webcasting royalties

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The Copyright Royalty Board has begun the hearing phase of its proceeding to set the royalties to be paid by webcasters (or noninteractive digital music services) for public performances of sound recordings for the years 2016-2020. These are the royalties paid by Internet radio companies to SoundExchange, allowing them to play any recorded music legally released in the United States since 1972 (see our article here about issues regarding pre-1972 sound recordings), as long as the digital service pays the royalties set by the Board and observes other rules set by the Copyright Act. This proceeding began in January 2014, when the CRB asked for petitions to participate in the proceeding. After those petitions, parties had time to engage in settlement discussions before filing “written direct cases” last October – written witness statements setting out the rates proposed by each party and the justifications for those rates (see our summary of the parties initial proposals here). Since that time, the parties have been engaged in discovery, producing mountains of documents relevant to the claims made, and conducting depositions of a number of witnesses. This week, the case moved into its trial phase.

On Monday, the parties still participating in the proceeding presented to the 3 CRB judges their opening statements where their attorneys summarized what they hope to prove over the next 5 weeks of trial. During the trial, the parties will formally introduce their written statements (available on the CRB website, here, with sensitive business information redacted), which have been amended based on facts uncovered during the discovery that was conducted, and their written rebuttal testimony – testimony that was provided to the CRB in February to rebut the initial written cases (available on the CRB website, here, with sensitive business information redacted). Such rebuttal testimony has itself been subject to the discovery process. There can be various objections to the written evidence presented – including questions of hearsay or relevance to the proceeding. For virtually all of the written statements, the individual who provided that testimony will be present at the hearing to introduce that testimony, and each witness will be subject to cross examination by the other parties. As is evident by the number of exhibits that have been submitted, there will be dozens of witnesses to be heard – from renowned economists and other experts, to record label and digital music company executives, to broadcasters large and small. 
Continue Reading Copyright Royalty Board Begins Hearings on Webcasting Royalty Rates for 2016-2020 – When Will We See a Decision?

Last month, we wrote about the FCC issues facing broadcasters in 2015.  Today, we’ll look at decisions that may come in other venues that could affect broadcasters and media companies in the remaining 11 months of 2015.  There are many actions in courts, at government agencies and in Congress that could change law or policy and affect operations of media companies in some way.  These include not just changes in communications policies directly, but also changes in copyright and other laws that could have a significant impact on the operations of all sorts of companies operating in the media world.

Starting with FCC issues in the courts, there are two significant proceedings that could affect FCC issues. First, there is the appeal of the FCC’s order setting the rules for the incentive auction.  Both Sinclair and the NAB have filed appeals that have been consolidated into a single proceeding, and briefing on the appeals has been completed, with oral arguments to follow in March.  The appeals challenge both the computation of allowable interference after the auction and more fundamental issues as to whether an auction is even permissible when there is only one station in a market looking to give up their channel.     The Court has agreed to expedite the appeal so as to not unduly delay the auction, so we should see a decision by mid-year that could tell us whether or not the incentive auction will take place on time in early 2016.
Continue Reading What Washington Has in Store for Broadcasters and Digital Media Companies in 2015 – Part 2 – Court Cases, Congressional Communications and Copyright Reform, and Other Issues

The Copyright Royalty Board today published in the Federal Register its notice announcing the commencement of the next proceeding to set webcasting royalty rates for 2016-2020.  The Notices (here for webcasting and here for “new subscription services” – subscription webcasting and other similar pay digital music services, other than satellite and cable radio whose royalties were set in another proceeding about which we wrote here) were notable as they were not simply an announcement that the proceedings were beginning and a recitation of the procedure for filing a petition to participate (essentially a written filing setting out a party’s interest in the outcome of the proceeding and the payment of a $150 filing fee). Instead, the order sets out a series of questions for consideration by potential participants, asking that they consider some fundamental issues about the nature of the royalty to be adopted in this proceeding.  Petitions to participate must be filed by interested parties with the CRB by February 3. 

The questions asked by the Judges really revolve around two issues that have been raised many times in prior proceedings.  These questions are noteworthy only because the Judges are asking the parties to consider whether the CRB should address issues that have been litigated in prior proceedings – issues that some might have considered to be settled by these prior cases.  First, the Judges ask if the CRB would be justified in adopting a percentage of revenue royalty, rather than the per song, per listener royalty metric that has been used in the three prior proceedings. Asking that question raises several other sub-issues that are set out in the orders including:

  • Whether it is too difficult to determine what the revenues of a webcaster are, an issue that can be troublesome if the webcaster has multiple lines of business where determining which revenues are attributable to webcasting and which are attributable to other services might be complicated (though collection agencies like ASCAP and BMI are able to administer their royalty schemes, usually using a percentage of revenue rate).
  • Whether a percentage of revenue royalty is unfair to the artists because it does not pay each artists an equivalent amount for each song that is played, thought the Judges ask parties to address whether all music is worth the same amount (see our article here about the difficulty in assessing the value of music and the controversies that it raises).
  • Whether a percentage of revenue royalty encourages the webcaster to use too much music, as services not paying on a per song per listener basis might not need to be efficient in monetizing their music use unless, as suggested by the Board, there are substantial minimum fees adopted to encourage the webcaster to make money off of its use of the music.

In addition, the Board asks if there should be different rates for different types of webcasters – are some more efficient than others?  Can royalties be maximized by “price discrimination” – charging less to certain webcasters to get whatever can be received from them, while charging a higher royalty rate to other services that can afford to pay more?  In effect, there has been price discrimination in the webcasting market, but such discrimination has come about after there have been decisions perceived as adverse to webcasters, when webcasters and SoundExchange have come together, often as the result of political pressure, to negotiate alternative rates pursuant to a Webcaster Settlement Act (or the Small Webcaster Settlement Act in the initial proceeding).  See our summary of the differing royalty rates currently paid by webcasters pursuant to these negotiated deals, here. 
Continue Reading Copyright Royalty Board Calls for Petitions to Participate in Proceeding to Set Webcasting Royalties for 2016-2020 – Posing Many Questions for Potential Participants

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?

The Librarian of Congress has announced the appointment of two new judges to the Copyright Royalty Board – marking a total change in the three judge board since the decision in the last webcasting royalty case (about which we wrote here). The two new judges are David Strickler and Jesse Feder. Mr. Strickler will serve through 2016, taking the position of Judge Wisnewski (who resigned about a year ago) as the economics expert required by the statute creating the Board. Mr. Stricker is currently Senior Counsel at a law firm in New Jersey, specializing in business litigation, according to his biography on the firm’s website, here. He also has a Masters Degree in economics, and is an adjunct economics professor as Brookdale College in New Jersey.

Mr. Feder takes the place of Judge Roberts, who was one of the original CRB judges and had worked in the Copyright Office in connection with the CARP process that set the first rates for webcasting back in 2002. Judge Roberts recently resigned from the Board. The position that Mr. Feder takes is required by statute to be filled by someone with Copyright experience. According to Mr. Feder’s online profile, he was the Director of International Trade and Intellectual Property at the Business Software Alliance, and previously held several supervisory positions at the Copyright Office and in the Library of Congress. His appointment, filling Judge Roberts’ seat, lasts only until 2014 (but he could be reappointed). Continue Reading Changes at the Copyright Royalty Board – Two New Judges Make for an All-New Board for the Upcoming Internet Radio Royalty Rate Setting Proceeding

With the National Association of Broadcasters big convention coming up next week in Las Vegas, this week we’ll look at a couple of the issues that will likely be discussed when the industry gathers for its annual reunion. On Sunday, before most of the NAB Show begins, the Radio and Internet Newsletter (RAIN) will be holding its RAIN Summit West, where I will be moderating a panel called The Song Plays On – which will focus on the music royalties paid by Internet Radio and other digital music services. We’ll not focus on what the current royalties are, but instead to try to explore what they could be in the future. This is really one of the most difficult issues in the industry, as the two sides (and really there are many more than two sides to this issue) come at the issue from far different perspectives. We will try to bridge those differences and explore where there might be common ground for music users and copyright holders to come together to arrive at mutually beneficial solutions to this thorny issue.

The Internet Radio Fairness Act introduced in Congress last year brought this issue into sharp focus. That Act sought to bring about a number of reforms in the way that the Copyright Royalty Board sets various music royalties – particularly the rates that apply to Internet radio stations. We wrote about the provisions of the bill dealing with Internet radio royalties soon after the bill was introduced. After that article, there was a Congressional hearing on the issue, and lots of debate before the bill died at the end of the year as the session of Congress expired. This year, the Chair of the House Judiciary Committee has promised a number of hearings on all aspects of music and audio copyright issues, though none have yet been scheduled. But the debate about IRFA last year illustrated the divide between the various sides in the music royalty debate. Continue Reading Why the Differing Perceptions of the Value of Music by Digital Music Services and Copyright Holders Make Royalty Decisions So Hard

The recent introduction of a bill by Congressman Jason Chaffetz offers proposals for reform of the operations of the Copyright Royalty Board – reforms that many in the Internet Radio industry have hailed as promising real change in the way that royalty decisions for webcasters have been made. While some webcasters seem to think that relief is at hand, in fact, the bill has simply been introduced into Congress co-sponsored by four congressmen, so it has a long way to go before it can be adopted by Congress and become the law of the land. But it is worth looking at the many issues that the Bill addresses so that webcasters know what it says so that they can rationally argue for its passage.

Most webcasters have focused on the provisions of the bill that would substitute the standards set out in Section 801(b) of the Copyright Act for the standard that currently applies – "the willing buyer, willing seller" standard. 801(b) sets out five factors to be considered in determining the rates to be set for a statutory royalty. These factors are:

(A) To maximize the availability of creative works to the public.

(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.

(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.

(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices. 

In contrast, the current “willing buyer, willing seller” standard looks only at one question – what a willing buyer and willing seller would agree to in a marketplace transaction.   What is the difference between these two standards?Continue Reading Chaffetz Bill Introduced in House of Representatives to Adopt 801(b) Standard for Internet Radio Royalty Decisions of Copyright Royalty Board – What’s It All About?

There have been many reports about the attempts by Sirius XM Radio to license music directly from record labels, bypassing any royalty rates set by the Copyright Royalty Board.  Direct licensing would have Sirius pay the record labels or copyright holders for the rights to use music, avoiding any dealings with SoundExchange, which normally collects the royalties for the public performance of sound recordings under the statutory license.  The most recent report about Sirius’ efforts was in the New York Times, here.  Sirius, like webcasters, pays royalties set by the CRB (if they cannot be negotiated among the parties) that cover the public performance of all legally released sound recordings.  While webcasters currently have royalties that are in place through 2015, the royalties for Sirius end in 2012, and are being litigated now (see our story here on the last royalties set by the CRB for Sirius).  To avoid the uncertainty of litigation, with which webcasters are very familiar, Sirius has been attempting to license music directly from the copyright holders.  This is not a new story – Rhapsody reportedly tried the same thing earlier this year, and Clear Channel tried to get royalty waivers from independent artists several years ago in exchange for more exposure for their music (see our stories, here and here).  Each time a music service suggests that it might want to license music directly to try to recognize some savings over the rates established through CRB litigation, the music community objects – see, for instance, the statements of unions AFTRA and AFM here, that of SoundExchange here, and that of A2IM (the association of independent record labels), here.  But what is really wrong with the efforts of services to negotiate lower royalties?  If you believe the testimony of SoundExchange’s own witness in the Copyright Royalty Board proceedings – nothing at all.  In fact it is to be expected. 

In the CRB proceeding that was held in 2005-2006 (and from which, most of the settlements arose that now govern the royalties for sound recordings played by Internet radio stations), SoundExchange relied on a number of witnesses, including one expert, Michael Pelcovits, an economist whose model was the principal testimony relied on by the CRB in establishing the rates they determined to be reasonable.  In his written testimony, Mr. Pelcovits stated as follows:

…a rate that is set too low may have serious economic dangers.  By setting a rate too low, inefficient entry may be encouraged, and inefficient levels of production will be encouraged, which can hinder the development of an efficient market.  It is also worth noting that setting the statutory rate too high will not necessarily be harmful to the market.  If the price is too high, parties can (and are almost certain to) negotiate agreements for rates lower than the statutory standard.  Thus, a rate that is set too high is likely to "self-adjust" because of the sellers’ natural incentive to meet the market. 

(Emphasis added).  The statutory rate referred to in this quote is the rate that is set by the CRB.  What this quote says is that, if that rate is set too high, then parties will naturally negotiate after-the-fact to try to find what the real market rate should be, and that such negotiations should be expected – not feared as many seem to be claiming as these attempts to cut deals come to light.  In other words, the music community seemed to favor (and expect) such negotiations, before they were against them it in their statements today. Continue Reading The Debate Over Sirius’ Attempt to Directly License Music – SoundExchange Once Said A Marketplace Negotiation to Adjust for High Rates “Was to Be Expected”

Just as webcasters thought that they had their royalty obligations figured out, there comes news that the already complicated world of digital media royalties may well become more complicated.  Last week, EMI, which in addition to being a record label is a significant music publishing company, has reportedly decided to withdraw portions of its publishing catalog from ASCAP – which had been licensing the public performance of these songs. The withdrawal from ASCAP applies only to "New Media" licensing.  What is the impact?  As of today, webcasters pay ASCAP, BMI and SESAC for the rights to play virtually the entire universe of "musical compositions" or "musical works" (the words and musics of the song).  By withdrawing from ASCAP, EMI will now license its musical compositions itself, adding one more place that webcasters will need to go to get all the rights necessary to play music on an Internet radio type of service.  In addition to royalties paid for the musical composition, webcasters also pay SoundExchange for public performance rights to the sound recordings (the song as recorded by a particular singer or band) – and by paying this one organization, they get rights to perform all sound recordings legally released in the US.   But any Internet radio operation needs both the musical composition (except for those compositions that have fallen into the public domain) and the sound recording performance rights cleared before they can legally play the music.

The news reports quote EMI as talking about the efficiencies that will be created by its licensing the musical compositions directly – in conjunction with the licensing of other rights – like the rights to make reproductions of its compositions, or the rights to publicly perform sound recordings to which its record label holds the copyright. But the whole idea of a performing rights organization with collective licensing is that it provides to digital music services the efficiencies offered by a one-stop shop for the purchase of rights to all a very large set of musical compositions.  Up to now, a digital music service knew that, by entering into licensing agreements with ASCAP, BMI and SESAC (the "performing rights organizations, or "PROs"), it had rights to virtually all the musical compositions that it would normally use (i.e. they received a "blanket license").  If these rights are balkanized, so that each significant publisher licenses their own music, the webcaster will have to make multiple stops to license all the music they need – which always leads to confusion.  The more places they have to go to license music, the more possibility that they will overlook a necessary rightsholder.  But there is even a bigger potential issue for webcasters – price.Continue Reading Another Royalty Payment for Webcasters? EMI Withdraws From ASCAP For New Media Licensing

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