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In one week this month, Apple announced that it will get into Internet Radio, and Pandora, the biggest player in that space, announced that it will be buying a traditional, over-the-air radio station. What do these two big announcements say about the state of music royalties for digital music services? Apple’s struggles to get its service launched were well chronicled, as it was working to get an agreement for its new service from the record labels. What was less reported was its simultaneous negotiations with the music publishing community. Pandora’s radio station purchase, on the other hand, was admittedly a simple deal to take advantage of a blanket license available to all similarly situated companies owning radio stations. We’ll explain why these two deals were so different, and what impact the deals may have on other digital music services below.

The Apple deal is one negotiated with the copyright holders for the simple reason that the service that it is offering appears to be an interactive one, unlikely to be completely covered by any statutory (compulsory) or other blanket license. As we’ve written before, a statutory or compulsory license is one where the copyright holder, by law, cannot refuse to make available his or her copyrighted work. But, in return, the copyright holder receives a royalty set by the government – in the US, usually the Copyright Royalty Board. In the music world, the two most common compulsory licenses are the ones that allow webcasters and other digital music services to publicly perform sound recordings (the royalties paid by webcasters, satellite radio and digital cable radio companies to the record companies and artists), and the royalty that allows users (including record companies) to make reproductions of musical compositions in connection with the making of a sound recording, downloads, ringtones, and probably on-demand streaming services. This royalty is commonly referred to as the mechanical royalty, and is paid to songwriters and composers or their publishing companies. To qualify for these compulsory licenses, a company must follow certain rules. If they don’t, then they have to negotiate directly for the licenses from the copyright holder – which appears to be what Apple did.Continue Reading Apple Announces an Internet Radio Offering and Pandora Buys a “Real” Radio Station – What Does It Mean for Music Royalties?

SoundExchange claims on its website that webcaster SWCast.net was shut down when SoundExchange complained to its ISP that the service was not paying royalties for the use of the music played by the site.  SWCast was an aggregator of webcast channels created by other individuals, who paid the company – allegedly for the streaming and for the royalties that were due for that streaming.  According to the SoundExchange press release, the webcaster was shut down when SoundExchange "sent a letter requesting that the hosting ISP disable access to the SWCast site."  SoundExchange’s statement says that, despite repeated attempts to engage the webcaster, SWCast neither paid royalties nor filed reports of use for the songs streamed by the service, leading to SoundExchange’s action.  As far as we know, this is the first time that SoundExchange has taken such an action. 

How did this work?  While we have not seen the letter that SoundExchange sent to the ISP, we can assume that it alleged that SWCast was infringing on copyrighted materials by not paying the required royalties.  ISPs have a safe harbor under the Digital Millennium Copyright Act, protecting them from liability for the infringement of users of their services, if the ISP does not encourage the infringement, registers an agent with the Copyright Office, and agrees to take down infringing content when properly notified by a copyright holder (see our post here).  We can only assume that SoundExchange or the copyright holders themselves notified the ISP that the material streamed by this webcaster was infringing as no royalties were being paid and, to protect itself, the ISP blocked access to the site.Continue Reading SoundExchange Claims Credit for Shutting Down Webcaster Who Was Not Paying Royalties

The four settlement agreements between SoundExchange and different groups of webcasters were published in the Federal Register today, setting the dates by which Internet radio operators need to opt into the terms of certain of these deals by filing a Notice of Election with SoundExchange.  The deals each have different opt in dates, so it…

On September 10, 2009, David Oxenford addressed the Christian Music Broadcasters’ Momentum ’09 Conference in Orlando, Florida.  Dave’ s presentation was titled 18 Issues in 18 Minutes: What a Broadcaster Should Worry About From Washington DC.  In 18 minutes, Dave discussed topics including the FCC’s proposed localism rules, sponsorship identification and noncommercial underwriting issues, contest fines, FCC technical…

The US Court of Appeals for the District of Columbia today released its decision for the most part rejecting the appeals of webcasters of the 2007 decision of the Copyright Royalty Board setting Internet Radio royalty rates for the use of sound recordings.  The Court generally upheld the Board’s decision, finding that the issues raised by the appealing parties did not show that the decision was "arbitrary and capricious" – a high standard of judicial review that the Courts accord when reviewing supposedly "expert" administrative agency decisions.  On only one issue did the Court have concerns with the CRB’s decision – that being the question of the $500 per channel minimum fees that it had required that webcasters pay.  The Court found that per channel fee, which could result in astronomical fees for some webcasters regardless of their listenership, was not supported by the record evidence, and remanded that aspect of the case to the CRB for further consideration.

The Court surprised some observers by not reaching the constitutional issue of whether the Copyright Royalty Judges were properly appointed.  As we wrote before (see our posts here and here), issues were raised by appellant Royalty Logic, contending that these Judges should be appointed by the President, and not by the Librarian of Congress.  In the recent Court decision on the CRB rates for satellite radio, where the issue had not even been raised, one Judge nevertheless wrote that he questioned the constitutionality of the CRB.  The Court here decided not to decide the issue – finding that it had been raised too late by Royalty Logic, and raised too many fundamental issues (including whether the Register of Copyrights should herself be appointed by the President, potentially invalidating many copyrights) to be decided on the minimal briefing accorded it by the parties.Continue Reading Court Rejects Webcaster Challenge to Copyright Royalty Board Decision on Internet Radio Royalties – And Does Not Rule on Constitutional Issue of CRB Appointment

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