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). 


Continue Reading Satellite Radio Music Royalty Reconsideration Denied By Copyright Royalty Board – What a Difference A Standard Makes

As reported in Digital Music News and other publications on Friday, Clear Channel Communications dropped its waiver of music royalties from its on-line agreement signed by musicians submitting songs to the Company in hopes that their music would be played on the Company’s radio stations.  In writing about this decision, most publications attribute the decision to the petition filed with the FCC by the Future of Music Coalition and other public interest groups arguing that the waiver requests constituted a form of payola – the giving of something of value (the waiver of the right to receive a royalty) in exchange for the playing of music.  However, on close inspection, that would appear to be a misunderstanding of the royalty, as there would seem to be no royalty that would be affected by the waiver in connection with the playing of this music by radio stations, and therefore there would be no payola over which the FCC has any jurisdiction.

According to the Future of Music petition, Clear Channel’s promise to play new music was made in connection with the payola settlement that it and other companies entered into with the FCC, and was apparently contained in a side letter filed with the FCC, as it was not spelled out in the settlement agreements themselves. See our analysis of the settlement agreements, here.  The side letter promised that the Company would dedicate a certain amount of radio airplay on the Company’s radio stations to new local music.  However, such play would not implicate any music royalties – so a waiver of royalties would not confer any benefit on the Company.  Broadcast stations pay no royalty for the use of a sound recording – thus the waiver that Clear Channel requested was without any value as there was no royalty to waive.  While broadcast stations do pay a royalty for the composition (the underlying words and music of a song), stations play flat fees to ASCAP and BMI that are a function of the station’s market size and power – not a function of how many songs are played.  Thus, as there is no sound recording royalty and a flat fee for the composition royalty unaffected by any waivers, the waiver did not confer any benefit to the Company in connection with its broadcast operations.  Thus, there where would appear to be no payola issue over which the FCC would have any jurisdiction.


Continue Reading Music Waivers Dropped Amid Payola Allegations – What’s the Impact for Future Waivers for Webcasters?