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Copyright Royalty Board to NAB: Well done, but no dice

nab logo rectangleOne of the most interesting aspects of the full determination just released by the Copyright Royalty Board (CRB) is the detailed argument put forward by the National Association of Broadcasters (NAB) that radio simulcasts should pay a lower music royalty rate than pureplay webcasting (e.g. Pandora). The “full determination” is a 203-page document which divulges the legal reasoning of the three-judge CRB panel behind its bare-bones rate announcement of December 16.

The NAB litigated for radio simulcasting to be categorized differently from pure-Internet webcasting, and for that category to be assigned a discounted rate that it would pay to record labels. The copyright judges were impressed by the legal presentation, noting: “The NAB’s witnesses testified persuasively.” But in the end, the NAB’s effort failed to secure a special rate category for radio simulcasting, and the CRB explanation, spread across eight dense pages, is peppered with a sequence of rejection phrases such as “does not provide adequate evidentiary support” and “The judges decline to infer such a rationale.”

Different from Terrestrial

The NAB argued that simulcasting is different from terrestrial, and should benefit from royalty rates lower than other commercial webcasters like Pandora. That argument might seem to be following two paths of logic at the same time — even if simulcasting has differentiating properties compared to the over-the-air broadcast, why would simulcasts differ in value from Pandora? Nevertheless, the NAB proposed that simulcasting should be considered (in the CRB’s description), “a distinct submarket in which buyers and sellers would be willing to agree to lower royalty rates than their counterparts in the commercial webcasting market.”

In a series of arguments, the NAB relied partly on differentiators that it promotes when advocating for radio generally: It provides a public service, it is local, and it is personal. All true, but not persuasive of a need for a separate webcasting category when it comes to music licensing rates, according to the CRB.

The CRB described a steep hill the NAB had to climb: “The NAB bears the burden of demonstrating not only that simulcasting differs from other forms of commercial webcasting, but also that it differs in ways that would cause willing buyers and willing sellers to agree to a lower royalty rate in the hypothetical market.” And the outcome was clear: “The Judges do not believe that the NAB satisfied that burden.”

The Promotional Value of Radio

As one might expect, the NAB attempted to carry over the royalty exemption enjoyed by over-the-air radio, which is not legally compelled to pay labels a royalty for the records it plays. If broadcast is exempt, why shouldn’t its Internet streams likewise be royalty-free, or at least benefit from a special low rate?

The copyright judges believed the first part, agreeing with a body of legal record that broadcast radio helps expose new music and deliver business value to labels. “There appears to be consensus, or near-consensus, on this point,” the determination reads.

But when it comes to applying that assumption to simulcasting, the CRB response invoked philosophy: “The NAB offers a somewhat tautological argument: simulcasting is, by definition, simultaneous retransmission of the content of a terrestrial radio broadcast over the Internet; it is, therefore, the same as radio; therefore, it must have the same promotional impact as terrestrial radio.”

The copyright judges didn’t  buy it, citing “”uncontraverted evidence that …  record companies do not view simulcasting as having the same promotional impact as terrestrial radio.”

In a Word, No

After detailing the NAB proposition, including the arguments of three expert witnesses, the CRB ruled that simulcasting cannot be set apart as a low-royalty category of streaming. This is the concluding language:

“The NAB’s arguments in favor of a separate rate category for simulcasters lack support in the record, or are otherwise unpersuasive. The bulk of relevant evidence in the record persuades the Judges that simulcasters and other commercial webcasters compete in the same submarket and therefore should be subject to the same rate. Granting simulcasters differential royalty treatment would distort competition in this submarket, promoting one business model at the expense of others.”

Still, Some Relief

Despite the disappointing outcome for radio simulcasts, stations do get a substantially lowered rate from what they paid in 2015, thanks to a private deal made seven years ago.

This royalty cycle (called Web IV) was not the first time the NAB argued to distinguish simulcasting from other types of webcasting. In 2009 (the middle of the Web II rate period 2006-2010), the NAB reached a settled agreement with SoundExchange (which collects royalties from webcasters and distributes the money to music labels, and therefore always champions upper rate ranges) for a unique royalty schedule for the remainder of Web II and all of Web III (2009 – 2015 in total). Accordingly the NAB, and American radio stations, did not participate in Web III which set rates for 2011-2015. Because the Web III rates were unknown in 2009, the rate escalation agreement agreed to by the NAB had radio stations paying 25 cents per 100 song plays in 2015, far higher than the Web III rate would have required — in 2015 Pandora paid 14 cents per hundred plays.

That unfavorable deal-making could have motivated the NAB to strive for dramatically lower rates in Web IV (2016-2020), and to establish radio simulcasting as a CRB-recognized special category of streaming. Although that effort did not succeed, radio did get some relief starting on January 1, and extending for the next five years. By scaling their simulcast payments down to the 2016 rate of 17 cents per 100 plays (down from 25 cents), radio stations can now proceed with lower cost of music in their simulcasts.

 

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One Comment

  1. Pandora and the copyright judges are doing business together. The fact that the CJ’s eliminated the Small Broadcaster section proves that they are looking for some back end deal.

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