Briefing dates set on internet radio royalty court appeal

From David Oxenford in Broadcast Law Blog:

The US Court of Appeal for the District of Columbia has set the briefing dates on the appeal filed by various webcasting groups seeking review of the decision of the Copyright Royalty Board setting Internet radio royalties for the period 2006-2010 for the use of sound recordings (see our coverage of this controversy here, and a detailed summary of the CRB decision here). The briefs of the various webcasting groups who appealed are due on February 25. The brief for the CRB (represented by the Department of Justice) is due on April 25, and that of SoundExchange (the "Intervenor) will be filed on May 15. Reply briefs are due on June 12, and oral arguments are yet to be scheduled. As the Court usually takes a summer break in July and August, the argument is likely to be held in the Fall of 2008, and a decision would likely not come until very late in the year or, more likely, in 2009.

Appeals were filed by the a number of groups including large webcasters (including AOL, Yahoo and DiMA), the small commercial webcasters, various noncommercial groups (including two collegiate broadcasting groups and the National Religious Broadcasters Noncommercial Music Licensing Committee), and various commercial broadcasters who also stream their signals on the Internet. A group called Royalty Logic, which is seeking to become a collective that is competitive with SoundExchange, also filed an appeal of the CRB decision.

Already, there has been a settlement announced on one narrow aspect of the case, the minimum fees for companies that stream multiple channels, limiting the per company minimum fee to $50,000. Obviously, if there are other settlements, these appeals could become unnecessary in whole or in part.

Another offer from SoundExchange - still not a solution

From Broadcast Law Blog:

Yesterday, SoundExchange sent to many small webcasters an agreement that would allow many to continue to operate under the terms of the Small Webcaster Settlement Act as crafted back in 2002, with modifications that would limit the size of the audience that would be covered by the percentage of revenue royalties that a small webcaster would pay. A press release from SoundExchange about the offer can be found on their website by clicking on the "News" tab. This is a unilateral offer by SoundExchange, and does not reflect an agreement with the Small Commercial Webcasters (the “SCWs”) who participated in the Copyright Royalty Board proceeding to set the rates for 2006-2010 and who are currently appealing the CRB decision to the US Court of Appeals (see our notes on the appeal, here). The SoundExchange offer, while it may suffice for some small operators who do not expect their businesses to grow beyond the limits set out in the SWSA (and who only play music from SoundExchange artists - see the limitations described below), still does not address many of the major issues that the SCWs raised when SoundExchange first made a similar proposal in May, and should not be viewed by Congress or the public as a resolution of the controversy over the webcasting royalties set out by the CRB decision.

The proposal of SoundExchange simply turns their offer made in May, into a formal proposal. It does not address the criticisms leveled against the offer when first made in May, that the monetary limits on a small webcaster do not permit small webcasters to grow their businesses – artificially condemning them to be forever small, at best minimally profitable operations, in essence little more than hobbies. The provisions of the Small Webcasters Settlement Act were appropriate in 2002 when they were adopted to cover streaming for the period from 1998 through 2005, as the small webcasters were just beginning to grow their businesses in a period when streaming technologies were still new to the public and when these companies were still exploring ways to make money from their operations. Now that the public has begun to use streaming technologies on a regular basis, these companies are looking to grow their businesses into real businesses that can be competitive in the vastly expanding media marketplace. The rates and terms proposed by SoundExchange simply do not permit that to occur.

To receive investment necessary to grow, the SCWs cannot be limited to $1.25 million in revenue. No investor will invest in a business which, when it reaches an artificial revenue threshold, essentially is forced to go bankrupt – as all projections show that the CRB royalties would exceed total revenue of a SCW even if it makes more than $1.25 million in revenue.

The new restriction added in this offer by SoundExchange, one that requires a small webcaster to pay at the CRB rate for all listening that exceeds 5,000,000 aggregate monthly tuning hours, would already have some SCWs paying substantial sums in addition to the percentage of revenue royalty. And, at the growth rates projected for some SCWs, the amount necessary to pay such overages could exceed the $1.25 million revenue threshold – exceeding the amount of revenue that a small webcaster is allowed to earn under the SWSA provisions.

Even more importantly, it must be noted that the offer by SoundExchange does not allow a webcaster to play all music for their 10-12% of revenue as did the Small Webcaster Settlement Act – it only allows them to play music of SoundExchange members. For all music from artists who are not SoundExchange members, the full CRB-determined royalty would have to be paid. Thus, a webcaster will have to assess its music choices, and play only the songs released by SoundExchange members (principally the major labels and some independent labels) rather than the diversity of music from small labels and independent artists, the kinds of music that the statutory royalty was supposed to make easier to play through the “one-stop shop” that a statutory license provides to an Internet radio service.

SoundExchange has informally indicated that it will continue discussions as to the concerns of the SCWs. The only way to resolve these issues is through meaningful negotiations, or through legislation like that proposed in the Internet Radio Equality Act. Unilateral proposals simply don’t address all the issues that have caused so much outrage over the CRB decision. In order for these independent companies to build profitable businesses that will promote music and be able to pay reasonable royalties, something more than what SoundExchange has offered must be available.

Congressional hearing June 28 on impact of Copyright Royalty Board increasing webcasting royalty rates

From Kate Gilman, Press Secretary, House Small Business Committee, Majority Staff Chairwoman, Nydia M. Velázquez, NY-12:

The House Committee on Small Business will hold a hearing June 28 titled "Assessing the Impact of the Copyright Royalty Board Decision to Increase Royalty Rates on Recording Artists and Webcasters." Small Webcasters that provide daily music entertainment to individuals nationwide will be at risk of going silent on July 15, after an increase in royalty rates from the Copyright Royalty Board (CRB) comes into effect.

The hearing will examine the decision to raise rates, the impact it will have on Internet Radio, and the challenges of providing fair compensation for copyright owners while maintaining a business environment that allow small Webcasters to thrive. The committee will hear testimony from various Internet Radio outlets, as well as music artists that stand on both sides of the issue.

*Thursday, June 28, 10 a.m. at 2360 Rayburn House Office Building, Washington D.C.

Final decision of the CRB issued and royalty due date is postponed

From Broadcast Law Blog:

On the same day that many webcasters were on Capitol Hill lobbying for the Internet Radio Equality Act, the Copyright Royalty Board issued its Final Determination of Rates and Terms today, and it was published in the Federal Register. That action starts the clock ticking on appeals which must now be filed in 30 days. In the Final Determination, the Board included a few revisions in its initial decision, reflecting the issues that it addressed in response to the Rehearing motions - including provisions adding a transitional period of two years during which webcasters can pay using an Aggregate Tuning Hour formula instead of paying based on each performance. Surprisingly, the Board also amended the rules that it adopted governing the timing of the first payment under the new royalty rate, making the first payment due 45 days from the end of the month during which the Final Determination was issued. As the decision was issued today, May 1, that would delay the due date for the first payments under the new royalties until July 15.

The statute governing the Copyright Royalty Board allowed the Library of Congress to review the CRB decision to determine if the Librarian (through the Copyright Office) saw any obvious errors of law. Apparently, the Librarian found none (though that does not mean that there are not issues that can be raised on appeal), leading to the publication of the decision in the Federal Register. Appeals are due 30 days after that publication. On that date, parties file a Notice of Appeal, which provides notice to the Court of Appeals that parties believe that the decision was in error. After those notices are filed, the Court will set briefing schedules and oral arguments. The appeal process that can take a year or more before a decision is rendered.

Lawmakers propose reversal of Net radio fee increases

From Anne Broache on c\net news.com:

A bill introduced in Congress Thursday aims to overturn a controversial royalty fee increase that Internet radio advocates say threatens to cripple their services.

The "Internet Radio Equality Act," introduced by Reps. Jay Inslee (D-Wash.) and Don Manzullo (R-Ill.), would invalidate a March 2 decision by the U.S. Copyright Royalty Board that calls for raising royalty rates paid by Net radio operators.

"You can't put an economic chokehold on this emerging force of democracy," Inslee said in a statement e-mailed by a spokeswoman. "There has to be a business model that allows creative Webcasters to thrive and the existing rule removes all the oxygen from this space."

The bill's introduction comes less than two weeks after the CRB declined to reconsider most of its decision. Small Webcasters, National Public Radio, Clear Channel Communications and others had filed petitions for a rehearing. Some have indicated they are considering filing an appeal of the rules in court.

If it were to stand, the CRB's existing ruling (PDF) would result in fee increases on Internet radio operators ranging from 300 to 1,200 percent between 2006 and 2012, according to a group called SaveNetRadio, which has been lobbying Congress for relief.

Specifically, the rules call for rate increases of .08 cents per song per listener retroactive to 2006. They would also climb to .19 cents per song by 2010, which amounts to a 30 percent increase per year. Each station would also have to hand over a minimum $500 royalty payment under the ruling.

The congressmen said they had already received more than 1,000 e-mails and letters opposing the decision.

In addition to repealing that regime, the new House bill offers a compromise: It would set the rate at 7.5 percent of the Webcaster's revenue "directly related to" its transmission of sound recordings, or 33 cents per hour of sound recordings transmitted to a single listener. It would be up to the Webcaster to decide which model to use. That rate would also apply to satellite and cable radio operators, Inslee's office said in a statement.

The proposal drew applause from SaveNetRadio, whose members include Internet radio listeners, Webcasters and artists.

"This bill is a critical step to preserve this vibrant and growing medium, and to develop a truly level playing field where Webcasters can compete with satellite radio," said organization spokesman Jake Ward.

The bill also calls for public radio broadcasters to submit a report to Congress on how to determine rates for their class of services. Andi Sporkin, NPR's vice president of communications, called that idea a fair solution that is consistent with more than 30 years of copyright law, which "has recognized that public radio has a very different mission from commercial media and cannot pay commercial-level royalty rates."

Representatives for SoundExchange, the nonprofit entity that collects the fees and lobbied for the royalty rate changes, said they were still reviewing the bill and had no comment on Thursday.

The organization in the past has defended the CRB's decision as an appropriate way of ensuring artists are adequately compensated when their work is broadcast over the Internet.

Copyright Royalty Board puts internet radio on death watch

From David DeJean in Information Week:

The Copyright Royalty Board has quickly and completely affirmed its own decision on performance royalties, set in accordance with recording-industry wishes, that will be assessed against Internet music-streaming and radio-station sites. Because the rates, which were more than a year overdue, were much higher than the Internet radio industry expected, and retroactive for 2006, one possible result is that many small Internet radio operators will cease operations immediately and wait to see if Congress or the courts will provide relief.

The board in March adopted the recommendations of the recording industry, and the action created a storm of protest from broadcasters and the many small businesses that had been created to serve niche markets via the Web. The rate-setting decision more than doubled the rates for 2006, and mandates further major increases in 2007 and 2008. The board invited requests for a rehearing, and then speedily ignored them, deciding yesterday that it had been right all along.

Exactly why the recording industry wants to radically restrict Internet radio eludes me. I wrote just earlier this week, in a review of music-discovery Web sites, that these services are just beginning to offer the music industry a real alternative to the declining broadcast radio business in terms of exposing listeners to the record companies' products. It looks like the music industry remains unable to overcome its inability to understand and deal effectively with technology.

There was one area where the board agreed with the rehearing petitioners, according to David Oxenford, who writes for the Broadcast Law Blog: it issued clarification requested by SoundExchange (the company formed by the recording industry to collect the performance royalties) emphasizing that the performance royalties apply not just to PCs, but to streaming received over mobile phones, too. Otherwise, wrote Oxenford, "The board did not specifically address the requests for rehearing of the $500 per channel minimum fee that could be interpreted to require a minimum fee for each stream created by a service like Pandora, and would certainly require huge royalties by services like Live 365 -- regardless of how many people listen to the streams. It also did not even address the issue raised by the broadcasters, pointing to the fact that SoundExchange had offered an expert witness in the satellite radio proceeding who contradicted the expert witness offered by SoundExchange in this case -- the expert on whose testimony the Copyright Royalty Board's decision was based."

Internet broadcasters' hopes now rest on Congress and the courts. Rep. Edward Markey (D-Mass.), chairman of the House panel on telecommunications and the Internet, has strongly criticized the Copyright Royalty Board's ruling, for example. The satellite radio case that Oxenford referred to, the merger of XM and Sirius, is another matter before Markey's committee, and testimony in that case had claimed that the growth of Internet radio would counteract any anti-competitive effect of a merger -- a statement that now appears a lot less certain.

The next procedural step, according to Oxenford, will be the publication of the royalty decision in the Federal Register by the Library of Congress. After that, interested parties will have 30 days to file a notice of appeal of the decision with the US Court of Appeals for the District of Columbia.

The end of internet radio?

From Daniel McSwain in Radio and Internet Newsletter:

The Copyright Royalty Board (CRB) has announced its decision on Internet radio royalty rates, rejecting all of the arguments made by Webcasters and instead adopting the "per play" rate proposal put forth by SoundExchange(a digital music fee collection body created by the RIAA). RAIN has learned the rates that the Board has decided on, effective retroactively through the beginning of 2006. They are as follows:
2006
$.0008 per performance
2007
$.0011 per performance
2008
$.0014 per performance
2009
$.0018 per performance
2010
$.0019 per performance

A "performance" is defined as the streaming of one song to one listener; thus a station that has an average audience of 500 listeners racks up 500 "performances" for each song it plays. The minimum fee is $500 per channel per year. There is no clear definition of what a 'channel' is for services that make up individualized playlists for listeners. For noncommercial webcasters, the fee will be $500 per channel, for up to 159,140 ATH (aggregate tuning hours) per month. They would pay the commercial rate for all transmissions above that number.

Participants are granted a 15 day period wherein they have the opportunity to ask the CRB for a re-hearing. Within 60 days of the final determination, the decision is supposed to be published in the Federal Register, along with any technical corrections that the Board may wish to make. Within 30 days of publication in the Federal Register, it can be appealed (but only by the participants) to the U.S. Court of Appeals of the District of Columbia.