This guest column is by broadcast law attorney and frequent guest contributor David Oxenford. The article was originally published on his Broadcast Law Blog.
The Copyright Royalty Board issued a notice yesterday, here, that summarized its decision on the sound recording performance royalties for 2018-2022 to be paid by Satellite Radio and “Pre-existing Subscription Services” (“PSS”), essentially Music Choice for its music service usually packaged with cable television subscriptions. The terms associated with the new rates, embodied in the new rules adopted by the CRB, are available here. The CRB announcement states that the Sirius XM rates will be 15.5% of revenue, which represents an increase from the 11% they are paying currently. The terms for these rates set out a means by which Sirius XM can reduce the revenue subject to the royalty by directly licensing music or using pre-1972 sound recordings, the percentage of such songs being determined by determining their percentage of play on Sirius XM Internet radio channels that correspond directly to their satellite service.
By contrast, the rates for Music Choice (and any other similar PSS having been established prior to 1998 when the Digital Millennium Copyright Act was adopted that may still be in existence) decreased from 8.5% of revenue to 7.5%, the rate that had been in effect in 2012. Our article here describes the decision in 2012 setting the current royalty, and the article here summarizes the Court of Appeals decision upholding the 2012 CRB determination.
The full decision setting out the reasoning leading to these new rates is not yet public, as the participating parties will have the opportunity to seek to have portions of the decision redacted from public release to protect confidential business information. It will be very interesting to see the reasoning set out in that decision, as SoundExchange, representing sound recording copyright holders in seeking higher royalties, had based its arguments on a version of the arguments that it had used before – arguing that the proper rate for the royalties could be determined by looking at negotiated rates for interactive music services (like Spotify), then adjusting those rates by economic analysis to determine the value of the noninteractive services provided by companies like Sirius XM by removing the value of the interactivity. That interactive benchmark methodology had been called into question in prior decisions in webcasting cases (see, for instance, out articles here and here). But whether this decision was based on that analysis, or whether it simply was a result of Sirius XM’s better economic performance in recent years, is unknown until the text of the decision is released.
As we have written many times, the satellite radio service and the PSS service both have royalties determined by a standard different from than that applied to webcasting royalty determinations (see our articles here and here on the 801(b) standard). The satellite and PSS services are judged by the factors set out in Section 801(b) of the Copyright Act, which takes into account a number of factors. These factors are used to adjust the rates that would be determined using only the “willing buyer, willing seller” standard applicable to webcasting. These 801(b) factors include the relative contributions of the service and the record companies in creating value, and the interests of the public in receiving access to copyrighted music. However, in the prior cases decided by the Copyright Royalty Judges using the 801(b) standard, the Judges determined that none of these factors were quantifiable. Instead, the only 801(b) factor taken into account to lower the royalty below the value that would be established by the “willing buyer, willing seller” standard was the factor that assessed the impact that the royalty would have on the stability of the industry to which the royalty applies. In the past, when satellite radio was facing substantial start-up costs, that factor suggested a downward adjustment, or a rate at the lower end of a zone of reasonableness. It may be that the better recent financial performance of the satellite service resulted in the rates being placed at the higher end of the zone of reasonableness – without full consideration of the “interactive benchmark” urged by SoundExchange.
Similarly, in the last round of royalties, the royalties were increased for the PSS services based on plans for Music Choice to add a number of new music channels. As these new services were not rolled out, or did not become a success, it is possible that the royalty was rolled back to help facilitate the stability of the PSS industry. We are just speculating, and will only know what factors led to the decision when the full text is released, probably in a few weeks.
In the meantime, many forget that the last set of internet radio (webcasting) royalties that went into effect in early 2016 (see our articles here, here and here) are actually still subject to an appeal, where SoundExchange is arguing that the Copyright Royalty Judges erred in their decision by setting the rates too low. The briefs were filed in that case quite some time ago. Just yesterday, it was announced that the oral arguments in the case are scheduled for February 8. Even after the argument, don’t expect a decision for months, but perhaps there will be some indications of the inclination of the Court of Appeals at this early February argument.
And, with all that, notices of intent to participate in the next webcasting case will be due in just over a year to start the proceeding to determine rates for 2021-2026. There is always something to watch for in the music royalty world!