Copyright Royalty Board Calls for Petitions to Participate in Proceeding to Set Webcasting Royalties for 2016-2020

Posted By James Davey on Jan 06 2014 04:51 PM
The Copyright Royalty Board today published in the Federal Register its notice announcing the commencement of the next proceeding to set webcasting royalty rates for 2016-2020. The Notices (here for webcasting and here for “new subscription services” – subscription webcasting and other similar pay digital music services, other than satellite and cable radio whose royalties were set in another proceeding about which we wrote here) were notable as they were not simply an announcement that the proceedings were beginning and a recitation of the procedure for filing a petition to participate (essentially a written filing setting out a party’s interest in the outcome of the proceeding and the payment of a $150 filing fee). Instead, the order sets out a series of questions for consideration by potential participants, asking that they consider some fundamental issues about the nature of the royalty to be adopted in this proceeding. Petitions to participate must be filed by interested parties with the CRB by February 3.

The questions asked by the Judges really revolve around two issues that have been raised many times in prior proceedings. These questions are noteworthy only because the Judges are asking the parties to consider whether the CRB should address issues that have been litigated in prior proceedings – issues that some might have considered to be settled by these prior cases. First, the Judges ask if the CRB would be justified in adopting a percentage of revenue royalty, rather than the per song, per listener royalty metric that has been used in the three prior proceedings. Asking that question raises several other sub-issues that are set out in the orders including:

  • Whether it is too difficult to determine what the revenues of a webcaster are, an issue that can be troublesome if the webcaster has multiple lines of business where determining which revenues are attributable to webcasting and which are attributable to other services might be complicated (though collection agencies like ASCAP and BMI are able to administer their royalty schemes, usually using a percentage of revenue rate).
  • Whether a percentage of revenue royalty is unfair to the artists because it does not pay each artists an equivalent amount for each song that is played, thought the Judges ask parties to address whether all music is worth the same amount.
  • Whether a percentage of revenue royalty encourages the webcaster to use too much music, as services not paying on a per song per listener basis might not need to be efficient in monetizing their music use unless, as suggested by the Board, there are substantial minimum fees adopted to encourage the webcaster to make money off of its use of the music.

In addition, the Board asks if there should be different rates for different types of webcasters – are some more efficient than others? Can royalties be maximized by “price discrimination” – charging less to certain webcasters to get whatever can be received from them, while charging a higher royalty rate to other services that can afford to pay more? In effect, there has been price discrimination in the webcasting market, but such discrimination has come about after there have been decisions perceived as adverse to webcasters, when webcasters and SoundExchange have come together, often as the result of political pressure, to negotiate alternative rates pursuant to a Webcaster Settlement Act (or the Small Webcaster Settlement Act in the initial proceeding). 

These questions are interesting also as they are being posed at this very early stage in the proceeding. This may be one way of demonstrating that these Judges, none of whom has tried a webcasting case before, are not ready to be bound by the prior decisions. But parties should not be too quick to think that this means that there will definitely be some substantial change in the current royalties (in one way or another) – as the Judges make clear that they are bound by precedent and need to respect decisions made in prior proceedings. But the Judges also note that they can only make decisions based on evidence presented to them, so the raising of these questions suggest that they would like to see some evidence on these issues that might convince them that the decisions in prior cases are no longer applicable given current marketplace conditions. 

It will be some time before the evidence is presented that might attempt to address any of these questions. Once the notices of intent to participate are filed, the CRB will issue a procedural order for the proceedings going forward. By statute, they must give the parties who file notices 90 days to try to reach a settlement. If no settlements are reached, the next milestone would be a deadline sometime in the Fall for the filing of direct case exhibits – written testimony setting out the parties’ proposals as to what the royalties should be, and justifying those proposals through written testimony of factual and expert witnesses advancing business and economic justifications for their conclusions as to what a willing buyer and a willing seller would agree to as royalty rates in a marketplace transaction.

After the direct cases are submitted, and assuming no settlement is reached that totally resolves the proceeding, much of 2015 will be spent in litigation – as the parties attack each other’s’ direct cases, and defend their own cases, while trying to convince the Judges what the appropriate royalties should be. All this will lead to a decision which, by law, must be issued by the CRB before the end of 2015.

So this starts a long process that may well set the course for the future of the webcasting industry for the near future. Interested parties should start preparing for the proceeding now, and file their Petitions to participate by the February 3 deadline!

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