sound recording

Subscribe to sound recording

One of the fundamental questions that surrounds the proposed broadcast performance royalty for the use of sound recordings by over-the-air (or the "performance tax" as it has been labeled by the NAB) is how much it could it cost a broadcaster?  Right now, that question is difficult to determine, as the pending bills do not themselves provide any details as to what the fees would be, except for noncommercial entities and for small broadcasters for whom fixed yearly fees are proposed.  For a broadcaster with a station having over $1.25 million in yearly revenues, the current Congressional bills leave the amount of the royalty to be determined by the Copyright Royalty Board.  In the current Senate draft of the bill, the amount to be paid would be based on the "willing buyer willing seller" standard that has been so controversial for Internet Radio companies. But the hearing to be held by the Senate Judiciary Committee tomorrow will address, among other issues, the question of "platform parity," i.e whether all companies subject to the sound recording performance royalty should pay a comparable rate, so we may see that proposal change as it did in the House version, to some form of the 801(b) standard (about which we wrote here and here).

We will write about the differing rates paid by differing music services in the next few days, especially as it becomes clear as to what rates for Internet radio royalties were agreed to under the most recent settlements with webcasters pursuant to the Webcaster Settlement Act.   But even without a detailed analysis of all of the rates that have been agreed to, certain trends can be seen as to what SoundExchange, on behalf of the artists and copyright holders, believes to be a fair royalty for the use of their music.  And that number is likely to be a "Substantial" one, as suggested by a recent Congressional Budget Office review of the cost to broadcasters of the proposed performance royalty.Continue Reading Broadcast Performance Royalty – What Would It Cost? The Congressional Budget Office Says A “Substantial” Amount

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.Continue Reading Court Upholds Copyright Royalty Board Decision on Satellite Radio Royalties, But Questions Board’s Constitutionality

A settlement under the Webcaster Settlement Act of 2009 was signed today by SoundExchange and a group of webcasters that I represented in the Copyright Royalty Board proceeding to determine the royalty rates for the use of sound recordings by Internet Radio stations for the period from 2006-2010. This agreement is for “pureplay” webcasters, i.e. those that are willing to include their entire gross revenue in a percentage of revenue calculation to determine their royalties. As permitted under the terms of the WSA, this agreement not only reaches back to set rates different, and substantially lower, than those that were arrived at by the CRB for the period from 2006-2010, but also resolves the rates for 2011-2015, relieving webcasters who join the deal from having to litigate another CRB proceeding to set the rates for those years. 

While no deal arrived at under the circumstances in which these webcasters found themselves (a CRB decision that did not set any percentage of revenue royalty rate and would seemingly put these webcasters out of business, the prospect of a new CRB proceeding that would costs significant sums to litigate with no guarantee of success, and with the only other current option being the “microcasters” deal unilaterally advanced by SoundExchange that severely limited the amount of streaming that a webcaster could do and imposed significant “recapture provisions” in the event of a sale of the webcaster’s business) may not be ideal, the settlement does provide significant benefits over any other existing option for any webcaster who qualifies under its provisions. These deal points are set out below.Continue Reading Pureplay Webcasters and SoundExchange Enter Into Deal Under Webcaster Settlement Act to Offer Internet Radio Royalty Rate Alternative for 2006-2015

In recent months, SESAC has been writing letters to broadcasters who are streaming their signals on the Internet, asking for royalties for the performance of SESAC music on their websites.  More than one broadcaster has asked me why they have any obligation to SESAC when they are already paying SoundExchange for the music that they stream.  In fact, SoundExchange and SESAC are paid for different rights, and thus the payments to SoundExchange have no impact on the obligations that are owed to SESAC.  SESAC, along with ASCAP and BMI, represent the composers of music in collecting royalties for the public performance of their compositions.  SoundExchange, on the other hand, represents the performers of the music (and the copyright holders in those performances – usually the record companies).  In the online digital world, the SoundExchange fees cover the public performance of these recordings by particular performers (referred to as "sound recordings").  For an Internet radio company, or the online stream of a terrestrial radio station, payments must be made for both the composition and the sound recording. 

To illustrate the difference between the two rights, let’s look at an example.  On a CD released a few years ago, singer Madeleine Peyroux did a cover version of the Bob Dylan song "You’re Gonna Make Me Lonesome When You Go."  For that song, the public performance of the composition (i.e. Dylan’s words and music) is licensed through SESAC.  The actual "sound recording" of Peyroux’s version of the song would be licensed through SoundExchange, with the royalties being split between Peyroux and her record label (with backing singers and musicians receiving a small share of the SoundExchange royalty). Continue Reading SoundExchange Fees Don’t Cover SESAC Obligations

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?

We’ve previously written about the value of music in connection with the royalties to be paid by Internet Radio and the performance royalty (or "performance tax" as it’s labeled by the NAB) proposed for broadcasters. One of the questions that has always been raised in any debate about royalties, and one often dismissed by the record industry, is to what extent is there a promotional value of having music played on the radio or streamed by a webcaster.  In discussions of the broadcast performance royalty, record company representatives have suggested that, whether or not there is promotional value of the broadcast of music, that should have no impact on whether the royalty is paid. Instead, argue the record companies, the creator of music deserves to be paid whether or not there is some promotional value. The analogy is often made to sports teams – that the teams get promotional value by having their games broadcast but are nevertheless paid by stations for the rights to such games. The argument is that music should be no different. That contention, that the artist deserves to be paid whether or not there is promotional value may be tested in connection with what was once thought to be an unlikely source of promotional value for music – the video game Guitar Hero.

Guitar Hero, in its various versions released over the last few years, has proven to be a very effective tool for the promotion of music – with various classic rock bands experiencing significant sales growth whenever their songs are featured on a new version of the game. The use of a sound recording in a video game is not subject to any sort of statutory royalty – the game maker must receive a license negotiated with the copyright holder of the recording – usually the record company.  In previous editions of the game, Guitar Hero has paid for music rights. However, now that the game has proved its value in promoting the sale of music, the head of Activision, the company that owns the game, has suggested in a Wall Street Journal interview that it should be the record companies that are paying him to include the music in the game – and no doubt many artists would gladly do so for the promotional value they realize from the game. Continue Reading Will Guitar Hero Show the Promotional Value of Music and Change the Music Royalty Outlook?

Last week, we wrote about one issue that was addressed at last week’s Senate Judiciary Committee hearing on music royalties – the standards used to derive the royalties, and expressed hope that there was at least some interest in compromise on behalf of the Senators and industry representatives.  However, another issue which came out of those hearings suggests that compromise may not be so easy if the parties really believe what they say – as there is a fundamental distinction in both how the parties view the health of the Internet radio business, and how they view the relationship between royalties and the music business generally.  One can only hope that the gulf that was evident was just due to public posturing as, if it was not, there may well be an insurmountable differences between the parties that cannot be bridged in any settlement negotiations over the royalties that Internet radio pays for the use of sound recordings.

The gap became evident from the opening statements of the first panel – comprised of two Senators interested in the issue- Senator Wyden on behalf of the Internet Radio Equality Act stating that it was necessary to avoid having the high royalties decided by the Copyright Royalty Board destroy a fledgling technology, while Senator Corker of Tennessee talked about the importance of music to radio and the exhaustive process that the CRB had gone through in arriving at the royalties that it approved.  But in the day’s principal panel, the issues became crystal clear, as John Simson of SoundExchange talked about the "vibrant" business of Internet radio, citing an analyst’s report that Internet radio would be a $20 billion advertising market by 2020, and the statement of an employee of CBS that Internet radio was a great business and that CBS was going to "own it."  Speaking next, Joe Kennedy, CEO of Internet radio company Pandora had a dramatically different perspective – talking about an industry analyst who stated that the royalties that would result from the CRB royalties would exceed the revenue of the Internet Radio industry, and that, for Pandora, the failure to find a compromise solution to the CRB-imposed royalties would mean that his service would "die."  He pointed to Pandora’s position as the largest of the Internet radio companies in terms of listenership, the $25 million in revenue that it expects to make this year, and how $18,000,000 of that would go just to the SoundExchange royalties – 75% of its revenue to this one expense.  Continue Reading Senate Hearing: The Search for Compromise on Music Performance Royalties – Part Two: The Issue of Perspective

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."Continue Reading Senate Hearing: The Search for Compromise on Music Performance Royalties – Part One: The Issue of Standards

A decision by a US District Court in New York was just released, setting the rates to be paid to ASCAP for the use of their composers’ music by Yahoo!, AOL and Real Networks.  The decision set the ASCAP rates at 2.5% of the revenues that were received by these services in connection with the music portions of their websites.  These rates were set by the Court, acting as a rate court under the antitrust consent decree that was originally imposed on ASCAP in 1941.  Under the Consent Decree, if a new service and ASCAP cannot voluntarily agree to a rate for the use of the compositions represented by ASCAP, the rates will be set by the rate court.  The Court explained that they used a "willing buyer, willing seller" model to determine the rates that parties would have negotiated in a marketplace transaction  – essentially the same standard used by the Copyright Royalty Board in setting the rates to be paid to SoundExchange for the use of sound recordings by non-interactive webcasters (see our post here for details of the CRB decision).  The ASCAP decision, if nothing else, is interesting for the contrasts between many of the underlying assumptions of the Court in this rate-setting proceeding and the assumptions used by the Copyright Royalty Board in setting sound recording royalty rates.

First, some basics on this decision.  ASCAP represents the composers of music (as do BMI and SESAC) in connection with the public performance of any composition.  This decision covered all performances of music by these services – not just Internet radio type services.  Thus, on-demand streams (where a listener can pick the music that he or she wants to hear), music videos, music in user-generated content, karaoke type uses, and music in the background of news or other video programming, are all covered by the rate set in this decision.  Note that the decision does not cover downloads, presumably based on a prior court decision that concluded that downloads do not involve a public performance (see our post here).  In contrast, the CRB decision covered the use of the "sound recording" – the song as actually recorded by a particular artist – and covers only "non-interactive services," essentially Internet radio services where users cannot pick the music that they will be hearing.Continue Reading Rate Court Determines ASCAP Fees for Large Webcasters – Some Interesting Contrasts with The Copyright Royalty Board Decision

Under the compulsory license for the use of sound recordings – the license which allows Internet radio services to use all legally recorded sound recordings by paying a royalty set by the Copyright Royalty Board – the designated collection agency can, once each year, audit a licensee to assess its compliance with the royalty requirements.  Under the law, when the collective decides to audit a company, it must notify the Copyright Royalty Board, who then gives public notice of the fact that an audit is to take place.  The Copyright Royalty Board has just announced that SoundExchange has decided to audit Last.FM.  Based on a number of public statements, SoundExchange has been citing Last.FM as an example of problems with royalties – contending that Last.FM had paid royalties of only a couple of thousand dollars a year, under the Small Webcasters Settlement Act, just before selling out to CBS for over $200 million.  Given SoundExchange’s tough talk about Last.FM, this notice of an audit is not surprising.  SoundExchange’s focus on this company illustrates the difficulty of valuing music use, and the different perceptions of music users and copyright holders as to what that value should be.

 In past years, SoundExchange has audited a number of webcasters – usually large webcasters.  As SoundExchange must bear the cost of the audit unless a significant underpayment is discovered, it is unlikely that more than a few companies will be audited each year.  However, as SoundExchange has made such a big deal of Last.FM, with witnesses on performance royalty issues mentioning it at Congressional hearings, and representatives mentioning it on various industry conferences (including SoundExchange President John Simson’s reference to the company on a panel on which we jointly appeared at Canadian Music Week earlier this month), many expected that an audit would be forthcoming.Continue Reading SoundExchange to Audit Internet Radio Royalty Payments of Last.FM – What is the Value of Music?