801(b)(1)

Webcast allies wary of b'dcast royalty issue in efforts for reform of rate-determining standards

Thursday, August 16, 2012 - 1:15pm

Leading webcaster Pandora, Utah Republican Congressman Jason Chaffetz, and now the Brookings Institution (see yesterday's RAIN here) are all calling for the use of a consistent standard for determining sound recording performance royalties across Internet, satellite, and cable radio. (Currently, webcasters pay a rate significantly higher than other forms of digital radio, since the legal reference determining judges are instructed to use is dramatically different.) Even the NAB's Dennis Wharton says he "appreciate(s) (Chaffetz's) interest in reforming the current Interet radio rate structure."

But, no one among this group is arguing that broadcasters should be paying this fee too.

The reason: it's simply been proven to be far too difficult a task to accomplish such a major change in an established and powerful U.S. industry.

For webcasters and their allies, their immediate goal is relief from the controversial "willing buyer/willing seller" standard -- which might reasonably be considered an achievable end. The broadcast radio royalty issue would be like an anchor tied to the foot of a drowing man.

Congressman Chaffetz's proposed "Internet Radio Fairness Act" (in RAIN here) would compel judges deciding royalty rates for Internet radio to base their decisions on the same legal standard they use for satellite and cable radio rates. It would not address the matter of broadcast royalties.

The National Journal writes that Pandora argues that the radio royalty debate has dragged down efforts to get the webcast royalty standard changed from "willing buyer/willing seller" to the more widely-accepted "801(b)(1)." "We’ve been held hostage to that for years," Tim Westergren, Pandora’s founder and chief strategy officer, told the news source. "The reason nothing has been fixed is we’ve been stuck behind [radio-station] royalties. We're victims of a fight that’s not ours."

John Villasenor, author of the Brookings paper covered yesterday, in it wrote, "Any new legislation should not include a provision to end the AM and FM over-the-air 'terrestrial' broadcasters’ longstanding sound recording performance royalty exemption... every one of the dozens of legislative attempts to end it since 1926 has run up against extremely strong opposition from terrestrial broadcasters and has failed. New legislation including a provision ending the terrestrial broadcasters’ exemption would be likely to fail as well." Without the provision, he continues, legislation "may even garner the support of the National Association of Broadcasters," whose current streaming royalty deal with SoundExchange expires at the end of 2015, "meaning that terrestrial broadcasters, like pureplay webcasters, would benefit from a more reasonable digital broadcast statutory royalty framework."

It may not be so simple, however. Ray Hair, international president of the American Federation of Musicians, writing in The Hill, says it's not that Internet radio's royalties are too high, it's that other platforms (especially broadcasters') rates are far too low! He says Chaffetz's bill "would allow the digital platforms to pay musicians less... at rates far below market value. The bill would effectively unleash a race to the bottom, with radio platforms competing to see which can pay musicians the least." It's the Internet radio platform which he seems to think is giving "artists their fair share," and writes, "People I know are already calling the bill by a more appropriate name: the 'Internet Radio Rip-off Act.'"

Vigrinia Congressman Bob Goodlatte, vying for the top Republican spot on the House Judiciary Committee (he currently heads its Intellectual Property, Competition, and the Internet Subcommittee), told the National Journal he expects his panel will take up the matter of music-royalties, and is open to calls for requiring traditional radio stations to pay performance fees.

Read more in the National Journal here and The Hill here.

Brookings wants a law to make 801(b)(1) the standard for all non-interactive digital radio

Wednesday, August 15, 2012 - 1:30pm

A new paper from a Washington, D.C. think tank clearly recounts how entrenched interests crafted copyright law to establish copyright royalty obligations that put webcasters at a severe disadvantage to other forms of radio -- and calls on Congress to fix it.

The highly-regarded Brookings Institution last week published "Digital Music Broadcast Royalties: The Case for a Level Playing Field" in which it calls for Congress to enact legislation requiring the use of a consistent legal standard for royalties when it comes to "all non-interactive digital audio broadcasting."

We've often discussed (such as here) -- as have leading experts in the field, such as attorney David Oxenford -- the fact that sound recording performance royalties for Internet radio are determined using a significantly different (and, as it's been demonstrated, dramatically unfavorable) legal standard than those for other forms of radio. 

The bottom-line result of the different legal standard can be seen in recent Copyright Royalty Board determinations. For instance, the CRB, based on the widely-used "801(b)(1)" standard in copyright law, "concluded in a December 2007 ruling that the satellite radio royalty rates should start at 6% of gross revenue for 2006, rising gradually to 8% in 2012." The same group of judges, using the significantly different "willing buyer/willing seller" standard (instead of 801(b)(1)), determined a royalty rate for Internet radio of $.0021 "per performance" (songs x listeners) for 2012. Pandora, had it been paying this rate instead of its special discounted agreement rate with SoundExchange, "its payments to SoundExchange for sound recording performance licenses would likely have... approach(ed) or exceed(ed) its revenue of $80.1 million."

The Brookings paper is an excellent primer on the differences between U.S. Copyright Law's "801(b)(1)" standard (used for rate-setting for satellite radio and services like Music Choice) and the "willing buyer/willing seller" standard that 1998's Digital Millennium Copyright Act mandated for webcasting. It also very nicely recounts the history of webcasting royalties, CARP and CRB, the DMCA, and more. The author, Brookings nonresident senior fellow John Villasenor, has published articles in Forbes (covered in RAIN here and here) on this very topic.

Brookings has at least one ally in Congress already. In July we reported (here) that Utah Republican Congressman Jason Chaffetz has begun crafting a bill that would indeed replace the "willing buyer/willing seller" standard in webcast royalty determinations with the 801(b)(1) standard.

Download the Brookings paper here. Billboard.biz has also covered this story here.

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