Source tells Billboard major labels have promised not to shut artists out of royalties in direct deals

Friday, May 17, 2013 - 12:20pm

Billboard cites "a source" and reports:

"Major labels have made a commitment with SoundExchange to pay half of royalties from a statutory service in the event they have negotiated a direct deal. In other words, a major label with a direct deal with Pandora would still pay to SoundExchange the 50% of royalties afforded to artists under the statutory license. The label would not keep 100% of royalties and pay artists a royalty -- after recoupment -- as it does with royalties from purchases and non-statutory services."

Earlier this week (here) we discussed the fact that sound recording copyright owners are only legally required to split U.S. Internet radio royalties 50/50 with performers when the webcaster operates under the "statutory" webcast licenses (those are the deals which cover all recorded copyright music, with royalties payable to SoundExchange). In other words, copyright owners striking "marketplace" deals directly with webcasters (which is perfectly legal to do) are not under the 50/50 split requirement, and only need compensate performers under the terms of the individual artist/label contract.

This fact led some to speculate that direct license deals could benefit webcasters and copyright owners (labels) alike, to the detriment of artists. For example, a label and operator could negotiate a deal which pays the label just 67% of what it would have under the statutory. The webcaster gets a one-third discount, and the label earns more than the 50% of the statutory royalty.

Industry expert David Touve most recently examined this situation in light of Apple's direct label negotiations for its updcoming streaming radio service. He wrote, "it didn’t take a rocket scientist to anticipate that direct licenses for an iRadio service could get negotiated at rates below the webcaster rates formally established through the Copyright Royalty Board (CRB) or published Settlement agreement." Read more here.

Satellite radio operator SiriusXM and broadcasters like Clear Channel and Entercom have forged direct webcast royalty deals with several independent labels over the past months. Billboard says its source "does not know if independent labels have made a similar commitment with SoundExchange."

Read Billboard's story here.

House Judiciary subcommittee copyright reform hearing to focus on "Copyright Principles Project" paper

Thursday, May 16, 2013 - 11:25am

The Courts, Intellectual Property and the Internet Subcommittee of the House Judiciary will hold its first hearing on comprehensive copyright review this afternoon. It's to be the first in a series of hearings "to determine whether the copyright laws are still working in the digital age to reward creativity and innovation," says Judiciary chairman Bob Goodlatte (R-VA).

In March (RAIN coverage here) Register of Copyrights for the U.S. Copyright Office Maria Pallante went public with her intention to push Congress for copyright reform, focusing mostly on the Digital Millennium Copyright Act. Late last month Goodlatte (RAIN coverage here) promised a comprehensive review of U.S. copyright law by his committee.

Today's hearing is called "A Case Study for Consensus Building: The Copyright Principles Project." It will focus on a whitepaper from a group called the Copyright Principles Project (which is online here).

The CPP document, according to TechDirt (here), "looked at 25 possible areas for reform," and "was put together by a wide variety of folks from different backgrounds."

Not enough different backgrounds, according to an editorial in Politico here. Musician David Lowery criticizes that, "There are no creators involved in the Copyright Principles Project at all! The Internet has democratized creativity, but this group of Big Tech and Big Media companies and the lawyers and academics who love them is about as undemocratic a 'consensus' as any artist could imagine."

Goodlatte said, "The Committee is not endorsing the specific recommendations of the Copyright Principles Project. However, it is my hope that this hearing will help demonstrate how interested parties can come together to discuss copyright issues in a productive way."

Goodlatte, Judiciary Ranking Member John Conyers (D-MI), subcommittee Chairman Howard Coble (R-NC), and subcommittee Ranking Member Mel Watt (D-NC) have released statements in advance the hearing here.

Librarian of Congress appoints two new Copyright Royalty Judges

Wednesday, May 8, 2013 - 1:00pm

The U.S. Librarian of Congress James H. Billington has appointed two new judges for the Copyright Royalty Board.

David R. Strickler, one of the new judges, will serve as CRB economics expert. He'll complete the term vacated by Stanley C. Wisniewski, which ends in January 2016. He's an experienced lawyer and trained in theoretical economics and the application of economics to legal issues.

The other new judge, Jesse Feder, will be the copyright specialist, and will complete William Roberts' term, ending this coming January. He was recently director of International Trade and Intellectual Property for the Business Software Alliance, and also served as acting associate register in the U.S. Copyright Office and as legal adviser in the Office of the General Counsel for the Library of Congress.

CRB judges are those who determine the statutory royalty rates webcasters pay for the use of copyright sound recordings (actually, they "recommend" a rate to the Librarian, who pretty much "rubber-stamps" it). Copyright royalty judges are appointed by the Librarian of Congress in consultation with Register of Copyrights Maria A. Pallante (The Copyright Office being part of the Library of Congress).

You may remember the Intercollegiate Broadcasting System (IBS) challenged the constitutionality of the CRB, saying its appointments violated the Appointments Clause of the U.S. Constitution. A U.S. Appeals Court sided with IBS, and determined that the CRB appointments were in fact principal officers, and should have been appointed by the President. But to fix it, the Court simply struck those portions of the law that limit the power of the Librarian of Congress to remove the Copyright Royalty Judges without cause (read more from legal expert David Oxenford here).

Read this week's full statement from the Librarian of Congress on the new appointments here.

House Judiciary chairman promises copyright law hearings

Friday, April 26, 2013 - 11:05am

House Judiciary Committee Chairman Bob Goodlatte (pictured) says he'll lead his panel to "conduct a comprehensive review of U.S. copyright law over the coming months," likely (at least partially) in response to Register of Copyrights Maria Pallante's copyright reform (reported in RAIN here). Goodlatte spoke at the World Intellectual Property Day at the Library of Congress.

"The goal of these hearings will be to determine whether the laws are still working in the digital age," Goodlatte said.

Among other issues, "there are concerns about statutory license and damage mechanisms. Federal judges are forced to make decisions using laws that are difficult to apply today. Even the Copyright Office itself faces challenges in meeting the growing needs of its customers - the American public."

Last year Utah Rep. Jason Chaffetz (R), a member of the Judiciary Committee, introduced the Internet Radio Fairness Act (read more in RAIN here). A companion bill was introduced to the Senate by Oregon Senator Ron Wyden (D). The bill calls to change the legal standard by which judges determine the statutory royalty rate for streaming radio. The royalty rates for most other, related uses of copyright sound recordings use the standards set in section 801(b) of the Copyright Act. The 1998 Digital Millennium Copyright Act made an exception for Internet radio, requiring rates to be set to what the judges felt a hypothetical "willing buyer and willing seller" would agree. The law would bring Internet radio in line with media like cable- and satellite radio, requiring rates to be set along 801(b) guidelines.

The bill has yet to be re-introduced to this year's Congress.

Read more in The Verge here.

Spotify too says it needs to pay less for music to make biz work

Thursday, February 21, 2013 - 11:20am

Leading on-demand music subscription service Spotify has begun license renewal negotiations with the major labels, and is reportedly petitioning for "substantial price breaks" and the right to stream its free/ad-supported service to mobile devices, The Verge reports.

Spotify finds itself in the same boat as webcasters: the high cost of content acquisition is its foremost obstacle to running a viable business. And as on-demand streaming is not governed by statutory rates (like non-interactive webcasting), Spotify pays in the neighborhood of 70% of its revenue to access music. In addition to the license fees, Spotify also wants the labels to allow its ad-supported free tier for mobile devices beyond the current 30 day trial.

Perhaps unlike Pandora's (and other webcasters') hopes for content cost relief, The Verge sees things in Spotify's favor. "The labels are big fans of the subscription model, which gives them predictable income across their entire catalog," The Verge writes. "The major labels have a vested interest in making sure subscription-based music continues to grow and thrive."

Read more here.

Music publishers not subject to rate court could cause big trouble for webcasters, experts warn

Friday, January 18, 2013 - 11:10am

The royalty rates at which webcasters pay recording copyright owners and performers can be (and usually are) settled by the government. The rates at which composers and publishers are paid -- if administered by ASCAP and BMI -- are settled in rate court (as per government decree). Thus, when the costs of performing copyright music are determined by a third party, webcasters such as Pandora can at least hope their interests are considered.  

But what happens when rights holders like Sony/ATV (which "directly controls an absolutely massive and critical catalog," writes Digital Music News) are no longer subject to government regulation (the group pulled out of ASCAP and BMI for digital uses) and can set any price they want?

We reported yesterday here, Pandora will see its pay-out to music publisher Sony/ATV increase 25% for the next year, according to the terms of a new settlement.

Digital Music News quotes "a source" in the publishing industry as saying, "This is the very tip of the iceberg. The 25% bump in going to get higher after the first year deal." What's more, Pandora's deal could also help rights holders that are subject to government regulation of their rates.

"ASCAP now has a real world, real market rate to point to, one that is substantially higher than what Pandora wants," writes Digital Music News.

The Pandora settlement with Sony/ATV "does establish a market rate," music industry attorney Steve Gordon told the news source. Pandora and ASCAP are in lititgation over rates. "ASCAP is now in the position of counterclaiming." 

Consider the thoughts of investment expert David Pakman (who testified before a House Judiciary subcommittee in support of the Internet Radio Fairness Act -- more here). He recently discussed the power tilt between the world's largest on-demand streaming service, Spotify, and the three major U.S. record labels (to which Spotify pays hefty licensing to peform recorded music). His thoughts have application here. He wrote:

There are now only three major labels. They control about seventy per cent of the world’s music catalogs... The world’s superstars are, for the most part, on major labels. And you just can’t operate a digital music retailer at scale without hit music content... they don’t have a service without the full catalogs from those three majors. If even one of them pulled their catalog, at least twenty per cent of all Spotify’s content would disappear. All the playlists on the service would break. And a third of the hits would be gone. Paying consumers would never stand for it and the service would crumble. The labels know this. They know they have fully concentrated power.

Again, Pakman's talking about labels and recorded music; Pandora and Sony/ATV is about publishing. But his point about unfettered, concentrated power applies.

Read Digital Music News here. More from David Pakman is here. (The photo is Sony/ATV CEO Martin Bandier, who doesn't seem to mind being visually portrayed as a cartoonish mogul.)

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