Copyright Royalty Agreement Reached by Small Webcasters and Recording Industry
On Dec. 13, 2002, SoundExchange, the recording industry’s royalty collection clearinghouse, and a coalition of small commercial webcasters calling themselves the “Voice of Webcasters,” advised the Copyright Office that they had negotiated an agreement on webcasting royalty fees for small commercial webcasters. The agreement accounts for royalties from Oct. 28, 1998, through 2004 for the digital performance of sound recordings and for the making of ephemeral copies. On Dec. 24, 2002, the Copyright Office published this agreement in the Federal Register as required by the Small Webcaster Settlement Act of 2002 (the “Act”).
The Act enables eligible small commercial webcasters to elect to perform music pursuant to the rates and terms in the negotiated agreement in lieu of the rates and terms established by the Librarian of Congress in an earlier proceeding. (See our advisory dated Dec. 6, 2002). The Act specifies that the agreement has no precedential effect on any future proceedings regarding royalty rates and terms pursuant to the statutory webcasting license. The Copyright Office clarified that it has no responsibility for administering the rates and terms in the agreement.
As expected, the rates and terms of the agreement are similar to those included in an earlier version of the Act that did not pass the U.S. Senate. For the royalty period beginning Oct. 28, 1998, and ending Dec. 31, 2002, eligible small commercial broadcasters are those who did not have total gross revenues exceeding $1 million from Nov. 1, 1998, to June 30, 2002. For the 2003 royalty period, gross revenue cannot exceed $500,000 in 2003 and for 2004, gross revenue cannot exceed $1.25 million.1 If, during the course of the agreement, a participating webcaster exceeds the revenue limits, it shall pay royalties based on the rates otherwise applicable under 17 U.S.C. sections 112 and 114 (i.e., the “per performance” charge applicable to all other webcasters, summarized below).
For qualifying small webcasters, the agreement establishes a royalty rate of 8 percent of gross revenue or 5 percent of expenses, whichever is higher, for the period Oct. 28, 1998, through Dec. 31, 2002, subject to the following minimum fees: The minimum fee for the two month period Oct. 28, 1998, through Dec. 31, 1998, is $500. For the years 1999 through 2002, the minimum fee is $2,000 per year.
For 2003 and 2004, the small commercial webcaster royalty rate is 10 percent of the webcaster’s first $250,000 in gross annual revenue and 12 percent thereafter, or 7 percent of annual expenses, whichever is greater. For these years, the minimum annual fee will be $2,000 if the webcaster’s revenues during the preceding year were less than $50,000 and it does not expect to exceed that amount during the applicable year. The annual fee is $5,000 in 2003 or 2004 if the webcaster had gross revenues during the preceding year exceeding $50,000 or expects to exceed that amount during the applicable year. Minimum fee payments are creditable toward the agreement's royalty fee obligations in the year in which the minimum fee is paid. Small webcasters who did not exceed $50,000 in revenues the preceding year would be well advised not to anticipate an increase in revenues to exceed $50,000 (requiring payment of the higher royalty fee), since there does not appear to be any mechanism for refunding overpayments. Ephemeral license fees for temporary caching are included in the negotiated royalty rates.
In contrast to this negotiated agreement for small webcasters, the statutory webcasting rate established by the Librarian of Congress is a per performance charge. The rate, 7/100 cents ($0.0007) per performance, was widely believed to be prohibitively expensive for small webcasters. The Librarian of Congress also established a separate ephemeral license fee for webcasters of 8.8 percent of performance fees due. Many small webcasters argued that they would not be able to remain in business under the rate structure adopted by the Librarian of Congress. These concerns led to passage of the Act including the opportunity for a negotiated agreement.
To be eligible for the rates and terms specified in the agreement, a qualified small commercial webcaster must submit a completed election form to SoundExchange. To be eligible for the period October 28, 1998 through Nov. 30, 2002, the webcaster must submit the election form by Jan. 15, 2003, which is also the date the first of three equal installment payments for that period is due.2 To be eligible for the rates and terms effective December 2002, a “small” webcaster must submit the election form by Jan. 31, 2003, the date the first monthly royalty payment would be due. Minimum fee payments for 2003 and 2004 are due in two equal installments during the applicable year, the first by Jan. 31 and the second by June 30. The agreement also contains record-keeping requirements for webcasters.
The Agreement is available at http://www.copyright.gov/fedreg/2002/67fr78510.html. If you need additional details about the Agreement or desire additional information about the Act or royalty calculations, please contact us.
1 The calculation of revenues to determine eligibility for small commercial webcasters includes the revenues of persons or entities affiliated with the webcaster if that affiliate is engaged in a media or entertainment related business or a business that primarily operates as an Internet or wireless service.
2 If a webcaster's gross revenues from Nov. 1, 1998, to Nov. 30, 2002, did not exceed $100,000, it may pay its minimum fees in three equal installments beginning on Jan. 15, 2003.