Recently, the National Association of Broadcasters (NAB) and SoundExchange, Inc. reached a settlement under the Webcaster Settlement Act regarding the royalties to be paid for the use of sound recordings by broadcasters' Internet radio operations. The settlement resolves the royalty dispute between broadcasters and SoundExchange for performance royalties for 2006 through 2010, which arose from the 2007 Copyright Royalty Board (CRB) decision, and also resolves the upcoming CRB proceeding covering 2011 through 2015. Note that this settlement only covers FCC-licensed commercial radio broadcasters. Other companies operating Internet radio stations (except those affiliated with the Corporation for Public Broadcasting, which reached its own deal with SoundExchange) are still pursuing appeals of the 2007 decision, and are still planning to participate in a new CRB proceeding over the rates for 2011 through 2015.
These royalties cover the public performance of “sound recordings” on the Internet. A sound recording is a song as recorded by a particular recording artist. These royalties do not apply to over-the-air broadcasts (although SoundExchange is seeking to have the royalties extended to cover such broadcasts). The royalties are in addition to those paid to ASCAP, BMI and SESAC, which compensate the composers of music, and are collected for both over-the-air broadcasts and Internet radio operations.
As required by the Webcaster Settlement Act, the settlement has now been published in the Federal Register, and thus, is available for broadcasters streaming programming on the Internet to claim coverage. Broadcasters already streaming music on the Web must file with SoundExchange a Notice of Election to rely on this agreement by April 2, 2009, which is 30 days after the Federal Register publication occurred. A copy of the Notice of Election form is available online. Broadcasters that are not streaming at the moment, but will do so in the future, must file the election notice within 30 days of when they start streaming, or else they will be bound by the rates established by the 2007 decision of the CRB (and such other rates as may be established for 2011 through 2015). Further details regarding the settlement are provided in this advisory.
The rates
The rates, which represent some savings under the CRB rate for the years between 2007 and 2011, are set forth below. These rates are "per performance," meaning that the rate is paid on a per-song, per-listener basis. For example, if a station streams 10 songs in an hour, and 10 people hear each song, you have 100 performances. Several independent companies provide services to track and report on performances by Internet radio services (see the post on our Broadcast Law Blog for more information about the per-performance royalty). In addition, there are limited exceptions to the full per-performance reporting, summarized below. The rates under this agreement are as follows:
2006 ...................................... $0.0008
2007 ........................................ 0.0011
2008 ........................................ 0.0014
2009 ........................................ 0.0015
2010 ........................................ 0.0016
2011 ........................................ 0.0017
2012 ........................................ 0.0020
2013 ........................................ 0.0022
2014 ........................................ 0.0023
2015 ........................................ 0.0025
Minimum fee
Each broadcaster must pay a yearly minimum fee of $500 per “channel.” A channel is either the stream of a single station, or an Internet-only subchannel, or any other unique online stream (e.g., the stream of an HD subchannel). For any group owner, the per-channel minimum fee is capped at an annual amount of $50,000. The settlement does not consider different versions of the same station, originating at the same Web site, to be different channels (e.g., where a station provides different streams of the same station at different speeds—slower speeds for those who are on dial-up or mobile connections and higher bit-rate streams for those on broadband connections, or in different formats, e.g., an MP3 stream, a Windows Media stream and a Real stream). The minimum annual fee is applied against the per-performance fees set out above.
Recordkeeping
For most broadcasters that are streaming, the settlement requires “census reporting” of the music they stream. Census reporting means that the webcaster has to report to SoundExchange, on a monthly basis, information about each song they have played—including the song title, artist, album, and the International Standard Recording Code (the “ISRC code”) or marketing label for that song. The monthly reports also must include not only how many times each song played, but also how many listeners there were for each song. SoundExchange had long sought to require census reporting by webcasters, who are currently required to report only on the music played for two weeks each quarter (though the CRB has been considering extending the obligation to require census reporting for all webcasters).
The agreement sets out some exceptions to the recordkeeping requirements—exceptions that also have ramifications for the per-performance fees. Notably, broadcasters can avoid total census reporting for a limited percentage of their programming. Instead, for the broadcasts that fall within this exception, broadcasters need to report only the aggregate tuning hours (ATH) streamed during this programming and provide a playlist of the songs that were aired during those hours. Thus, for these limited hours, there would be no need to report on the number of listeners to each song.
This exception has presumably been raised to address the issues that some broadcasters have encountered with syndicated programs that do not run through their music scheduling software, and which, therefore, cannot be linked to the number of listeners to each song by some of the audience measurement tools that are available to broadcasters. However, the amount of programming for which complete census reporting is not required will diminish over time, so that, by the end of the period that is covered by this settlement, the expectation will be that complete census reporting can be provided.
The amount of programming exempt from census reporting is as follows:
2009 .......................................... 20%
2010 .......................................... 18%
2011 .......................................... 16%
2012 .......................................... 14%
2013 .......................................... 12%
2014 ........................................... 10%
2015 ........................................... 8%
Since broadcasters may submit reports either together, for all of the stations that they own, or on a per-station basis, this alternative can be very important for broadcasters with multiple stations. If, for instance, a broadcaster owns 10 stations, and one of those stations is programmed primarily by a syndicated programming service where per-performance calculations are difficult or impossible to compute, while the other nine stations are programmed by the broadcaster through its own music scheduling software, the calculations above can be made on a groupwide basis if all stations are reported together. Thus, the usage may be reported on an ATH basis for the hours programmed on the one station that receives the syndicated programming, and on a per-performance basis for all of the other stations in the group, and the broadcaster would remain under the limits set forth above. This calculation of the percentage of programming covered by the exemption is based on hours programmed, not on listenership. So continuing this hypothetical, the fact that the station programming syndicated music is located in Anchorage and has a small online audience, while the other nine stations are in major markets with large online audiences, does not matter for the purposes of calculating the broadcaster's compliance with these percentages on a groupwide basis.
For broadcasters who choose this option, they also pay their royalties for the exempted portion of their programming based on ATH figures, instead of on a per-performance basis. Instead of counting how many songs were played in these hours, they can assume that 12 songs were played each hour, and the royalty will be based on the assumption that there were 12 songs played in each of the “tuning hours” in those programs for which no census reports are provided.
A tuning hour is the equivalent of one listener listening for one hour (or two listeners for a half hour each, or four for 15 minutes, etc.). In other words, for the hours in which a station chooses an exemption from the census reporting, it would compute the number of ATH streamed, multiply that by the 12 songs that were assumed to have been played in those hours, and multiply that times the per-song rate for the year in which the streaming was done, as set out above. The number of ATH streamed by a broadcaster should be available from the broadcaster's content delivery network that provides the bandwidth for the streaming.
Small broadcaster exception
For broadcasters with stations that stream less than 27,777 ATH per year (essentially the hours that would result in it paying only the $500 minimum fee), an election can be made to exempt the webcaster from the recordkeeping requirements set out above entirely. The broadcaster need only pay the $500 minimum fee and it need not track the number of listeners it had for each song. In addition, by paying an additional $100 fee, the broadcaster can be totally exempt from all reporting requirements. This may be an attractive option for many “small broadcasters.”
The status of small broadcaster is determined by the number of hours streamed in the previous year. Thus, a broadcaster can continue to be a small broadcaster for the year that it exceeds the ATH threshold. It can even elect to be a small broadcaster in the year after it exceeds the cap, if it agrees to take steps to limit its bandwidth, or the number of people who can connect to its stream, to bring itself back under the 27,777 ATH limit in the subsequent year.
To elect small broadcaster status, broadcasters must file another SoundExchange form by April 2 if they are already streaming.
Performance complement exceptions
NAB has also announced that they have entered into agreements with the individual record companies to waive certain aspects of the performance complement. The performance complement restricts the number of songs by the same artist or from the same CD that can be played in close proximity to each other. Violations of the performance complement would mean that the broadcaster would not be covered by the statutory royalty, i.e., the royalty summarized above that allows the webcaster to stream all of the songs that are legally recorded and released in the United States, simply by paying the royalties, without negotiating with individual copyright holders. The details of the waiver do not yet appear to be public, but should be forthcoming.
Summary
While there is no clear consensus on what this settlement will mean for broadcasters and whether it will make streaming economical, this deal does represent a reduction in rates for the next few years, and provides certainty as to the rates for the future. Without this settlement, broadcasters would otherwise have to pay the higher CRB rates or hope that the appeal of the webcasting case or the next CRB proceeding would bring lower rates, which would cost lots of money to litigate and has an uncertain result.
Some argue that the rates remain too high to make streaming a profit center for most broadcasters, but each broadcaster will have to look at the economics of the deal for itself and decide how to proceed. Seemingly, the options are to take this deal or to stop streaming, as the CRB decision does not provide a better alternative, and there is currently no other option available for commercial broadcasters.
For more information, please contact any of the lawyers in the Davis Wright Tremaine LLP Broadcast Practice Group or visit our blog at www.broadcastlawblog.com.