Fueled by Pandora's, SiriusXM's growth, SoundEx payouts up 58% from 2011

Thursday, January 17, 2013 - 12:45pm

SoundExchange -- the record industry body that collects and distributes royalties for the digital use of copyright sound recordings -- passed along $462 million to labels and performers last year. That's 58% higher than 2011 ($292 million).

When Internet radio, satellite radio, or cable television radio in the U.S. plays copyright sound recordings, they pay a royalty for the use of that music. Not only to the songwriters and publishers (as broadcasters do), but also to the recording copyright owners (labels) and performers on the recordings. SoundExchange is the group that administers the latter.

Billboard explains, "The growth of this revenue stream underscores the importance of services such as Pandora -- and other webcasters -- and Sirius XM Satellite Radio in today's digital marketplace. Pandora, which supported the Internet Radio Fairness Act that could have led to a change in webcasters' statutory royalty rates, finished 2012 with 67.1 million active listeners, up 41% from 2011. Sirius XM added 2 million subscribers to finish the year with 23.9 million."

Pandora and SiriusXM pay the lion's share of SoundExchange royalties (some say as much as 90%).

Read more in Billboard here.

Oxenford reports CRB gave some consideration to SiriusXM marketplace deals in determining rates

Monday, January 7, 2013 - 11:15am

The recent CRB royalty decision for satellite and cable radio "for the first time, gives at least some weight to direct licensing deals," and "seems to reject some premises that had long been used to justify royalty rates in other proceedings – and thus may give some insights on approaches to be used in the webcasting royalty proceeding."

We're quoting industry legal expert David Oxenford, who has published some preliminary analysis of the Copyright Royalty Board's full determination of royalty rates to be paid to SoundExchange by Sirius XM and Music Choice from 2013 through 2017.

Last week the CRB released its full decision (actually, two separate decisions, resulting in the same determination, here and here). We reported the actual rates last month in RAIN (here).

We also reported (here) that in the proceedings, satellite radio provider SiriusXM revealed more than 60 direct licensing deals it had secured with record labels, which it argued should be used as benchmarks as the market value of digital sound recordings for noninteractive performance. The service says its direct deals are for 5%-7% of revenues.

Logically, the CRB agreed that directly-licensed sound recordings should be excluded from SiriusXM's royalty obligation to SoundExchange (services need pay SoundExchange only for copyright music for which they have not secured direct deals), Oxenford reports.

And while the CRB rejected SiriusXM's proposal to lower rates from 8% of revenue to 5%, it also rejected SoundExchange's proposal to raise rates -- starting at 12% of revenue in 2013 and ending at 20% in 2017. The Board decision -- 10% of revenue this year, rising to 11% next year, and 12% for each of the next three years -- might indeed indicate it took SiriusXM's market deals into consideration, as Oxenford suggests.

This is important to note as we approach CRB proceedings on Internet radio royalties. Broadcasters like Clear Channel and Entercom have struck streaming royalty deals with certain copyright owners. If the CRB is willing to consider marketplace deals in royalty determinations for satellite and cable radio, they may also be willing to do so in the upcoming webcasting proceedings.

The fact that webcasting royalty proceedings are governed by the controversial "willing buyer willing seller" standard, which by design attempts to replicate an "open market" value for copyright material, may be even more reason for royalty judges to consider these direct deals as benchmarks.

[Satellite radio and cable radio royalty proceedings are governed by the more traditional 801(b) standard. The main goal of the Internet Radio Fairness Act is to have Internet radio royalties to be moved to this same standard.]

The next royalty proceeding for noninteractive webcasting services begins in 2014 and should conclude in 2015.

Oxenford also reports that "the Board also explicitly agreed, for the first time in any decision of which we are aware, that pre-1972 sound recordings also are not to be included in the revenue base, as the Federal sound recording copyright only applies to songs created in 1972 and after (with certain exceptions...)." It will be interesting to see if webcasters are given a similar "pre-1972 carve-out."

Oxenford plans to follow up with more detailed analysis. Read his initial thoughts here.

Bookmark this reference: A Brief History of Webcaster Royalties

Monday, December 3, 2012 - 12:35pm

When reporting on copyright and licensing issues, we've often leaned on the clear explanations from industry attorney David Oxenford and the Broadcast Law Blog. Here's another resource to bookmark: Terry Hart's Copyhype blog and his A Brief History of Webcaster Royalties.

It's a great run-down of the laws that provide the framework for Internet radio sound recording royalties (the DPRA and the DMCA), the various webcasting rate determinations and settlements, and yet another clear and concise explanation of "801(b)" vs. "willing buyer willing seller."

Hart began the blog in August, 2010. He received his J.D. from our hometown Chicago-Kent College of Law and has a certificate in intellectual property law. He was also a media monitor and mobile disc jockey. The front page of Copyhype is here.

Rep. Chaffetz's Internet Radio Fairness Act would require rates based on same Copyright Act standard

Thursday, July 19, 2012 - 12:40pm

Utah Republican Congressman Jason Chaffetz has reportedly begun crafting a bill aimed at bringing Internet radio royalty rates more in line with those of other radio platforms. The bill's key feature is a change from the controversial "willing buyer/willing seller" standard in webcast royalty determinations to the more prevalent "801(b)" standard.

Chaffetz says his Internet Radio Fairness Act of 2012 is still in draft form and isn't yet ready to be introduced. But he plans to determine his next steps by the end of this month.

When Copyright Royalty Board (CRB) judges determine the royalty rate at which webcasters pay copyright owners and performers for the use of sound recordings, they do so based on the standard -- mandated by the DMCA -- of what a "willing buyer" and a "willing seller" would agree to in a hypothetical marketplace. The judges do not (and in fact, are instructed to not) consider the "real world" ramifications of their determination, only the perceived economic value of the right. The Internet radio royalty process is unique in this way, as royalties for satellite and cable radio are based on the Copyright Act's more well-known 801(b) standard. Royalty determinations for what labels pay music publishers and songwriters are also based on 801(b).

"In setting royalties, (801(b)) assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music," explains attorney David Oxenford (here). Among other objectives, judges using 801(b) are instructed to set rates that "minimize any disruptive impact on the... industries involved." (Read 801(b)(1) of the Copyright Act here.)

How much of a difference does this standard make? Consider that satellite radio operator SiriusXM pays around 8% of its revenues for the right to use copyright sound recordings in its broadcasts, based on a determination using the 801(b) standard. Pandora, on the other hand, says nearly 70% of its total revenue (based on its Q1 FY 2013) will go to royalty payments (and that's based on on a deal Pandora struck that actually decreased its obligation from the CRB decision -- a decision based on "willing buyer/willing seller").

"It seems screwy that royalty rates change so dramatically based on the platform," Chaffetz explained. "When you’re listening to music in your house or in your car, you may be listening to it on your iPhone, you may be listening on the satellite radio or the FM radio. Does that mean the royalties should be so vastly different? It doesn’t seem to make sense to me. We need to play catch-up here."

A summary of the bill (according to news source The Hill) says the legislation also aims to "improve the proceedings process for rate-making cases and ensure judges on the Copyright Royalty Board have the same legal background and expertise as federal court judges who consider copyright cases."

Chaffetz says he expects push-back from the recording industry, and remains open to labels' input. "We’ll flesh all that out. I have no doubt we’ll have a good, lively discussion on that. There’s plenty of money to be made by all the various interests, it’s just I think moving toward parity is an important principle," he said.

The "801(b) vs. 'willing buyer/willing seller'" issue has come up multiple times in the history of Internet radio. The Performance Rights Act, which would have imposed a sound recording performance royalty on broadcast radio, would have moved webcast rate determinations to 801(b) (see our coverage here). Attorney David Oxenford wrote about the inherent unfairness of using different standards by platform in early 2008 (see RAIN coverage here). That same year Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) introduced their Internet Radio Equality Act, which would have, like the PRA and Chaffetz's new bill, given Internet radio the 801(b) standard. That effort stalled by July (see RAIN coverage here). We have tons more coverage and analysis about 801(b), here.

Read more from The Hill online here.

Current state of radio royalties hurts artists and impedes innovation, Forbes says

Tuesday, July 3, 2012 - 12:40pm

Editor's note: RAIN will return Thursday, July 5. Happy 4th of July!

Actually, it's Forbes contributor John Villasenor who this week makes the case that not only should radio pay artists (and labels) for the music they play -- but that by maintaining an unlevel royalty playing field between broadcast, satellite, and Net radio, Congress is impeding innovation.

Broadcasters are exempt from paying royalties for sound recordings, it's argued, because their play drives record sales. And new forms of radio pay royalties because the content attracts audience and drives those businesses. But, of course, as Villasenor writes, "if airtime on traditional AM and FM stations drives sales, so, too, can exposure through cable, satellite, and Internet radio. And... playing artists who people want to hear, broadcasters of all stripes attract more listeners, and can therefore charge higher fees to their advertisers or subscribers."

Villasenor calls on Congress to end terrestrial radio's performance exemption, but, "and in some respects more importantly in the long run given the inevitable transition to digital," he wants rates to be "harmonized" across platforms. He concludes, "The government should not be stacking the deck against the newest, most compelling technologies. Saddling Internet radio with high royalty rates while giving terrestrial AM and FM stations a free pass impedes the growth of a promising new way to distribute content. And, it sends a message to would-be-entrepreneurs with ideas about how to revolutionize an industry that the playing field is far from level."

Read Forbes here (and more here).

Growing audiences for online, satellite radio push quarterly SoundExchange distributions past $100M mark

Monday, June 18, 2012 - 11:15am

SoundExchange today announced it has made $1 billion in royalty distributions to copyright owners since its inception in 2000 (read the press release here). What's more, this year SoundExchnage's quarterly payments have topped $100 million.

Today's New York Times suggests the story is good news for the organization, which "has been criticized for being slow to pay everyone who is owed royalties. At the end of 2010, the last date for which audited accounts are available, SoundExchange was holding $132 million..." for performers it couldn't reach and performances that couldn't be accounted for.

The paper also suggests SoundExchange is now challenged by "direct deals" between major content licensees like SiriusXM (which is suing SoundExchange for allegedly interfering in such deals) and Clear Channel (with its well-publicized Big Machine Records deal) and copyright owners.

Read more in The New York Times here. Also, SoundExchange's 2011 annual report is here

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