The Copyright Royalty Board has asked for comments on proposed royalty rates for the use of sound recordings by "Preexisting Subscription Services." In adopting the Digital Millennium Copyright Act, Congress divided digital music services into various categories, each of which are assessed different royalties for the use of sound recordings. Preexisting subscription services were those digital subscription music services in existence as of the date of the adoption of the DMCA. Basically, these were the digital cable music services that were in operation in 1997. In the proceeding now being resolved by a settlement between Music Choice (the one remaining service that was in existence in 1997) and SoundExchange, the companies propose a royalty of 7.25% of gross revenues of the service for the period 2008-2011, and 7.5% of gross revenues for 2012. A $100,000 minimum payment is due at the beginning of each year. Comments on the settlement are due on November 30. As set forth below, this settlement sets the stage for the upcoming decision on satellite radio royalty rates – as these two services are both governed by a royalty-setting standard that is different than that used for Internet radio.
The Copyright Royalty Board announced the proceeding to set the royalties for Preexisting Subscription Services at the same time as they initiated the proceeding to set new royalties for Satellite Radio Services – which were also considered to be preexisting services at the time of the adoption of the DMCA – not because they were actually operating, but as their services had been announced and construction permits to construct the satellites had been issued by the FCC. No settlement has been reached with the satellite radio services (except as to limited "new subscription service" that XM and Sirius provide in conjunction with cable and satellite television packages where, according to the CRB website, a settlement has been reached), and a hearing was held earlier this year to take evidence on what the rates for those services should be. As we’ve written before, SoundExchange has requested royalties that would reach 23% of a satellite radio operator’s gross revenues. The satellite radio case has been completed, briefs filed, and oral arguments were held in October. A decision in the case is expected before the end of the year.