This week, the Copyright Royalty Board issued an Order denying a request by SoundExchange for rehearing of certain aspects of the decision released last month setting the royalties for satellite radio – XM and Sirius. These are the royalties for the use of sound recordings by these services on their digital systems. The decision, which set royalties at 6 to 8% of revenues of these services, and the denial of the rehearing motion, provide examples of how the CRB applies the 801(b) standard of the Copyright Act. In setting royalties, that standard assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music. The satellite radio decision sets a royalty far lower than that assessed on Internet radio – where the royalty is set using a "willing buyer, willing seller" standard looking only at the perceived economic value of the sound recording. That willing buyer, willing seller standard is also proposed for broadcast radio in the recently introduced performance royalty bills now pending before Congress (see our summary here) – so it could be expected that any royalty set using that standard would be higher than that set for satellite radio.
The initial Copyright Royalty Board decision, the full text of which is available here, first made a determination of how to compute the royalty. While both the satellite radio companies and SoundExchange initially suggested a percentage of revenue royalty given that satellite radio can’t count specific listeners, the parties later amended their proposals (after the Internet radio decision) to include a computation based on the frequency of a song’s play, to try to more closely approximate the Internet radio performance-based model (about which we wrote here). In addition to the suggestion that this metric more closely approximated that used in the Internet radio decision, the satellite radio companies suggested that a metric based on the songs played would give them the opportunity to adjust their use of music to reduce their royalty obligation. The satellite companies suggested that, if the royalty was too high, they could reduce the number of different songs that they played. While not specifically referenced in the decision, it is possible that they also considered the possibility of getting waivers from artists to encourage playing particular songs, which could further reduce a royalty based on a per song computation. The Board declined to provide that option, finding that the percentage of revenue option best took into account the business of the companies. The Board also suggested that it doubted that satellite radio really had the ability to lessen the use of music in reaction to a high royalty rate. (The Board does not discuss the possibility of royalty waivers, which are essentially worth nothing in a situation where the royalties are based on a percentage of a service’s entire revenue).