On Friday, the FCC issued a reminder to all operators “of fixed-satellite service (FSS) earth stations in the 3.7-4.2 GHz band that were constructed and operational as of April 19, 2018 that the filing window to license or register such earth stations closes on October 17, 2018.” This frequency band is commonly referred to as
The US Court of Appeals for the District of Columbia Circuit today issued a decision basically upholding the royalty rates set by the Copyright Royalty Board due under Section 114 of the Copyright Act by satellite radio operators for the public performance of sound recordings. The CRB decision, setting royalties for the years of 2007 to 2012, established rates that grew from 6% to 8% over the six year term. As we explained in our post, here, the Board looked at the the public interest factors set out by Section 801(b) of the Copyright Act, factors not applicable to Internet Radio royalties, in reaching the determination these royalties. Particularly important was the factor which took into account the potential impact of the royalties on the stability of the businesses that would be subject to the royalty, resulting in a reduction of the perceived fair market value of the royalty from what the board determined to be about 13% of gross revenues to the 6-8% final royalty set by the Board. The Court upheld the Board’s reasoning, rejecting SoundExchange’s challenge to the decision, though the Court did remand the case to the Board to decide the proper allocation of the royalty to the ephemeral rights covered by Section 112 of the Copyright Act.
What was perhaps most interesting about the Court’s decision was the concurring opinion of one of the three Judges, who stated that the fact that the Board’s judges were appointed by the Librarian of Congress, and not by the President, "raises a serious constitutional issue." This was the same issue raised by Royalty Logic in challenging the constitutionality of the CRB in the webcasting proceeding (see our posts here and here). The Judge concurred in the majority decision as none of the parties to the satellite radio case raised the constitutional issue, but this very question was squarely raised in the webcasting proceeding, and thus may well be resolved in the decision on that appeal.
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.
The Barack Obama Channel – a surprising concept to find on your satellite television dial. Yet there appears to in fact be such a channel, according to a columnist at Politico, who found that the Dish Network is dedicating a whole channel to Obama commercials run back to back. Has Dish owner Echostar decided to stake out…
Tuesday, the Senate Judiciary Committee held a hearing on the sound recording performance royalty, titling the hearing "Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms" (a webcast of which can be accessed here). While the hearing was ostensibly to search for a way to come up with a uniform system of determining music royalties across various digital media platforms (though the broadcast analog performance royalty snuck into the discussion from time to time), in reality it appeared to be two things – a search for compromise and a demonstration of the dramatically different perspectives from which the recording industry and the digital radio industry approach the topic. While one might assume that the dramatically different approaches would mean that no compromise was possible, there were a few areas of commonality that perhaps reflect the potential that, at some point, common ground can be found. We will review the hearing’s discussions in multiple parts – today dealing with the issue of the standard to be used in assessing royalties for the public performance of sound recordings and, in a subsequent post, we will summarize the differing world views of the participants and why the dramatically different ways that they see the business make for difficulty in compromise.
But first, a summary of the issues that were to be discussed at the hearing. Essentially, the hearing was to discuss two bills addressing different aspects of the royalty issues. Senator Feinstein of California, who chaired the hearing, was looking for any common ground that might exist that would allow for movement on the Perform Act that she has introduced. That act would attempt to do two things – (1) assure that a common standard was used to assess sound recording royalties in all digital media and (2) adopt standards that would require digital services to use some form of security or encryption that would make "stream ripping" more difficult. The first goal of her bill, looking for a common standard, was an attempt to avoid some of the problems that have been evident in the royalty proceedings that have thus far been held before the Copyright Royalty Board which have resulted in dramatically different royalties – ranging from 6 to 8% of revenue for satellite radio companies and a similar royalty for digital cable music services (see our posts on those rates here and here) derived under an "801(b) standard" (after section 801b of the Copyright Act) , and the royalty for Internet radio that has been estimated to range between 75% and 300% of gross revenues of those services, derived from a "willing buyer, willing seller" royalty standard. The Perform Act would subject all to a single standard – and it currently proposes a new standard – "fair market value."
The FCC has released a Public Notice announcing its approval of the XM and Sirius satellite radio merger. The public notice is only two pages long, with a four page appendix providing very brief summaries of the conditions imposed on the two companies which a majority of the Commissioners found sufficient to protect consumers from harm from the merged entity. The full text of the decision, providing the full reasoning of the Commission on its approval, has not yet been released. Until it is, the impact for broadcast ownership and the treatment of broadcast consolidation set by the precedent of this decision remains unclear.
The conditions placed on the merger and outlined by the decision include some surprising ones beneficial to broadcasters, including that the merged company not use its terrestrial repeaters to originate local broadcasts and that the company not enter into exclusive agreements precluding the broadcast of local sporting events by over-the-air broadcast stations. The decision also imposed price caps on the service for three years, and set out conditions to open the manufacturing of satellite radio receivers to more companies and prohibiting any restriction on combining the radio receiver with other audio devices including digital radio receivers. No condition requiring that satellite radio receivers be capable of picking up over-the-air digital radio ("HD Radio") was imposed, though the FCC promised to issue a Notice of Inquiry to review that issue. Specific programming channels will be made available for noncommercial educational use and for leased access. The FCC also made clear that satellite radio will be subject to the FCC’s EEO rules.
Once again, the extension of the sound recording performance royalty to broadcasters has become a hot topic in Washington. The subcommittee on Courts, the Internet and Intellectual Property of the House Judiciary Committee yesterday approved the bill introduced by Congressman Berman (about which we first reported here). That bill would include broadcasters in the Section 114 sound recoding royalty currently applicable to digital music users including Internet radio, satellite radio and cable radio. Under the bill, the Copyright Royalty Board would be charged with the responsibility of determining what a royalty would be using the "willing buyer, willing seller" standard. Following this subcommittee approval, the bill would next be considered by the full committee. To become law, the Committee and the full House of Representatives would have to approve it, and similar legislation would need to be enacted by the Senate. As the NAB has garnered the support of a majority of the members of the House on a non-binding resolution opposing the imposition of the royalty on broadcasters, and as there is not much time remaining in the legislative session before the election and the end of this Congress, the whole process may well have to start fresh in 2009 (bills have to be reintroduced after the end of each two-year Congressional session). Yet, with all of the controversy over the issue in recent weeks, it appears certain that the issue will arise again, so it is important to look at some of the recent action.
Two weeks ago, the House subcommittee held a hearing on the issue. Prior to the hearing, the MusicFirst Coalition (principally supported by the RIAA and the affiliated record companies as 50% of any royalty goes to the copyright holders who are usually the labels) had Nancy Sinatra and the Nitty Gritty Dirt Band making the rounds on Capitol Hill in support of the royalty. These appearances follow the precedent set in earlier Capitol Hill proceedings, where the Coalition has brought in niche or oldies artists to address Congress – not major popular current acts. The artists who have testified (who have included Judy Collins, Sam Moore, Lyle Lovett, and Alice Peacock) have argued that the additional income that they would receive from a performance royalty would supplement their incomes which, in some cases, has either never been great or has declined as the demand or ability to tour has declined. The argument is always made that the royalty will encourage musicians to produce their music – though it is rarely if ever claimed that music wouldn’t be made if the royalty is not adopted, as songs have been written and sung for time immemorial, well before any royalty existed, merely for the pleasure or to fulfill the need for self-expression. The question is not one of ensuring the availability of music, but instead it is one about who should get how much of whatever money is made, directly or indirectly, from the use of that music.
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).
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.
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.