statutory royalties

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Last week, the Copyright Office published in the Federal Register the final decision of the Copyright Royalty Board on the statutory rates for Internet radio royalties – royalties paid by webcasters for the noninteractive streaming of sound recordings.  As we have made clear before, these are royalties that are paid in addition to the royalties paid to ASCAP, BMI and SESAC for the public performance of the musical compositions (see our memo on Using Music in Digital Media, here, that explains the difference between the sound recording and musical composition royalties).  The rates adopted by the CRB are the rates to be paid by any webcaster who has not elected alternative rates available under one of the many settlement agreements between SoundExchange and groups of webcasters, which were entered into under the Webcaster Settlement Acts.  The Final Decision corrects a few typos in the initial decision, but otherwise leaves the substantive holdings of the decision unchanged.  We described those holdings here.  While the publication of the final decision starts the clock running on filing an appeal, the new rates are unchanged from those that were in effect for 2010 for commercial webcasters who had not elected any available alternative set of rates.  Thus, these webcasters will continue to pay at the rate of $.0019 per “performance” (a performance being one listener listening to one song – e.g. if there are 100 people listening to a stream that plays 10 songs in an hour – there are 1000 performances in that hour) for the remainder of 2011.   The publication of these rates has, however, triggered a number of questions about the comparative royalties that different Internet radio services pay for streaming music on the Internet – rates summarized below.

As set out below in detail, there are significant differences in the royalties paid by different services for the 2011-2015 royalty period.  Broadcasters who are streaming their programming on the Internet pay lower per performance royalties than webcasters paying the statutory rate in the first years of the 5 year period, but higher rates at the end of the period. (See a summary of the Broadcaster royalty agreement here).  “Pureplay” webcasters, like Pandora, pay significantly lower per performance royalties than either broadcasters or those paying under the statutory rate, but are required to pay a minimum fee of 25% of the gross revenue of their entire business – ruling out these lower rates as an option for any service that has lines of business other than webcasting.  (See a summary of the Pureplay deal here).  The broadcaster deal and that which applies to the Pureplay webcasters were both arrived at pursuant to settlements reached under the two Webcaster Settlement Acts, passed in 2008 and 2009.  These allowed the groups covered by these agreements to negotiate with SoundExchange over the rates that would cover the industry for the digital noninteractive performances of sound recordings.  The statutory rates were arrived at by a decision of the Copyright Royalty Judges after litigation which took place last year.Continue Reading Final Webcasting Royalty Rates Published – A Comparison of How Much Various Services Pay

The Internet Radio Equality Act was introduced in the House of Representatives today, proposing several actions – most significantly the nullification of the decision of the Copyright Royalty Board raising royalty rates for the use of sound recordings by Internet radio stations.  Our summary of the decision and its aftermath can be found here.  In addition to nullifying the decision of the Board, the Act does the following:

  1. Changes the "willing buyer, willing seller" standard used to determine royalty rates for Internet radio to the "801(b)" standard – named after section 801(b) of the Copyright Act, which considers a variety of factors in determining royalties – factors including possible disruption to the industry of royalties, the maximization of the distribution of the copyrighted work to the public, the relative value of the contributions of the copyright holder and the service, and the determination of a fair rate of return to the copyright holder.  The 801(b) standard is the used for determining rates for satellite radio and digital cable radio.
  2. Establishes an interim royalty rate for 2006-2010 of  (at the choice of the webcaster) either .33 cents per Aggregate Tuning Hour of listening or 7.5% of the service’s revenues directly related to Internet radio
  3. For noncommercial radio, places the royalty determination into Section 118 of the Copyright Act, which is where other noncommercial royalties (including the royalty for ASCAP and BMI for over-the-air use of musical compositions) are found, using the standards set forth in that section; and
  4. Establishes a royalty for 2006-2010 for noncommercial entites at 150% of the fee that the service paid for the sound recording royalty during 2004.
  5. Requires three studies to be conducted after the initiation of the next royalty proceeding, that will be submitted to the Copyright Royalty Board for their consideration in that case.  One study, by the National Telecommunications and Information Administration ("NTIA"), would study the economic impact of royalties on the competitiveness of the Internet radio marketplace.  A second, to be conducted by the FCC, would study the impact of royalties on local programming, diversity of programming (including foreign language programming), and the competitive barriers to entry into the Internet radio market.  A final study, by the Corporation for Public Broadcasting, would provide information to the CRB on the impact of the royalties on public radio operators. 

Continue Reading Internet Radio Equality Act Introduced to Nullify Copyright Royalty Board Decision