apply only to very few companies.…

Continue Reading Full Text of Copyright Royalty Board Decision on Sirius XM and Music Choice Royalties Released – The Basics of the Decision

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

Last week, the Radio Music License Committee (“RMLC” – see our article about the RMLC), filed a complaint in US District Court in Pennsylvania against SESAC, arguing that SESAC is a monopoly and should be treated like ASCAP and BMI.  RMLC is asking that SESAC be subject to an antitrust consent decree as are these two bigger collection societies. As we have written before, SESAC is not a non-profit organization like ASCAP and BMI, and is not subject to consent decrees like these other performing rights organizations (“PROs”). Instead, it is a private company, owned by venture funds which, up to now, has set its own prices for licenses subject only to negotiations with the rights holders. So what is this suit all about, and will broadcasters see any changes in SESAC licensing in the short-term? 

RMLC claims that SESAC, by effectively being the only way to license the public performance of compositions by thousands of different composers, effectively can get monopoly prices. Practically speaking, radio stations cannot individually license all the songs written by SESAC performers and, even if the stations were able to directly license some of the music from SESAC writers, SESAC still would not reduce their fees.  All SESAC licenses are blanket licenses that give stations the right to use all the music in the SESAC catalog, but are not reduced by any pro rata amount should any music be directly licensed. Thus, argues RMLC, stations cannot try to reduce their licensing liability through direct licenses with songwriters even if such deals could be negotiated.…

Continue Reading RMLC Files Antitrust Suit Against SESAC – What Does It Mean For Broadcasters?

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

Radio broadcasters have been receiving invoices from the Radio Music License Committee (“RMLC”), and many are asking whether the invoice is “real.”  Some stations seem concerned that they are being asked to pay some fee that they really don’t owe. The truth is that this is one bill that most commercial stations in fact do owe, and it is a bill that they should actually be happy to pay. RMLC is the committee that represented radio broadcasters in the recent negotiations with ASCAP and BMI, leading to new agreements covering the royalties to be paid to these organizations through 2016. We wrote about the ASCAP agreement, here. The BMI agreement was announced recently, and we’ll try to get a summary of that agreement up on the blog sometime soon. These settlement agreements significantly reduced the amount of royalties that the radio industry as a whole pays to ASCAP and BMI for the public performance of musical compositions on over-the-air radio (and in connection with their digital uses of music as well).   As part of these settlement agreements, the Court overseeing the antitrust consent decrees with ASCAP and BMI, which had to approve the settlements, approved the fees to RMLC as well. 

Under the terms of the Court approval, all stations that either elected to be represented by RMLC in the negotiations (see our article on that election here), or those who elect to be covered by the settlement by signing an agreement with ASCAP and BMI under the terms that RMLC negotiated, are required to pay the fee to RMLC.  The fee funds RMLC operations in the future, and pays for the cost of the litigation and negotiations that led to the settlements.…

Continue Reading What is the RMLC, And Why Should a Radio Station Pay Their Bill?

Last month, we wrote about the proposed settlement on "mechanical royalties" under Section 115 of the Copyright Act. These royalties are paid when "reproductions" are made of a musical composition.  In the analog world, these were most commonly paid by a record company to a music publisher for the rights to use a musical composition when one…

The Radio Music Licensing Committee has announced a settlement with BMI over music royalties for the public performance of musical compositions for the period from 2010-2016.  Terms have not been announced, so we can’t provide the details, yet.  But as we wrote recently when the RMLC announced the terms of its agreement with ASCAP, we would assume that the terms would be somewhat similar to the ASCAP deal.  If no settlement had been reached with BMI, the case would have gone to a "rate court" in Federal District Court to see what the fair market value of the performance right was.  As analogous rates often form the basis for rate court determinations of fair market value, the settlement with ASCAP would no doubt have been an issue for BMI, as it would appear to set a benchmark rate for the public performance of musical compositions.  But, we will have to wait to see what the filings say before we can determine if, for sure, the rates will decrease relative to prior rates to the same extent that they did for ASCAP.

It is worth reflecting on how RMLC came to reach deals with ASCAP and BMI, and to explain why there is no reference to a SESAC deal.  I’ve already heard or seen several people suggesting that an agreement with SESAC may be next – when in fact that is not something that is imminent, as can be explained by the differences between ASCAP and BMI on one hand, and SESAC on the other.  ASCAP and BMI are both governed by anti-trust consent decrees that have been in place for over 50 years.  Under both decrees, these organizations have to enter into agreements to set royalties for all similarly-situated users of music in various categories of businesses – categories including radio, TV, websites, background music, restaurants, bars, hotels, performance venues and practically every other place where music is performed for the public.  If no agreement can be reached on a voluntary license, a “rate court” decides on the royalties. Essentially, that means that a US District Court in New York has a trial to set the rates.…

Continue Reading Radio Music Licensing Committee Announces Settlement With BMI Following Settlement With ASCAP – Why SESAC is Not Included