Copyright fees

Copyright Royalty Board Decision (CRB) on New Fees to Stream Music Sound Recordings Online

FAQ for NPR Member Station Listeners
March 20, 2007
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On Friday, March 2, 2007, the Copyright Royalty Board (CRB) released a decision that will dramatically increase the royalties payments owed to rights holders to stream sound recordings of music offered on the internet. This includes public radio websites.

Impact of the Board’s Decision

For public radio stations (and other noncommercial programming entities), what is the impact of the CRB’s decision?

The effect is a large increase in cost for public radio to webcast its music programming. While the exact amount has yet to be calculated, initial estimates place the potential cost in the millions of dollars of additional fees over the license term. In addition, the rates escalate about 240% over a five-year period. Such an increase threatens the viability of public radio’s future presence in on-line music streaming.

The fee structure proposed by the Board also is likely to materially reduce the availability of alternative music programming provided by public radio. The rate structure announced by the Board is a disincentive to public radio’s public service mission of bringing new, culturally enriching programming to the American public.

What forms of public radio online, web-based music programming are covered?

All music from sound recordings played on the internet is covered, with the exception of live performances aired or recorded by stations, interstitial music, music that is directly licensed, music covered by fair use and snippets of less than 30 seconds.

Why are the Board’s recommendations inappropriate for public radio?

An element of public radio's mission, whether by broadcast or webcast, is to introduce music and musical performers to the largest possible audience. Under the CRB decision, however, the more public radio succeeds in that mission, the larger the fees become. Practically and financially speaking, the newly proposed fee structure penalizes public radio for performing its statutorily-based public service mission. The CRB decision is directly contrary to the intentions of the Congress’ public policy objectives in establishing public radio.

The new fee structure imposes a commercial financial and revenue model on the public service, not-for-profit operations of public radio webcasters. This model is not only inappropriate, but cannot be sustained by public radio webcasters who operate for the public good, not their own commercial success. Charging public radio stations commercial rates ignores or misunderstands the financial capacities of these stations. In the over 25 years that public radio has paid on-air or online music royalties, this is the first time that a decision has failed to differentiate public radio from commercial media.

Specifics of the Board’s Decision

What is an Aggregate Tuning Hour?

ATH is a measurement that was an alternative method for calculating payments owed under the first webcaster proceeding. The CRB has defined it as the total hours of streamed audio programming (inclusive of copyright sound recordings) transmitted during the license period by a station, minus the actual running time of any sound recordings which have been directly licensed by the station or do not require a license under copyright law. In the Regulations issued by the Board, ATH means the total hours of programming that the licensee has transmitted from all channels and stations that provide audio programming, less the actual running time of any sound recording for which the Licensee has obtained direct licenses or which do not require a license under United States copyright law.

How did the Board use ATH?

The Board has set a $500 minimum fee per station. Additional payments begin for non-commercial stations after 159,140 ATH per month has occurred. A station could have 218 streaming listeners per hour for each twenty four hour day in a month. Since most listeners are not online the maximum amount per month, the number of average listeners a station can have and remain under the cap is larger than 218.

If a station’s average listener is online four hours a day, it could have 1300 average listeners per month; if the average listener streamed music two hours a day, a station could have 2600 average listeners per month without exceeding the cap. If a station exceeds the 159,140 ATH cap, it must pay the commercial rates described herein, per music play, per listener.
Many stations do not have the data to measure ATH.

How do the Board’s recommendations compare with other royalty agreements (both past and present) that cover public radio’s web-streaming and over-the-air music programming distribution?

The CRB’s proposed rates for webcasting will exceed, by many multiples, the rates paid by public radio to broadcast musical compositions over the air. Rates for the years 2003-2012 are confidential, but rates for 1998-2003 are public. Public Radio’s share of those rates was $830,000 annually. The CRB’s rates, even when imposed on present audiences, will cost public radio significantly more to reach a significantly smaller audience. Growth in on-line public radio audiences will add to the costs.

The proposed rates far exceed those for comparable over-the-air music rights. The Board ignored a confidential voluntary agreement entered into by public radio and RIAA to webcast sound recordings for the years 1998-2004. The Board set rates that are many multiples of those fees and imposed commercial rates on public radio stations. It also ignored current rates paid to webcast musical compositions by public radio and set significantly higher rates.

Did the CRB treat noncommercial entities the same as commercial entities?

The CRB acknowledged the differences between commercial stations and webcasters and noncommercial entities, but only up to a certain point. For noncommercial stations it set a rate of $500 a year per station, per channel, provided there were no more than 159,140 Aggregate Tuning Hours per month. Aggregate Tuning Hours (“ATH”) is a metric used to measure internet audience, but we do not believe it is commonly used by most public radio stations. The CRB stated that $500 per channel was SoundExchange’s cost of administering the streaming license, which we do not agree is supported by the record, especially for a system of noncommercial stations.

The CRB states it believes 80% of the NPR-CPB qualified stations will pay the $500 minimum fee only. We doubt this is true, especially over time. Moreover, this formula will constrain public radio stations from fulfilling their mission to reach the broadest possible audience because it imposes, in effect, a tax, on additional listeners and additional music programming. If, in any month, a station exceeds the 159,140 ATH cap, it must pay, per play, the same rates set for the commercial webcasters. Rates increase steeply over the license term. For 2006, the rate is $.0008 cents per play, per listener; rising to $.0011 for 2007; $.0014 for 2008; $.0018 for 2009 and $.0019 for 2010.

What is the Board’s justification for subjecting some noncommercial stations to the same rates paid by for-profit webcasters and radio broadcasters?

There is very little justification in the decision and we believe there is no evidence to support it. The CRB subscribed to an opinion offered by two expert witnesses for SoundExchange that the larger public radio websites compete with commercial websites and that the respective markets “converge” at that point and therefore the rates paid should be the same. This ignores the very different mission of public radio and its non-profit, educational status.

What is the effective date for the CRB rates?

Licensees were originally scheduled to begin making payments in May. The rates set by the Board cover the years 2006-2010. Because of different treatment in the governing copyright law, payments fall into two categories. The minimum fees due for 2007 were to be paid by May 15, 2007. If a rehearing or appeal establishes lower rates, SoundExchange is required to return any excess to each licensee. While an appeal is pending, the new deadline date is July 15.

For the period January 2006 through February 2007, the difference between payments already made and what would be owed under the new rates, do not need to be paid until a final determination of the rate and terms is made following the appeal.

Responding to the Decision: Possible Next Steps for Public Radio

What kind of fee arrangement is best for public radio which fairly compensates artists for their work?

Public radio believes that the flat rate concept of the previous fee arrangement is appropriate for the public service, not-for-profit nature of its stations. A flat rate, which had been in effect for public radio following a voluntary, negotiated agreement, with appropriate adjustments for demonstrated increases in costs and monetary inflation, is the fee structure most suitable to public radio’s public service mission.

How can public radio address and fix the inequities inherent in the Board’s decision?

Several options are available to correct the mistakes made by the Board. NPR, in consultation with stations and CPB, will closely examine those that have the best chance of success. These options are both legal and legislative.

The legal process has two paths. 1) A Motion for Rehearing was filed in March, but was rejected by the Copyright Royalty Board. 2) The Board’s decision was appealed directly to the United States Court of Appeals for the District of Columbia on May 30.

Another option involves asking for Congress to intervene to modify or overturn the Board’s decision. There is precedent for a legislation path: Noncommercial stations, not covered by the voluntary agreement negotiated by NPR and CPB in the first webcaster proceeding, appealed to Congress, which responded by passing the Small Webcaster Settlement Act of 2002 (“SWSA”). This Act established lower fees than those set by the Copyright Royalty Panel for noncommercial and small webcasters.

On March 26, Congressmen Jay Inslee (D-WA) and Don Manzullo (R-IL) introduced H.R. 2060, the Internet Radio Equality Act, which nullifies the March 2nd decision of the Copyright Royalty Board and addresses the deficiencies of the Board’s action. The bill currently has 123 co-sponsors while the Senate version, (S.1353) remains at three co-sponsors. Significant progress on this front has been made, but we need to continue our congressional communications.

NPR, stations and CPB believe that a flat rate fee concept, found in previous fee arrangements, is most appropriate for public radio. Efforts to explore this option with Congress are underway and will continue regardless of whether additional legal or other options are undertaken.

Another option that has been pursued simultaneously has been renegotiations with RIAA and SoundExchange. The initial reply offer resulting from these discussions, tendered publicly by SoundExchange, contained the very elements found in the CRB’s decision, elements that are unworkable and inappropriate for public webcasters. A coalition of public broadcasting groups is continuing to meet with SoundExchange to work out an acceptable framework for an agreement that does not undermine the activities of the last forty years of public service.

How can I help?

Success in the legislative arena will depend heavily on station participation. Direct, personal communications from listeners or community supporters to their Member of Congress are encouraged. These messages can be conveyed in many ways, but the most effective are faxes, telephone calls and emails.

Background and History

What’s the Copyright Royalty Board?

The CRB is an independent three-judge panel created by the US Congress to determine rates and terms to be paid by users of certain intellectual property rights. It was created in 2004 to take the place of the previous body (the Copyright Arbitration Royalty Panel (CARP) which made these determinations. This Board is composed of three attorneys: one is a former federal bankruptcy judge, one is a former senior attorney for the U.S. Copyright Office, and the third is an attorney who also holds a PhD in economics.

Was NPR or CPB a party in the proceedings?

NPR and CPB, on behalf of NPR, NPR member stations and all CPB qualified radio stations, engaged in voluntary negotiations with SoundExchange beginning in 2004. The parties were unable to agree on rates and terms and in October 2005, NPR filed a Direct Case with the Copyright Royalty Board on behalf of this group, proposing a flat rate of $80,000 per annum for the system. The same proceeding also covered all commercial stations and webcasters as well as other noncommercial webcasters. The CRB set rates for the years 2006- 2010. The significant differences between public radio and commercial entities, the mission of public radio, and the long history of paying flat fees for comparable music rights, which have been significantly lower than commercial rates, were all put in evidence in the proceeding.

CPB was not a party in the proceedings but provided important support. The law firm of Weil, Gotshal and Manges has been representing public radio. CPB has paid the legal expenses. A considerable portion of the firm’s work has been provided pro bono.

Has public radio been involved in previous webcasting proceedings?

In 2001, NPR litigated on behalf of public radio in the first Webcaster proceeding and at the end of the case reached a voluntary agreement which covered all NPR member and CPB qualified stations through 2004. The details of that agreement remain confidential. A fee for 2005 has not been agreed to pending the Board’s determination of rates for the new license term.

Why do we have to pay to stream music sound recordings?

In 1998, Congress passed the Digital Millennium Copyright Act (DMCA). It established a compulsory license system for a limited form of streaming sound recordings over the internet. The Recording Industry Association of America (RIAA) represents the major music labels. It has created a non-profit entity, SoundExchange, which negotiates these licenses, collects royalties and makes payments. The DMCA set up a process to be used by parties unable to negotiate deals with SoundExchange, which is now the CRB process described herein.

Who gets paid the royalties collected and how are these payments determined?

The DMCA provides that fees collected be divided in different proportions among the copyright owner of the sound recording (usually the record label), the American Federation of Musicians (AFM), the American Federation of Radio and Television Artists (AFTRA), and to the artists featured on the recording. SoundExchange uses reports filed with it by stations and webcasters to calculate what is owed to individual artists and entities.

Where can I find more information?

In addition to updates from your local public radio station, there are several places online where you can keep yourself informed on this issue, read press clippings, sign petitions, send emails and contribute comments. Some of these places include:

TellThemPublicMatters.com
http://www.tellthempublicmatters.org/radio.html

SaveNetRadio.org
http://www.savenetradio.org/

RAIN: Radio and Internet Newsletter
http://www.kurthanson.com/