IRFA

Public Knowledge breaks down details of Internet Radio Fairness Act

Friday, November 2, 2012 - 11:10am

A staff attorney at Public Knowledge named Jodie Griffin has posted a detailed examination of all the provisions of the Internet Radio Fairness Act, including the necessary background concerning the Copyright Act, the CRB, and the matter of the two key legal standards the CRB uses in determining digital performance royalty rates.

The Internet Radio Fairness Act is a bill in both houses of Congress to create a more level playing field for Internet radio concerning sound recording royalties. It was introduced to the House by Reps. Jason Chaffetz (R-UT) and Jared Polis (D-CO) and in the Senate by Sen. Ron Wyden (D-OR) (more here).

Public Knowledge is a non-profit public interest group focusing on "intellectual property law, competition, and choice in the digital marketplace, and an open standards/end-to-end internet."

While most coverge of the IRFA (including this publication's) has focused on the bill's key provision -- that is, changing the rate-determination standard from "willing buyer/willing seller" to 801(b) -- the IRFA would make other changes to the royalty process for Internet radio (which industry expert David Oxenford has covered, more here). Griffin's article points out these additional provisions of the bill.

"The change from the willing buyer/willing seller standard to the 801(b) standard is widely anticipated to significantly lower the royalty rates that online radio services pay," she writes. "There is also a substantial need here for more economic data and analysis to predict what practical impact this bill would have on consumers, artists, and online music services... The explanation of how this would actually impact the online music marketplace and artist revenues is tricky and deserves a post of its own, so I will leave that discussion for next week."

Griffin's article is on the Public Knowledge site here. A somewhat more detailed run-down, as well as a "redlined" excerpt of the copyright law, showing the bill's additions and deletions to the code, can be found here

CRB oral arguments on SiriusXM rates veer away from 801(b) and toward "marketplace" evidence

Thursday, November 1, 2012 - 1:30pm

Satellite radio provider SiriusXM, cable radio provider Music Choice, and music industry royalty administrator SoundExchange recently made their oral arguments before the U.S. Copyright Royalty Board on the matter of sound recording royalties for their next 5 year term (more in RAIN here). And while the law mandates that the rate-setting for royalties for these media is to be governed by the "801(b)" standard, industry legal expert David Oxenford reports the actual argument that took place "focused on the value of music in a marketplace -– essentially the 'willing buyer, willing seller' question."

Oxenford reports that "while other 801(b) factors were discussed, they were seemingly passed over quickly, with most of the focus being on the questions of the marketplace value of the music."

SiriusXM themselves used as evidence the direct licensing deals it has negotiated with dozens of record labels and artists as a benchmark for "the true marketplace value of music," Oxenford notes. "Sirius argued that these deals showed the true marketplace value of music, as they were negotiated outside of the royalty process by a willing buyer (Sirius XM) and willing sellers (the labels)."

What Oxenford is pointing out here is that even when the 801(b) standard is mandated for royalty-setting, there's no guarantee that judges won't use the marketplace precendents of "willing buyers and willing sellers" in their determinations.

Here's why this is important: Currently, the law requires copyright judges, when determining royalty rates for all forms of digital radio except Internet radio (and HD Radio, which pays no such royalty), base their decisions on the objectives of the 801(b) standard (named for its location in the Copyright Act). Those objectives are:

(A) To maximize the availability of creative works to the public. 
(B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions.
(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication.
(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

As Oxenford has explained (here), "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."

Judges use a different standard when they set rates for Internet radio. Instead of 801(b), the Digital Millennium Copyright Act requires judges to determine a rate based on what a "willing buyer" and "willing seller" might agree to in the marketplace. But no significant real-world examples of "willing buyer willing seller" agreements between webcasters and copyright owners exist. So judges are compelled to imagine a hypothetical marketplace based on the arguments of advocates for copyright owners and users to determine a rate. They do not (and in fact, are instructed to not) consider how their decisions affect the return on players' investments in the industry, or the public's access to creative works, only the perceived economic value of the right.

The bottom line result of using these two different standards: while royalties for SiriusXM are currently about 8% of its revenue, Internet radio royalty rates amount to 50%-100% of revenue (Pandora's latest finances would have them paying 70% of their revenue) or more.

The Internet Radio Fairness Act (more in RAIN here), a bill in both houses of Congress, would attempt to address this discrepancy by changing the Internet radio rate standard from "willing buyer willing seller" to "801(b)," the same standard used for satellite- and cable-radio royalties. If the IRFA is adopted, it would apply when the CRB next reviews webcasting rates in a case that will be decided by the end of 2015.

But, as Oxenford notes, "the (SiriusXM) oral argument made clear that the adoption of the 801(b) standard is not in and of itself a panacea for the concerns about the royalties that have been set by the Copyright Royalty Board."

Read Oxenford's report in the Broadcast Law Blog here. David Oxenford is a Washington, D.C.-based partner at Wilkinson Barker Knauer, LLP. He represents digital media companies, including a number of Internet radio companies, before the Copyright Office, the Copyright Royalty Board, and other government agencies. He advises them on music royalty issues as well as other general business and regulatory matters. He's a regular expert speaker at RAIN Summit events, and a regular contributor to this publication.

IRFA will ensure "best, fairest process possible" for royalties, says digital advocacy group EFF

Thursday, November 1, 2012 - 1:30pm

Non-profit digital rights advocacy and legal organization Electronic Frontier Foundation yesterday published an editorial supporting passage of the Internet Radio Fairness Act.

That's the bill, introduced to both houses of Congress, that advocates say "would establish an equitable royalty rate setting standard for Internet radio" (background in RAIN here). The bill, among other measures, would require copyright judges to determine sound recording royalty rates for Internet radio using the "801(b)" standard of the Copyright Act (as is used for all other forms of digital radio), instead of the DMCA-mandated "willing buyer willing seller" standard.

(You can read more on 801(b) and "willing buyer willing seller" here.)

"Congress gave older, more established companies a leg up. For satellite and cable radio, the judges set prices to give the labels and artists a 'fair return' and the music service a 'fair income,'" writes EFF. The "fair return" and "fair income" refer to the 801(b) standard. "In practice, the judges tell these services to pay about 10% of their revenues to the artists and labels. For Internet radio, though, the judges are supposed to set rates based on what a 'willing buyer and a willing seller' would do in an open market. This sounds pretty good, except that there is no open market, so there’s no consistent benchmark. As a result, judges have set Internet radio royalty rates at cripplingly high levels."

The EFF piece concludes, "As long as the government is setting these rates, they should be using the best, fairest process possible. The Internet Radio Fairness Act will help make that happen."

Read the EFF editorial on their website here.

CC forges digital deal with third record label to secure more affordable online royalties

Tuesday, October 30, 2012 - 10:00am

Clear Channel Media and Entertainment has announced a deal with classical record label Naxos which, in all likelihood, involves the broadcaster paying royalties to the label for on-air play in exchange for a discount or waiver on online plays.

Clear Channel compared the agreement with its "groundbreaking agreements with Big Machine Label Group and Glassnote Records." While this new announcement contained no mention of royalties, both of those agreements involved the on-air/online royalty pact.

Sound recording copyright owners (in this case, the record label) is owed royalties when its music is streamed online, as by Internet radio. However, they can claim no such royalty when the same recordings are used on air by broadcasters.

Deals like this demonstrate that Clear Channel recognizes the growing importance of its both its online listening and the financial viability of streaming copyright music.

As mentioned, earlier this year Clear Channel forged similar arrangements with Big Machine Records (read more here) and Glassnote Entertainment (here). Broadcast group Entercom also agreed with Big Machine on such a deal (here).

Industry legal expert David Oxenford wrote that deals like this may have an effect favorable to webcasters in upcoming royalty rate determinations. He said:

"In setting (webcast royalty) rates, the (Copyright Royalty Board) looks to establish rates that reflect what a willing buyer and a willing seller pay in the marketplace. In past royalty proceedings, that willing-buyer, willing-seller price had to be estimated, as there were no real deals to use as a benchmark. And the estimates all went against webcasters. With a deal like that with Big Machine... the pro-record company outcome of the CRB proceedings may well be changed if these deals can be shown to be representative of the real value of the public performance of the sound recording." Read more here.

Several webcasters, broadcasters, and consumer electronics groups have joined the Internet Radio Fairness Coalition (see coverage here) with the intent to support new legislation (more here) that would remove the "willing buyer/willing seller" standard from rate determinations.

Also as part of Clear Channel's newly-announced deal, Naxos will program "Classica," the classical music channel on Clear Channel's online radio service iHeartRadio. The label boasts "one of the largest and fastest growing catalogues of unduplicated repertoire available anywhere—currently over 2,500 titles," including classical music CDs and DVDs as well other genres such as jazz, new age, educational and audiobooks.

House subcommittee to hold hearing on Net radio royalties

Monday, October 29, 2012 - 1:20pm

Inside Radio is reporting the House Judiciary Subcommittee on Intellectual Property, Competition, and the Internet will gather for a hearing on how Internet radio royalties are determined (there's no date or witness list yet).

Reforming the process for setting Internet radio royalties is at the heart of the Internet Radio Fairness Act (see RAIN here), recently introduced to both houses of Congress. The IRFA would require copyright judges to use the same "801(b)" standard in setting the royalty rates for Internet radio it uses for other forms of digital radio, like cable and satellite.

The House bill, H.R.6480, is co-sponsored by subcommittee members Jason Chaffetz (R-UT), Darrell Issa (R-CA), and Zoe Lofgren (D-CA). The subcommittee is chaired by Virginia Republican Bob Goodlatte.

Last week (in RAIN here) the Internet Radio Fairness Coalition, a group of interested webcasters, broadcasters, and technology groups, launched to support passage of the bill.

IRFC's main mission to support passage of Internet Radio Fairness Act

Thursday, October 25, 2012 - 6:45pm

Radio and webcasting organizations like Clear Channel, Pandora, and Salem, along with other industry parties like the Consumer Electronics Association, have today announced the formation of the Internet Radio Fairness Coalition.

The group formed to lobby Congress to pass the IRFA, or Internet Radio Fairness Act of 2012, which (among other measures) would require the same legal standard be used for determining sound recording royalty rates for all non-interactive digital music services.

The IRFA is a bill in both houses of Congress, H.R.6480 and S.3609. The bills were introduced by Reps. Jason Chaffetz (R-UT), Jared Polis (D-CO), Darrell Issa (R-CA), and Zoe Lofgren (D-CA) in the House and Sen. Ron Wyden (D-OR) in the Senate.

"We believe that market-based solutions are the way to go," said Bob Pittman (left), CEO of Clear Channel. "But in the absence of these agreements, the CRB needs to have and consider more relevant information so they are better able to develop a rate structure that will lead to a healthy, sustainable Internet radio marketplace. This will enable artists to earn more and connect more with their fans, consumers to have more choices, and entrepreneurs to invent and invest in new services."

Currently, government arbitrators base royalty rates for satellite and cable radio using a legal standard called 801(b). It requires the judges to consider how their decision would affect the industry and the public's access to copyright, as well as take into account the investment made by both copyright owners and licensees. Internet radio's royalties are based on the controversial "willing buyer / willing seller" standard, which does not take into account the concerns of 801(b). Rather, judges are instructed to set a rate they think a hypothetical "willing buyer" and "willing seller" would agree to in the marketplace.

The existence of different standards for different forms of radio has led to a situation in which satellite radio operator SiriusXM pays about 8% of its revenues for the use of copyright sound recordings, while webcasters are faced with obligations of 50% to more than 100% of their revenues. As an example, leading webcaster Pandora will pay nearly 70% of its revenue (based on Q1 FY 2013) for sound recording royalties.

"Legislation that establishes a fair royalty rate setting-standard for Internet radio will drive investment in webcasting, which ultimately offers greater opportunities and more revenue for working artists," said Pandora Founder and Chief Strategy Officer, Tim Westergren (right). "Internet radio has been shown to help decrease music piracy and increase music sales. When the digital music sector is allowed to grow and innovate, everybody wins."

Other founding members of the Coalition include 977 Music, AccuRadio, the Computer and Communications Industry Association (CCIA), Digital Media Association (DiMA), Digitally Imported, Engine Advocacy, National Religious Broadcasters Music License Committee (NRBMLC), Radio Paradise, and the Small Webcaster Alliance (SWA).

The Internet Radio Fairness Coalition has launched a website at InternetRadioFairness.com.

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