By: David Oxenford,
Wilkinson Barker Knauer LLP
The Copyright Royalty Board decision on the rates to be paid in the next 5 years by webcasters, including broadcasters who simulcast their programming on the internet, to SoundExchange for the digital public performance of sound recordings is supposed to be released by June 14. These royalties are collected by SoundExchange from noninteractive webcasters (see our articles here, here and here on the difference between interactive and non-interactive webcasters) and are distributed to the artists who perform on recordings and to the copyright holders of those recordings – usually the record labels. The CRB sets these rates in 5-year increments. The rates at issue in the current proceeding are for 2021-2025. As we wrote here and here, these rates would normally have been determined before the end of the last rate period at the end of 2020 but, as the trial to determine the rates was postponed by the pandemic, the CRB has been given to June 14 to announce the new royalties, presumably to be made retroactive to January 1.
The proposals made in this proceeding vary widely. SoundExchange and its associated record labels are arguing that the rates should substantially increase, from their current level of $.0018 per performance (per song per listener – see our article here) for nonsubscription streams to rates of $.0028 per performance for 2021, with cost of living increases each succeeding year. For subscription webcasting, SoundExchange proposes that the rates increase from $.0024 to $.0031. In these cases, each party makes arguments as to what a willing buyer and willing seller would pay in a marketplace transaction for such rights. The parties introduce expert witnesses to testify as to what that rate would be, usually by looking at other similar marketplace transactions. To arrive at its proposed rates, SoundExchange introduced experts who looked at the market price for the use of music by interactive services. These prices are set by direct negotiations. From those prices, the experts attempted to calculate an appropriate adjustment to remove the value of the interactivity to determine the rates that a noninteractive service would pay. This proposed increase in royalties was, of course, countered by representatives of the services who will pay the royalties to SoundExchange.
There were three principal groups representing commercial webcasters, each of whom suggested slightly different rates – but all proposed rates lower than those that had been in effect through the end of 2020.
Perhaps the most interesting of the proposals is one that was advanced by the NAB on behalf of broadcasters – particularly broadcasters that simulcast their over-the-air programming on internet and mobile channels. The NAB proposed that the standard rate for webcasters, including those that have some limited degree of interactivity permitted of a noninteractive webcaster (e.g., a limited number of skips of songs, some limited ability to influence the music being played by indicating like and dislikes of particular artists or songs), should be $.0016. But the NAB proposed that simulcasts of a broadcaster’s over-the-air programming pay a rate that is one-half that paid by “custom radio” webcasters – or $.0008. The NAB’s argument, in its simplest form, is that simulcasts are the least interactive service, and thus the least like the interactive services. NAB also notes that they do not disrupt the sale of music (or the higher royalties paid by interactive services) as they do not even allow a listener to influence in any way the songs that are being played. In fact, the NAB argues that these simulcasts are promotional – introducing listeners to new music. Additionally, the NAB argues that simulcasts are not as easily monetized by broadcasters, as they are not individually targeted and cannot command higher ad rates, so a willing buyer of rights to use music in these services would pay less than one that can target consumers.
To some degree, the proposal by Google was similar. Google provides noninteractive services in two ways. First, it provides ad-supported streams meant to introduce listeners to Google’s music services in the hope that these listeners will eventually upgrade to a subscription interactive service. Second, Google provides a music service available on its smart speaker. Google has proposed a base rate of $.0013 for the ad-supported Google Play service, but only half that for listening done through a Google Home smart speaker, arguing that such listening, tethered to the home rather than a mobile environment, and all triggered by voice-commands, is less valuable than one that is mobile.
Finally, Sirius and Pandora, now under common control, propose a rate of $.0011 for ad-supported streams and $.0016 for subscription services. Pandora offers arguments from its own experts to counter the SoundExchange experts, arguing that the appropriate adjustment from any interactive rates (which have been falling, according to Pandora) would arrive at these lower rates.
The CRB is considering these arguments as well as considering the rates to be paid by noncommercial webcasters. While settlements have been arrived at between SoundExchange and noncommercial webcasters affiliated with schools and colleges, and with those affiliated with the Corporation for Public Broadcasting, other nonprofit webcasters are not covered by these agreements. SoundExchange proposes that the same rate structure in effect in the last rate period continue with minor differences. Currently, noncommercial webcasters can pay $500 per year for any stream if that stream has less than 159,140 aggregate tuning hours per month – effectively an average of about 200 simultaneous listeners. Once they exceed that level on any stream, they pay at commercial per-performance rate. SoundExchange proposes that the minimum per stream fee increase from $500 to $1000. The National Religious Broadcasters’ Noncommercial License Committee is arguing that these rates should fall substantially based on the effective rate set in the settlements with CPB stations.
There is a huge record in this proceeding, compiled over many weeks of virtual testimony last summer, and hundreds of pages of briefs containing arguments by the parties. The CRB has to assess all this material, conclude which of these disparate proposals (which have been summarized here only in a most basic way – there are also many other issues about terms and definitions that need to be weighed by the Board) and come to a decision. That decision will be embodied in a written document outlining how the judges on the Board reached their conclusions. We can expect that, on or before the 14th, a summary of the CRB’s decision will be released, setting out the rates. The full decision will likely follow a few weeks later after the parties can ask for redactions to exclude the public release of confidential business information provided at trial. If you are streaming, look for this decision soon.
David Oxenford is MAB’s Washington Legal Counsel and provides members with answers to their legal questions with the MAB Legal Hotline. Access information here. (Members only access).
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