Webcasting IV: A royal(ty) mess [part 2 of 2]

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Issue Date: 
Aug 2 2013 - 12:35pm

From Issue:

The following is Part 2 of a two-part guest column by Angus M. MacDonald, a copyright and digital media attorney.

BY ANGUS M. MACDONALD 
Last month in RAIN (here), we highlighted the cast of players who will likely play key roles in the next CRB webcasting rate case, known as Webcasting IV. This installment examines five "hot button" legal questions that will likely surface during the proceeding.

(1) Will Apple's rates serve as a "benchmark?"
Though Apple will likely remain on the sidelines for Webcasting IV (it secured direct deals with labels for iTunes Radio), it might still play a major role in the CRB case based on the royalty rates it will pay.

Based on publicly-available copies of Apple’s proposed agreements with independent record labels, for iTunes Radio's first year, Apple will pay a per-performance fee of $0.0013 (0.13 cents) and 15% of net advertising revenue. For the second year, the rates increase to $0.0014 (0.14 cents) per performance, plus 19% of ad revenue.

(According to reports, these rates for independent labels are nearly identical to the rates Apple will pay to the major record labels; however, unlike the indies, the majors will get sizable cash advances from Apple. More here.)

Will Apple’s rates have a role in setting the statutory rates for the industry? Probably. Based on its prior determinations, the CRB prefers to use actual marketplace agreements as "benchmarks" for what would be agreed upon by between a "willing buyer and willing seller," the standard governing Webcasting proceedings. In its previous proceedings, the CRB relied significantly on direct deals by on-demand services as benchmarks for rates that non-interactive Internet radio services should pay (subject to certain adjustments)... because that's all they had to go on at the time.

But since iTunes Radio -– a semi-interactive, but not on-demand service -– will operate with direct deals with the vast majority of record labels, it will be interesting to see if webcasters attempt to enter Apple's rates into evidence as an appropriate benchmark.

(2) Might the CRB revisit percentage-of-revenue rates? 
The CRB and its predecessor rate panels traditionally set statutory rates for webcasters as "per-performance" fees (a flat fee for every time a single listener hears a single song). As webcasters and commentators have noted, the problem with per-performance rates is that successful Internet radio services -– unlike most other online companies -– feel "punished" by their growth. In most industries, scaling up tends to decrease costs as a percentage of revenue. But that does not happen in a per-performance paradigm, which often leads successful webcasters to inhibit (or at least control) their growth in listening hours (as Pandora recently did by imposing listening caps (more here)).

The time, however, may be ripe for the CRB to revisit a percentage-of-revenue royalty. After all, most marketplace agreements for Internet radio now include percentage-of-revenue as a basis for royalty payments. This includes Apple's deals with labels, as well as direct deals entered into by major terrestrial broadcasters –- such as Clear Channel, Entercom and Beasley -– for their online streaming (see here).

Moreover, SoundExchange already accepts percentage-of-revenue royalties for numerous types of services, including small commercial webcasters, satellite radio, cable television music services, and business establishment services. If SoundExchange and the record labels are willing to accept percentage-of-revenue deals for most other services, there doesn't seem to be compelling reasons why non-interactive webcasters should only be allowed to pay on a per-performance basis.

(3) Waiver for performances under 30 seconds?
Webcasters should strongly consider pursuing royalty exemptions for any performances that last 20 to 30 seconds or less. This is an issue that rarely has been discussed, but given the agreements for iTunes Radio, this idea merits serious consideration in Webcasting IV.

It appears that Apple has successfully obtained an exemption for performances that last 20 seconds or less. Similarly, many direct deals between on-demand music services and record labels (including publicly-available agreements submitted as "benchmark" deals by SoundExchange), typically include royalty waivers for performances 30 seconds or less in duration.

Since the CRB has repeatedly determined that rates paid by on-demand services can serve as appropriate benchmarks for non-interactive rates, it seems appropriate to waive a royalty obligation when a listener tunes out or skips ahead before 30 seconds of a song has elapsed.

Continued after the jump here.

Comments

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Meanwhile, Songza is the Clickhere

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2013 Webby Winner in the "Mobile & Apps: Music" category. The People's Voice went to Pandora, and DeliRadio was also a nominee in the category. 8tracks

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