The new iPhone, connecting as it does to ATT’s high speed wireless network, has allowed Internet radio to go wireless.  While this has been possible on many platforms in the past, it has never been as easy, seamless, ubiquitous and as promoted as with the new iPhone.  The CBS radio  stations on AOL Radio, Pandora and Soma FM are all available, as are add-on applications that open the door to streaming many other Internet radio stations.  Tim Westergrin of Pandora  was quoted as stating that the iPhone would change people’s expectations of Internet radio, making it "a 360-degree solution – in the car, in the home, on the go."  But, as with any application that increases the audience of Internet radio, it comes with a cost, as the delivery of Internet radio by a mobile device, like a wireless phone, is subject to the same royalties established by the Copyright Royalty Board last year and currently in effect while on appeal – rates that are computed by the "performance," i.e. one song streamed to one listener (see our reminder on the per performance payment, here).

In the requests for reconsideration of last year’s CRB decision, SoundExchange had asked that the Board make clear that its decision applied to noninteractive streams (i.e. Internet radio) delivered to wireless devices like mobile phones.  In one of the few actions taken on reconsideration, the Board granted that request (see our summary of the reconsideration, here, and the CRB decision here).  Thus, services making their streams available to the iPhone (except for those covered under the special percentage of revenue offer that SoundExchange made to a limited class of small webcasters, and noncommercial webcasters under 159,140 aggregate tuning hours a month), must count performances and pay the per-performance royalties due to SoundExchange.Continue Reading Internet Radio on the iPhone – Remember the CRB Royalties Apply

Broadcasters and other digital media companies have recently been focused on the royalties that are to be charged by the record labels for public performance of a sound recording in a digital transmission (under the Section 114 compulsory license administered by SoundExchange).  In a Notice of Proposed Rulemaking issued this week, the Copyright Office tentatively concludes that there could be yet another royalty due for streaming – a royalty to be paid to music publishers for the reproductions of the musical compositions being made in the streaming process under Section 115 of the Copyright Act.  This notice was released just as the Copyright Royalty Board is concluding its proceeding to determine the rates that are to be paid for the Section 115 royalty.  While there have been reports of a settlement of some portions of that proceeding, the details of any settlement is not public, so whether it even contemplated noninteractive streaming as part of the agreement is unknown.

How did the Copyright Office reach its tentative conclusion?  First, some background.  The Office for years has been struggling with the question of just what the section 115 royalty covered.  Traditionally, the royalty was paid by record companies to the music publishers for rights to use the compositions in the pressing of records.  This was referred to as the "mechanical royalty" paid for the rights to reproduce and distribute the composition used in a making copies of a sound recording (a record, tape or CD).  These copies were referred to as "phonorecords."  However, in the digital world, things get more complicated, as there is not necessarily a tangible copy being made when there is a reproduction of a sound recording.  Thus, Congress came up with the concept of a Digital Phonorecord Delivery (a "DPD") as essentially the equivalent of the tangible phonorecord.  But just what is a DPD?Continue Reading Copyright Office Issues Notice of Proposed Rulemaking That Could Make Section 115 Royalty Applicable to Internet Radio

The appeals of last year’s Copyright Royalty Board decision on the royalties paid for the use of sound recordings by Internet radio stations continue on, and one recent filing raises interesting questions of whether or not the CRB was properly appointed.  Last week, the Department of Justice, which represents the CRB in defending its decision in the Court of Appeals, filed its brief in opposition to the briefs of the webcasters, which we summarized here.  The DOJ brief essentially argued that the webcasters’ briefs were insufficient to satisfy the requirement for a successful appeal – that the CRB decision was arbitrary and capricious or otherwise contrary to law.  Essentially, a Court need not revisit the decision and substitute its judgment as to whether the it believes that the decision was correct, but instead, to overturn a decision, the Court must find that the CRB (the expert agency) either violated the law or could not, on the fact, have logically come up with the decision that it did.  Thus, the DOJ brief made arguments that there was enough factual evidence for the CRB to decide in the way that it did, and made arguments that the webcasters had not offered contrary arguments or evidence on certain points during the CRB proceeding and were therefore barred from raising those arguments now.  Just before the DOJ brief was filed, another pleading raised the fundamental question of whether the Copyright Royalty Board was properly appointed and, if not, whether it has the constitutional authority to decide the cases that it has been considering.

This new argument about the CRB’s authority comes in a request filed with the Court of Appeals by Royalty Logic, a party to the CRB proceeding.  Royalty Logic is not a webcaster, but instead is seeking to be an alternative collection agency to SoundExchange.  Its pleading seeks supplemental briefing on the question of whether the Copyright Royalty Judges are “inferior officers” of the Federal government who, under the Constitution, can only be appointed by the President, by the Courts or by the head of a Department of the government. In a recent Supreme Court case, the Court found that certain tax court judges, who were appointed by a chief judge and not by a cabinet-level officer (the head of a “department”) violated this Appointments Clause of the Constitution. There has been much press coverage in the past few weeks as to whether this decision also applies to patent judges, and whether it could invalidate hundreds of patents approved by these judges (see the NY Times article on this issue, and listen to an NPR piece about the controversy). Royalty Logic contends that the same logic should apply to the appointment of the Copyright Royalty Judges who make up the CRB.  The Copyright Royalty Judges are appointed by the Librarian of Congress.  One question would be whether the Librarian is the equivalent to the head of a department though, technically, the Library of Congress is not even in the Executive Branch of government, but instead part of Congress.  In any event, Royalty Logic notes that the Copyright Royalty Tribunal, a predecessor agency done away with during the Clinton administration as part of their "Reinventing Government" program (one of the few agencies that was "reinvented"), had members appointed by the President.Continue Reading Does the Copyright Royalty Board Exist – Internet Radio Appeal Proceeds and New Issues Arise

Under the compulsory license for the use of sound recordings – the license which allows Internet radio services to use all legally recorded sound recordings by paying a royalty set by the Copyright Royalty Board – the designated collection agency can, once each year, audit a licensee to assess its compliance with the royalty requirements.  Under the law, when the collective decides to audit a company, it must notify the Copyright Royalty Board, who then gives public notice of the fact that an audit is to take place.  The Copyright Royalty Board has just announced that SoundExchange has decided to audit Last.FM.  Based on a number of public statements, SoundExchange has been citing Last.FM as an example of problems with royalties – contending that Last.FM had paid royalties of only a couple of thousand dollars a year, under the Small Webcasters Settlement Act, just before selling out to CBS for over $200 million.  Given SoundExchange’s tough talk about Last.FM, this notice of an audit is not surprising.  SoundExchange’s focus on this company illustrates the difficulty of valuing music use, and the different perceptions of music users and copyright holders as to what that value should be.

 In past years, SoundExchange has audited a number of webcasters – usually large webcasters.  As SoundExchange must bear the cost of the audit unless a significant underpayment is discovered, it is unlikely that more than a few companies will be audited each year.  However, as SoundExchange has made such a big deal of Last.FM, with witnesses on performance royalty issues mentioning it at Congressional hearings, and representatives mentioning it on various industry conferences (including SoundExchange President John Simson’s reference to the company on a panel on which we jointly appeared at Canadian Music Week earlier this month), many expected that an audit would be forthcoming.Continue Reading SoundExchange to Audit Internet Radio Royalty Payments of Last.FM – What is the Value of Music?

A full year ago, the Copyright Royalty Board released its decision setting royalties for the use of sound recordings by Internet Radio webcasters (see various posts on the subject here).  As an article this week in the Boston Globe sets out, despite much talk of a post-decision settlement to lower the royalties set by the CRB that many Internet Radio operators claim will put their stations out of business, no such settlement has yet been announced.  And, in a week that brought about the transfer of the operations of one of the largest webcaster’s operations to a traditional radio company (as CBS took over operations of AOL’s Internet Radio service), appeals of the decision were filed with the US Court of Appeals for the District of Columbia.  A busy week, but still no resolution of the Internet radio controversy.

Four separate appeals briefs were submitted to the Court.  One was a combined brief of the large Webcasters (represented by DiMA, the Digital Media Association) and the Small Webcasters(Accuradio, Radioio, Digitally Imported Radio, Radio Paradise), another was submitted by several commercial broadcast groups (Bonneville, the NAB and the National Religious Broadcasters Association) and a third by several noncommercial groups (including college broadcasters, NPR, and noncommercial religious broadcasters).  A final brief was submitted by Royalty Logic, a company that wants to become an alternative to SoundExchange as the collection agent for performers.  These briefs will be answered by the Department of Justice (defending the CRB and its decision before the Court) and SoundExchange.  The briefing process will continue for several months, with an oral argument to follow, quite possibly not until the Fall.  Thus, a decision in the case may well not be reached until 2009. Continue Reading A Year After the Webcasting Royalty Decision – No Settlement, Appeal Briefs Filed

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 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

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