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

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Issue Date: 
Aug 2 2013 - 12:35pm

From Issue:

Continued from above, here.

(4) Will Pandora and broadcasters collaborate?
Expect to see Pandora and the National Association of Broadcasters (NAB) team-up in Webcasting IV, especially now that Pandora operates its own terrestrial radio station (in RAIN here).

As their online audiences grow, broadcasters' streaming royalties may become unsustainable for the future. By 2015, broadcasters will pay higher per-performance rates for their online streams -– $0.0025 (0.25 cents) per performance -– than any other type of webcaster. (By comparison, Pandora and other pureplay webcasters will pay $0.0014 (0.14 cents) per performance in 2015.) Meanwhile, Pandora will be doing everything it can to avoid paying rates anywhere approaching NAB's statutory rates.

Pandora and broadcasters are in the same boat when it comes to opposiing SoundExchange's inevitable proposal to continue raising statutory rates. (For what it's worth, my prediction is that SoundExchange in the upcoming proceeding will seek a rate increase to about three times higher than the $0.0012 (0.12 cents) per performance rate Pandora currently pays.)

(5) Will pre-1972 recordings be found exempt?
Finally, there's one other legal issue which could have a fairly significant effect on royalties -- an issue which may already have been decided. That is, whether to exclude pre-1972 sound recordings from statutory royalty obligations.

Pre-1972 sound recordings are not governed by federal laws. For many years, there has been some debate about whether webcasters owe royalties to SoundExchange for performances of sound recordings created before 1972. (Think of bands like the Beatles and the Beach Boys, and genres like ragtime, classic jazz, and folk music.)

These pre-1972 sound recordings might constitute 10%-15% (or more) of total performances, thereby representing a potential royalty savings of the same amount. But, due to some ambiguity in the law, webcasters have been paying royalties on those pre-1972 recordings.

However, last December, the CRB -– in its rate determination for Sirius XM and Music Choice -– for the first time acknowledged that "pre-1972 recordings are not licensed under the statutory royalty regime and should not factor into determining the statutory royalty obligation." (See p.77 of the CRB decision here.)

Though it's probably unnecessary, getting the CRB to reaffirm this proposition in Webcasting IV would give webcasters certainty about excluding a significant segment of recordings from statutory royalties.

The legal issues surrounding Webcasting IV are complex. Webcasters who are considering their possible participation in this proceeding should consult experienced attorneys well in advance of the commencement of Webcasting IV, as each party’s rate proposals and supporting evidence must be submitted near the opening of the case. Good luck to the Webcasting IV participants!

Angus M. MacDonald is a copyright and digital media attorney. The views expressed in this article are solely Mr. MacDonald’s and should not be attributed to his employer.

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