Forbes: Digital music industry innovation and progress "impeded by the current copyright system"

Friday, May 25, 2012 - 11:35am

Editor's note: RAIN will return on Tuesday, May 29. Have a great Memorial Day weekend!

Music royalties"To say that copyright law is complex would be an understatement," writes Forbes contributor John Villasenor. Few RAIN readers likely need to be told that. Nor should they be surprised by Villasenor's comment that the Copyright Royalty Board's "willing buyer/willing seller" model for setting Internet radio royalty rates "has not worked ideally." 

Former SoundExchange general counsel Gary Greenstein, now a copyright attorney with Wilson, Sonsini, Goodrich & Rosati, tells Forbes that "the willing buyer/willing seller standard, as it has been applied by the CRB, has resulted in rates that would likely drive many nonsubscription, Internet-based digital music services out of business."

Congress had to pass two Webcaster Settlement Acts (in 2008 and 2009, RAIN coverage here, here and here) to "temporarily grant SoundExchange, a non-government entity, with the extraordinary power to negotiate lower rates." You can read more about those negotiated rates in RAIN here. And, as Villasenor writes, even "those 'lower' rates can still be very high when measured with respect to revenue."

For example, Pandora paid nearly 70% of revenues to content acquisition costs -- which include royalties -- according to their Q1 2013 fiscal results (RAIN coverage here).

Forbes pullquote"So where does all of this leave things?" ponders Villasenor. "The short answer: in need of repair."

He argues that "some of the policy objectives enshrined in copyright laws of the United States may stifle innovation and impede new business opportunities… America’s status as a global technology leader is due in large part to disruptive advances that upend prevailing industry practices, and in doing so, often interfere with streams of revenue flowing to less innovative incumbents. Yet this is precisely the sort of progress that is impeded by the current copyright system as it applies to certain digital music services."

Rightsholders -- songwriters, recording artists, record labels -- are absolutely entitled to "be fairly paid for their work, and deserve the protections of a well-designed copyright royalty framework," writes Villasenor.

"But it’s also important not to lose sight of the public’s interest in having access, under reasonable terms, to copyrighted material." Villasenor quotes the Supreme Court from a 1975 ruling: "The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor. But the ultimate aim is, by this incentive, to stimulate artistic creativity for the general public good."

"That [public] interest is no less valid if it happens to be served using non-traditional business models such as Internet radio," concludes Villasenor. You can find his article in Forbes here.

Do you agree with Villasenor's argument? Disagree? Let us know in the comment section!

David Carson explains Copyright Office's roles and stances on copyright issues impacting radio

Wednesday, May 9, 2012 - 12:10pm

David Carson at RAIN Summit West 2012"We're nothing to be afraid of," chuckled David Carson, General Counsel of the U.S. Copyright Office, during RAIN Summit West 2012. Carson was interviewed on-stage by industry attorney and Davis Wright Tremaine partner David Oxenford. "Are you to be feared?" Oxenford had asked, on behalf of the webcasters and broadcasters in the audience.

Carson insisted the answer is "no." In fact, he said the Copyright Office has "hardly anything to do with" what is perhaps the biggest copyright-related sore spot among webcasters: setting royalty rates. That job is mainly handled by the Copyright Royalty Board.

However, Carson (pictured) did explain that the Copyright Office can review the CRB's decisions for "legal error," and any corrections can become legal precedents in the future. The CRB can also consult the Copyright Office about legal questions, and the Copyright Office makes recommendations about who should serve as a judge on the CRB.

In fact, Carson was part of a panel that just recently recommended the new CRB judge, Suzanne Barnett (RAIN coverage here).

The Copyright Office does take stances on copyright issues, though, and makes recommendations to Congress. One such issue -- "the most glaring," in Caron's opinion -- is the broadcast radio performance royalty. Carson said that since before 1978, the Copyright Office has "taken the position that sound recordings should be entitled to a performance royalty just like musical compositions are... We are one of the few countries on earth that doesn't actually provide a performance royalty for sound recordings [played on AM/FM broadcast radio]." (Internet and satellite radio in the U.S. do pay performance royalties.)

To the Copyright Office, explained Carson, broadcast radio's performance royalty exemption "seems sort of bizarre" and "strange."

Oxenford questioned Carson about whether the Copyright Office has, or should, consult broadcasters about that stance. "That's what Congress does," answered Carson. "We advise Congress." And while sometimes Congress requests the Copyright Office to conduct studies and discuss the matter with stakeholders, more commonly "we're actually directed not to talk to stakeholders. 'We want your expert advice,' [instructs Congress]... and as often as not they thank us for our recommendations and then go off and do something else."

All that said, "we can expect no copyright legislation this year," predicted Carson, thanks in part to the election.

Carson also discussed the situation on pre-1972 sound recordings, and offered his thoughts on the recent SOPA debacle (when "suddenly politics wasn't played by the usual rules").

You can watch the entire interview with David Carson thanks to RTTNews here.

MacDonald: "Staggering figure" suggests Pandora, SiriusXM have "a good deal of leverage to extract a fair royalty deal"

Thursday, April 12, 2012 - 11:40am

Angus MacDonaldAccording to new analysis from Live365 general counsel Angus MacDonald (pictured), 90% of SoundExchange's 2011 revenues "came from only two sources": SiriusXM and Pandora.

MacDonald estimates SiriusXM's royalty payments to SoundExchange to be around $200 million in 2011 (based on the company's judicially-filed complaint against SoundExchange from March 23, though "a small portion" of the figure may be non-U.S. statutory payments). And Pandora's royalty payments to SoundExchange totaled $136.3 million in the 12 months that ended January 31, 2012.

SoundExchange's total 2011 revenues were $371.9 million. Combined, Pandora and SiriusXM's royalty payments make up around 90% of SoundExchange's revenues.

"That is a staggering figure," comments MacDonald, "especially if you consider all of the major and not-so-major terrestrial broadcasters who must pay royalties to SX for their simulcasts, as well as all the other types of services that pay royalties to SX... This suggests that Sirius and Pandora have a good deal of leverage to extract a fair royalty deal from SX for their respective royalty proceedings in the CRB."

SiriusXM and Pandora make up 90% of SX's revenue in 2011The finding is also noteworthy considering SiriusXM is trying to avoid paying SoundExchange by reaching its own direct licensing deals with rightsholders (RAIN coverage here). SiriusXM recently filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to reach those direct deals (RAIN coverage here and here).

MacDonald also recently calculated (as published yesterday in Audio4Cast here) that SoundExchange's total royalty collections were up 40% from 2010 to 2011. That growth was mainly fueled by Pandora, which paid out nearly 50% of its revenues to SoundExchange in the fiscal year that ended January 31, 2012, according to MacDonald.

"Another interesting fact: Pandora paid about as much in royalties for its FY 2012 (i.e., $136.3M) as it made in TOTAL REVENUES for its previous fiscal year, FY 2011 ($137.7M).

"With Pandora’s ever-growing listening hours and royalty payments," MacDonald continues, "SoundExchange and the labels need a healthy Pandora as much as Pandora needs a reasonable Pureplay-like rate for the next royalty term (2016-2020). This is especially true if Sirius XM continues to sign up more direct license deals, thereby bypassing SoundExchange (though Sirius XM’s recent antitrust complaint suggests that may be a tough row to hoe)."

Motley Fool's ideas for Pandora profitability include concert promotion and original content

Tuesday, March 20, 2012 - 11:50am

In a piece titled "Pandora Will Be Profitable," the Motley Fool suggests a number of different routes Pandora might be able to take to reverse its losses (losses coming despite skyrocketing consumer uptake).

Most though-provoking are suggestions that would have Pandora moving up the supply chain to promote concerts and new artists -- perhaps going as far as becoming a defacto record label (Note that Pandora's biggest obstacle to profitability right now is the royalty costs going to copyright owners, that is, music labels.).

"One bright spot amidst the industry gloom has been concert sales, which have nearly doubled over the past decade," the Motley Fool wrote. "There's no reason why Pandora can't capitalize on its relationship with over 100 million listeners to promote concerts and new artists...

"Signing artists would not be much different from what Amazon has done with its publishing division or Netflix's move into original content. Both companies have established trusting relationships with millions of consumers and are simply taking the next logical step in leveraging that audience backward to the creative end of the industry."

Read the Motley Fool here.

Public Knowledge suggests 6 copyright fixes "Congress could pass today"

Wednesday, February 29, 2012 - 11:35am

Digital revenues and copyrightsIn the wake of SOPA and amidst growing protests over the Anti-Counterfeit Trade Agreement (ACTA), Public Knowledge (PK) has outlined six ideas to change copyright law so as to "help make the Internet a better place for everyone."

Ars Technica sums up each idea (here), from shortening copyright terms to stopping copyright bullying and implenting new policies to halt DMCA abuse.

"We're not expecting Congress to pass [these proposals] today (or tomorrow)," writes Ars Technica. "But they're at least an intriguing start point for debate."

Educational broadcaster group contends Copyright Royalty Judges weren't properly appointed

Monday, February 13, 2012 - 11:00am

U.S. Court of Appeals D.C.The U.S. Court of Appeals for D.C. is being asked to consider whether the judges who serve on the Copyright Royalty Board, the body that sets the default royalty rates for Internet radio's use of copyright recordings, were appointed in accordance with constitutional law.

Intercollegiate Broadcasting Services, which represents educational institution-based broadcasters and webcasters, is appealing the CRB's final royalty determination for 2011-2015 (specifically, the $500 annual minimum royalty fee). As part of the appeal, the Appeals Court (just a step below the U.S. Supreme Court) this week heard an oral argument on the issue of whether the judges who make up the CRB were properly appointed.

IBSBasically, the Appointments Clause of the Constitution requires "Principal Officers" of the government to be appointed by the president, while inferior officers can be appointed by the head of an executive department. However, the Copyright Royalty Judges were not appointed by the president, but by the Librarian of Congress, who himself is not head of an "executive" department (but a department of Congress).

So, what happens in regards to the CRB's past rulings should they be ruled unconstitutionally-appointed? Industry attorney David Oxenford examines the situation further at here.

Read BroadcastLawBlog's coverage of the Copyright Royalty Board's 2011-2015 webcast royalty determination here, and our run-down of the different specific deals different webcaster groups made with SoundExchange for royalties covering this period here.

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