The MusicFirst coalition last week asked that the FCC investigate broadcast stations that allegedly cut back on playing the music of artists who back a broadcast performance royalty, and also those stations who have run spots on the air opposing the performance royalty without giving the supporters of the royalty an opportunity to respond.  While the NAB and many other observers have suggested that the filing is simply wrong on its facts, pointing for instance to the current chart-topping position of the Black Eyed Peas whose lead singer has been a vocal supporter of the royalty, it seems to me that there is an even more fundamental issue at stake here – the First Amendment rights of broadcasters.  What the petition is really saying is that the government should impose a requirement on broadcasters that they not speak out on an issue of fundamental importance to their industry.  The petition seems to argue that the rights of performers (and record labels) to seek money from broadcasters is of such importance that the First Amendment rights of broadcasters to speak out against that royalty should be abridged.

While the MusicFirst petition claims that it neither seeks to abridge the First Amendment rights of broadcasters nor to bring back the Fairness Doctrine, it is hard credit that claim.  After all, the petition goes directly to the heart of the broadcasters ability to speak out on the topic, and seems to want to mandate that broadcasters present the opposing side of the issue, the very purpose of the Fairness Doctrine.  As we’ve written, the Fairness Doctrine was abolished as an unconstitutional abridgment on the broadcaster’s First Amendment rights 20 years ago.  As an outgrowth of this decision, FCC and Court decisions concluded that broadcasters have the right to editorialize on controversial issues, free of any obligation to present opposing viewpoints.  What is it that makes this case different?


Continue Reading MusicFirst’s Complaint to the FCC: The First Amendment and the Performance Royalty

The week, Congressman Rick Boucher, a member of both the House of Representatives Commerce and Judiciary Committees, told an audience of broadcasters at the NAB Leadership Conference that they should accept that there will be a performance royalty for sound recordings used in their over-the-air programming and negotiate with the record companies about the amount of a such a royalty.  He suggested that broadcasters negotiate a deal on over-the-air royalties, and get a discount on Internet radio royalties.  Sound recordings are the recordings by a particular recording artist of a particular song.  These royalties would be in addition to the payments to the composers of the music that are already made by broadcasters through the royalties collected by ASCAP, BMI and SESAC.   Congressman Boucher heads the Commerce Committee subcommittee in charge of broadcast regulation, and he has been sympathetic to the concerns of Internet radio operators who have complained about the high royalty rates for the use of sound recordings.  Having the Congressman acknowledge that broadcasters needed to cut a deal demonstrated how seriously this issue is really being considered on Capitol Hill.

The NAB was quick to respond, issuing a press release, highlighting Congressional opposition to the Performance royalty (or performance tax as the NAB calls it) that has been shown by support for the Local Radio Freedom Act – an anti-performance royalty resolution that currently has over 150 Congressional supporters.  The press release also highlights the promotional benefits of radio airplay for musicians, citing many musicians who have thanked radio for launching and promoting their careers.   The controversy was also discussed in an article on Bloomberg.com.  In the article, the central issue of the whole controversy was highlighted.  If adopted, how much would the royalty be?  I was quoted on how the royalty could be very high for the industry (as we’ve written here, using past precedent, the royalty could exceed 20% of revenue for large music-intensive stations).  An RIAA spokesman responded by saying that broadcasters were being alarmists, and the royalty would be "reasonable."  But would it?


Continue Reading Congressman Boucher to NAB – Accept Performance Royalty – How Much Would It Cost?

With all the recent discussion of the NAB-SoundExchange settlement (see our post here) and the recent Court of Appeals argument on Copyright Royalty Board decision on Internet Radio royalties, we have not summarized the "settlement" that SoundExchange agreed to with a few very small webcasters.  That agreement would essentially extend through 2015 the terms that SoundExchange unilaterally offered to small webcasters in 2007, and make these terms a "statutory" rate that would be binding on all copyright holders.  The deal comes with caveats – that an entity accepting the offer would be prevented from continuing in any appeal of the 2006-2010 royalties and from assisting anyone who is challenging the rates in the CRB proceeding for rates for 2011-2015, even if the webcaster grows out of the rates and terms that SoundExchange proposes.  Once it signs the deal, it cannot have any role before the court or CRB in trying to shape the rates that his or her company would be subject to once they are no longer a small webcaster until after 2015.  Even with these caveats, the deal does provide the very small webcaster the right to pay royalties based on a percentage of their revenue, and even provides some recordkeeping relief to "microcasters", the smallest of the small webcasters.  Parties currently streaming and interested in taking this deal must elect it by April 30 by submitting to SoundExchange forms available on its website for "small webcasters" (here) and "microcasters" (here).

The Small Commercial Webcasters that I represented in the Copyright Royalty Board proceeding did not negotiate this deal.  In fact, no party who participated in the CRB case signed the "settlement", yet it has become a deal available to the industry under the terms of the Webcaster Settlement Act as SoundExchange and some webcasters agreed to it.  My clients have been arguing for a rate that allows their businesses to grow beyond the limits of $1.25 million in revenue and 5 million monthly aggregate tuning hours set forth in this agreement.  But for very small webcasters not interested or able to participate in regulatory efforts to change the rules, and who do not expect their businesses to grow significantly between now and 2015, this deal may provide some opportunities.  The webcaster pays 10% of all revenues that it receives up to $250,000, and 12% of revenues above that threshold up to $1.25 million.  If it exceeds the $1.25 million revenue threshold, it can continue to pay at the percentage of revenue rates for 6 months, and then it would transition to paying full per performance royalty rates as set out by the CRB.   A service would also have to pay for all streaming in excess of 5 million monthly ATH at full CRB rates.  Microcasters, defined as those who make less than $5000 annually and stream less than 18,067 ATH per year (essentially an audience averaging just over 2 concurrent listeners, 24 hours a day 7 days a week), need pay only $500 a year and, for an additional $100 a year, they can be exempted from all recordkeeping requirements.


Continue Reading SoundExchange “Settlement” With Microcasters – A Royalty Option for the Very Small Webcaster

In the last 5 days, the US Court of Appeals in Washington, DC has held two oral arguments on appeals from decisions of the Copyright Royalty Board – one from the Board’s decision on Internet Radio Royalties and the other on the royalties applicable to satellite radio.  The decisions were different in that, in the Internet Radio decision, the appellants (including the group known as the "Small Commercial Webcasters" that I represented in the case) challenged the Board’s decision, arguing that the rates that were arrived at were too high.  In contrast, at the second argument, SoundExchange was the appellant, arguing that the Board’s decision set royalties for satellite radio  that were too low.  But, in both arguments, an overriding question was whether the Judges on the CRB were constitutionally appointed and thus whether any decisions of the Board had any validity.  While the question was expected and specifically raised in the webcasting proceeding (see our post here when that issue was first raised), the discussion at the satellite radio argument was somewhat of a surprise, as the issue had not been raised by either party, and the Appeals Court judges were not even the same judges who had heard the Internet radio argument.  Yet one of the Judges raised the issue, unprompted by any party, by asking if the Copyright Royalty Judges were properly appointed and indirectly asking if their decision would have any validity if the constitutional issue was found to exist.

Will the Court decide the constitutionality issue, and what would it mean?  No one knows for sure.  One of the issues raised by the Court in the Internet radio case was whether the issue had been raised in a timely fashion.  In both cases, the possibility of requiring additional briefing on the issue was also raised by the Court, though no such briefing has been ordered – yet.  Even if the Court was to find that the Board was not properly appointed, there are questions as to whether the existing decisions should nevertheless be allowed to stand, while blocking new decisions until a new appointment scheme is found.  Alternatively, Congress might have to intervene to resolve the whole issue and, if it was to do that, would Congress simply ratify the current decision, or would there be new considerations that would affect any Congressional resolution?  The issue raises many questions, and we’ll just have to wait to see what the resolution will be.


Continue Reading Two Court of Appeals Arguments on Sound Recording Music Royalty Rates – And the Real Question is Whether the Copyright Royalty Board is Constitutional

We reported on the settlement under the Webcaster Settlement Act between the NAB and SoundExchange on Internet Radio Royalties. As provided in the Webcaster Settlement Act, that settlement has now been published in the Federal Register, and thus it is available for broadcasters who are streaming their signal on the Internet, or who are streaming other programming on the Internet, to claim coverage under that settlement. To do so, broadcasters who are already streaming must file a notice of Intent to Rely on this settlement, available here, with SoundExchange, by April 2, 2009 – thirty days after the Federal Register publication occurred. Broadcasters who are not now streaming, but who start in the future, must file the election notice within 30 days of the start of their streaming, or they will be bound by the rates established by the Copyright Royalty Board in their 2007 decision (see our post here). The publication sets out several other details of the settlement, set forth below.

The rates: The rates, which represent some savings under the CRB rate for the years between 2007 and 2011, are set forth below.  These rates are "per performance", meaning that the rate is paid on a per song, per listener basis.  If you play 10 songs in an hour, and each song is heard by 10 people, you have 100 performances.  There are companies that provide services to track and report on performances.  See our post, here, for details.  There are also limited exceptions to the full "per performance" reporting, summarized below.  The rates under this agreement are as follows:

 

2006 ……………………………….. $0.0008

2007 ……………………………….. 0.0011

2008 ……………………………….. 0.0014

2009 ……………………………….. 0.0015

2010 ……………………………….. 0.0016

2011 ……………………………….. 0.0017

2012 ……………………………….. 0.0020

2013 ……………………………….. 0.0022

2014 ……………………………….. 0.0023

   2015 ……………………………….. 0.0025


Continue Reading Details of the Broadcaster SoundExchange Settlement on Webcasting Royalties

In the last two weeks, we have seen Capitol Hill rallies by the Free Radio Alliance, opposing what they term the “performance tax” on radio, and yesterday by the Music First Coalition, trying to persuade Congress to adopt a performance royalty on the use of sound recordings for the over-the-air signal of broadcast stations. We’ve written about the theories as to why a performance royalty on sound recordings should or should not be paid by broadcasters, but one question that now seems to be gaining more significance is the most practical of all questions – if a performance royalty is adopted, how would broadcasters pay for it?

 The recording industry and some Congressional supporters have argued in the past that, if the royalty was adopted, stations could simply raise their advertising rates to get the money to pay for the royalty. While we’ve always questioned that assumption (as, if broadcasters could get more money for their advertising spots, why wouldn’t they be doing so now simply to maximize revenues?), that question is even harder to answer in today’s radio environment. With the current recession, radio is reporting sales declines of as much as 20% from the prior year. Layoffs are hitting stations in almost every market. In this environment, it is difficult to imagine how any significant royalty could be paid by broadcasters without eating into their fundamental ability to serve the public – and perhaps to threaten the very existence of many music-intensive stations. And the structure of the royalty, as proposed in the pending legislation, makes the question of affordability even harder to address.


Continue Reading Rallies on Capitol Hill on the Performance Royalty – Who Will Pay?

The battle over the broadcast performance royalty has begun anew, with the introduction of legislation to impose a performance royalty for the use of sound recordings on broadcast stations.  This royalty would be in addition to the royalties paid to ASCAP, BMI and SESAC (which go to compensate composers of music), as this royalty would be paid to the performers of the music (and the copyright holders in the recorded performance – usually the record companies).  The statement released by the sponsors of the bill cites numerous reasons for its adoption – including the facts that most other countries have such a royalty, that satellite and Internet radio have to pay the royalty, and that it will support musicians who otherwise do not get compensated for the use of their copyrighted material.  The NAB has countered with a letter from its CEO David Rehr, arguing that musicians do in fact get  compensation through the promotional value that they get from the exposure of their music on broadcast stations.  The 50 state broadcast associations also sent a resolution to Congress, taking issue with the premises of the sponsors – citing the differences in the broadcast systems of the US and that of other countries where there is a performance royalty, and arguing that broadcasting is different from the digital services who have a greater potential for substitution for the purchase of music.  What does this bill provide?

The bill introduced this year are very similar to the legislation proposed last year (which we summarized here); legislation that passed the House Judiciary Committee but never made it to the full House, nor to the Senate.  Some of the provisions of this year’s version include:

  • Expansion of the public performance right applicable to sound recordings from digital transmissions to any transmission
  • Royalties for FCC-licensed noncommercial stations would be a flat $1000 per year
  • Royalties for commercial stations making less than $1.25 million in annual gross revenues would pay a flat $5000 per year.  There is no definition of what constitutes "gross revenues," and how a per station revenue figure could be computed in situations where stations are parts of broadcast clusters
  • Excludes royalties in connection with the use of music at religious services or assemblies and where the use of music is "incidental."  Incidental uses have been defined by Copyright Royalty Board regulations as being the use of "brief" portions of songs in transitions in and out of programs, or the brief use of music in news programs, or the use in the background of a commercial where the commercial is less than 60 seconds – all where an entire sound recording is not used and where the use is less than 30 seconds long
  • Allows for a per program license for stations that are primarily talk
  • Establishes that the rates established for sound recordings shall not have an adverse effect on the public performance right in compositions (i.e. they can’t be used as justification for lowering the ASCAP, BMI and SESAC rates)
  • Requires that 1% of any fees paid by a digital music service (such as a webcaster, or satellite radio operator) for the direct licensing of music by a copyright owner (usually the record company) be deposited with the American Federation of Musicians to be distributed to non-featured performers (background musicians), while the distribution of any fees to the featured performer be governed by the contract between the performer and record company
  • Requires that any 50% of any fees paid by a radio station for direct licensing of music be paid to the agent for collection of fees (i.e. SoundExchange) for distribution in the same manner that the statutory license fees are distributed (45% to the featured performer, 2.5% to background musicians, and 2.5% to background vocalists)


Continue Reading Broadcast Performance Royalty Battle Begins Anew – Bills Introduced in the House and Senate

The oral argument on the Webcasting appeal of the March 2007 Copyright Royalty Board decision setting Internet radio sound recording royalty rates for 2006-2010 has now been set for March 19.  So, if no settlement under the Webcaster Settlement Act (about which we wrote here) is reached before the February 15 deadline set out

2009 – a new year, and a whole new cycle of regulatory requirements.  We wrote last week about the potential for changes in regulations that may be forthcoming but, like death and taxes, there are certain regulatory dates each year that broadcasters need to note and certain deadlines that must be met.  Those dates