copyright royalty board – Techdirt (original) (raw)

Funny How Recording Industry Only Likes A 'Free Market' When It's To Their Advantage

from the that-free-market-appears-slightly-tilted-in-one-direction dept

When it comes to the nexus between competition and regulation, competition is all too often cursed with fair-weather friends. For today’s example, we’ll take a trip down the copyright regulation rabbit hole.

It begins with a Copyright Royalty Board (CRB) proceeding for setting webcaster rates under a statutory license in Section 114 of the Copyright Act. The process, called “Web IV” because it is the fourth such proceeding under this section of the Copyright Act,[1]was announced late last year and should conclude by the end of 2015. By mid-December, non-interactive webcasters like Pandora and iHeartMedia will know how much they must pay to stream (or “publicly perform”) recorded music to listeners from 2016-2020.[2]

These statutory license rates, part of a complex multi-tiered system that, as we’ve noted in the past, legally requires discrimination against new technologies, are set for 5-year periods and are paid to an entity called SoundExchange. SoundExchange is designated to collect royalties under the statutory license for certain uses of sound recordings, including Internet radio play of music.

(Perhaps you’re thinking, “wait, I thought radio stations didn’t pay royalties to play records on the air?” You would be right: traditional terrestrial radio does not pay royalties for playing sound recordings ? which has historically been defended with the argument that radio play provides valuable promotion for sound recording owners. But in another example of copyright law discriminating against new entrants, while conventional terrestrial radio is not compelled to pay for the public performance of sound recordings, Internet radio must pay to do the same, under Section 106(6) of the Copyright Act.)

The rate Internet radio services pay is supposed to represent what a “willing buyer” would pay a “willing seller.” During the round of rate setting that governed 2006-2010, however, the CRB announced a fairly punitive “willing buyer/willing seller” rate, which was so high that it exceeded some webcasters’ total revenues. The risk that the Internet radio industry would collapse led Congress to enact the 2008 and 2009 Webcaster Settlement Acts, under which most non-interactive music licensees directly negotiated settlements with SoundExchange for that time period. An important wrinkle to this legislative action, however, was that Congress also directed that these settlements could not be used as benchmarks for future rates ? which includes the current rate setting proceeding.

So, why is this relevant? It matters because in the current Web IV rate setting proceeding, SoundExchange has argued that recent deals struck in the free market by non-interactive webcasters should not be used as the benchmarks for non-interactive rates.

Those deals include an arrangement between Pandora and the collection of indie labels known as Merlin. The terms of that deal were lower than the existing statutory rate, and encouraged Merlin music to be played more (and thereby the music of major labels to be played less). At the time, rights-holders openly criticized Merlin for entering in the deal, noting that it could become a benchmark, and might result in prices coming down. It was a peculiar moment: despite all the cheerleading of moving toward a free market in music licensing of willing buyers and willing sellers, Merlin came under fire for actually being a willing seller at the best price it thought it could get.

SoundExchange previous said it was seeking “rates that reflect a fair market value for recorded music? based heavily on evidence of other deals that exist in the marketplace”. Now, however, it argues that an analogous free-market deal with Merlin should be ignored, because it was in some way influenced and thereby tainted by settlements reached 6-7 years ago.[3]

This situation illustrates an issue larger than webcaster rate setting: there is cognitive dissonance about what it means to have free-market transactions in lieu of statutory licenses. In parts of the music industry, there is hostility to the statutory licenses. While statutory (or “compulsory”) licenses help overcome the enormous transaction costs of licensing millions of works from millions of rights-holders, they don’t allow rightsholders to say “no” to all uses.[4] These statutory licenses, it is sometimes argued, are unfaithful to the notion of copyrights being property rights. Such transactions would be better handled in the free market, the argument goes, and so statutory licenses should be repealed.

Nevertheless, the free market enthusiasm disappears when a free-market deal was actually reached outside the statutory license. To the dismay of other licensors, Merlin’s competitive price was *lower* than the statutory rate, and suddenly the free market doesn’t look so hot. Hence, Merlin was criticized and now efforts are being made to expunge Merlin’s deal from the record.

There are numerous transactions cost-related reasons why ? absent better copyright ownership records ? it is impossible to have a completely free market in music licensing at present. Still, insofar as anyone is going to champion competition as an alternative to statutory licenses, that means accepting prices that may be below statutory rates. If “free market” means rates can only be higher than statutory rates, then we don’t have a free market; we have a price floor. Or, stated otherwise: we’re not really talking about “willing buyers and willing sellers” if we’re only going to entertain market-based deals that come in above the statutory rate.

[1] Officially, “_In re Determination of Royalty Rates and Terms for Ephemeral Recording and Digital Performance of Sound Recordings._”

[2] The CRB only sets rates for “non-interactive digital music services”; interactive services like Spotify, which are “interactive” because users can determine themselves which music is delivered, fall outside the statutory license.

[3] The rationale for this is that Congress directed in Section 114(f)(5)(C) that Webcaster Settlement Act (WSA) agreements shall not “be admissible as evidence or otherwise taken into account” in a rate settlement proceeding. Because SoundExchange contends the Merlin agreement resembles the 2008-09 settlements, considering the Merlin rate would be “taking into account” a WSA agreement.Instead, SoundExchange contends that the benchmarks for non-interactive rates should be deals between interactive services like Spotify. When all the relevant apples are inadmissible, we’re left referring to oranges.

[4] In econ-speak, we would say that statutory or compulsory licenses resemble a liability rule more than a property rule.

Reposted from the Disruptive Competition Project

Filed Under: copyright, copyright royalty board, crb, free market, music industry, non-interactive, streaming rates, webcast rates, webcasters
Companies: iheartmedia, pandora, soundexchange

In What World Is Having Three Judges Set The Price Of Streaming Music 'Free Market Capitalism'?

from the just-wondering dept

Greg Sandoval over at The Verge has an interesting post about “Pandora’s PR problem” concerning its attempt to get out from under ridiculously draconian royalty rates that are clearly unsustainable. I agree that Pandora has failed on almost every aspect of the PR front, though the article seems seriously one-sided on a few points. First, it compares Pandora’s situation to Spotify’s, where Spotify has also been criticized for its royalty rates at times, and yet its reputation isn’t quite as bad. Recently Spotify has signed some “big” name artists to publicly support its platform. Of course, the way it did so was to throw a ton of money at those artists. And there’s a strong argument that Spotify’s current royalty rates are even more unsustainable than Pandora’s — it’s just that Spotify has a long runway and is choosing to put off the eventual day of reckoning it’s going to have to face over royalty rates for internet music. Furthermore, the article seems to ignore the fact that much of the “controversy” and PR failures by Pandora are actually the result of a coordinated campaign, set up by a RIAA front group, focused on flat out lies and bogus attacks.

Of course, Pandora isn’t blameless in all of this, but I put a lot of blame on Pandora’s stupid decision back in 2009 to agree to the ridiculous rates it now realizes are impossible to sustain (something that many people pointed out at the time). But, the craziest part of the article is the claim that Pandora’s attempt to lower rates somehow goes against free market capitalism. Sandoval mentions this argument twice. First, in noting that some “conservative” groups made this argument:

Citizens Against Government Waste, a conservative think tank, accused Pandora of trying to undermine the free market.

And then again in quoting an analyst who makes the same argument:

Michael Pachter, a research analyst with Wedbush Securities, believes Pandora will eventually thrive but that its attempt to legislate lower costs is misguided. “The bill is idiotic,” Pachter said. “It’s insulting to Congress to say you want regulation to lower your costs at the expense of artists. Did you see who was on stage with Obama helping him campaign? Jay-Z and Bruce Springsteen. That’s the Democrats, and how many Republicans are going to want to legislate against capitalism and the free market?”

But neither of those claims makes any sense at all. When it comes to royalty rates for web streaming there is no free market. In fact, the status quo is so far away from the free market or capitalism as to be laughable, and it seems like anyone claiming that it represents some sort of free market is either being purposely misleading or is totally uninformed.

The rates for web streaming sites like Pandora fall under what’s called “non-interactive digital music streaming” — and the rates for those are set by a three judge board, known as the Copyright Royalty Board. If someone can explain to me how a selection of three judges flat out setting prices is a “free market,” that would be good to know, because last I checked, the government setting prices is kind of the opposite of a free market. Of course, the last time the CRB set those rates, they set them so high that it was impossible for anyone to pay those rates. That’s how completely clueless the CRB tends to be. So, in response, Pandora and other webcasters did negotiate lower rates, but those rates were still impossibly high. Some might argue since Pandora’s current rates are those “negotiated” rates, it is a free market, but that’s clearly not true either. The “fallback” that the record labels had in those negotiations was “fuck you, here’s what the CRB says the rates are, pay up or go out of business.” When they have those CRB rates as the fallback, their negotiating position is obviously quite strong, and the results are obvious. The “negotiated” rates are impossibly high. Pandora’s big mistake was agreeing to those rates (even though it felt it needed to if it wanted to actually live to fight another day).

No matter how you look at it, that’s not free market capitalism. Coming up with a way to change those rates may not be free market capitalism either, but to argue that moving away from the existing rates goes against free market capitalism makes no sense. So, if either Citizens Against Government Waste or Michael Pachter can explain how three out of touch judges with no market experience setting the official rates is “free market capitalism,” it seems like, perhaps, they shouldn’t argue that Pandora is trying to “legislate against capitalism and the free market.”

Filed Under: capitalism, copyright royalty board, economics, free market, michael pachter, music, royalties, streaming
Companies: citizens against government waste, musicfirst, pandora, riaa, soundexchange, spotify

from the isn't-that-a-problem? dept

A few weeks back, we wrote about a proposal by Rep. Jerry Nadler, which we referred to as the RIAA Bailout Act of 2012 because it sought to change the nature of satellite radio royalties to put them on par with the absolutely ridiculous and unsustainable royalty levels for internet radio. In case you don’t know, there are basically three very different tiers for the royalties that need to be paid to musicians (separate from songwriters) for broadcasting the tracks on which those musicians played. If it’s played on the radio, the stations have to pay nothing to the musicians, as Congress long ago decided that radio play was the equivalent of advertising (a viewpoint that is pretty accurate, given the decades of payola that have shown that radio play is so valuable that labels will pay stations and djs to get their songs played). Then there are the satellite radio guys (basically Sirius XM at this point). They pay a rate that they already think is too high and pass those rates directly on to consumers. In preparation for a new rate-making process, they’re already seeking out legal ways to get away from having to pay statutory rates.

But what the satellite guys have to pay completely pales in comparison to what internet streaming companies like Pandora have to pay. There, the rates are so crazy that it’s become clear that Pandora has little likelihood of ever being profitable unless something drastically changes. Matt Schruers, over at Project DisCo, has an absolutely fascinating look back at why these rates are so bad, and it comes down to this simple, but positively scary point:

When the Copyright Act of 1976 was passed, it was so taken over by regulatory capture by a few key industries, that they explicitly put into the Copyright Act that it should be used to stop disruptive innovation from challenging legacy businesses. I’ve read the Copyright Act many times, but have to admit that I’d never quite noticed this line from 17 USC 801(b)(1)(D), which explicitly states that the role of the Copyright Royalty Judges on the Copyright Royalty Board that sets the rates for internet radio are there:

To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.

Yeah. Their job is to set rates that basically kill off disruptive innovation in favor of “prevailing industry practices.” As Schruers notes, this goes against absolutely everything we understand about the importance of disruptive innovation in driving forward the economy:

That’s right: employees of the U.S. Government who dictate price inputs for entire industries are statutorily charged to resist change. While the CRT / CARP / CRB has always had other statutory guidance as well, for example, maximizing availability of works, affording copyright owners a “fair return” and users a “fair income under existing economic conditions”, Congress enshrined this explicit rule that no one be permitted to upset the existing players’ apple cart. There is no pretext here, no cynical appeal to some higher objective that justifies minimizing disruption of the prevailing industry — change is inherently bad. The statute gives no consideration of whether a better business model might come along, and in fact affirmatively discourages any — not only because the statute aims to minimize any “disruptive impact”, but also because this license was limited solely to “pre-existing” services by the Digital Millennium Copyright Act in 1998. New arrivals were out of luck.

How the hell did something so explicitly corrupt and so clearly a form of crony capitalism get directly into the Copyright Act? Take a wild guess:

So how did this “minimize disruption” language wind up in the Copyright Act of 1976, given that it so clearly violated the First Rule of Defending the Status Quo? The “minimize disruption” requirement is a vestige of a copyright legislative process that stretched over many years, starting in the 1960s, at a time when fewer people appreciated copyright and fewer still understood the contours of the legal system that created those rights. Much of the initial drafting of the ‘76 Act was by the Copyright Office, which chaired a series of meetings with prominent industry copyright lawyers throughout the 1960s.

Counsel for publishers, the recording industry, broadcasters, were well represented in these discussions. The future, as the saying goes, had no lobbyist. It is not surprising, therefore, that the multi-factor test that determines the rates paid by services like satellite radio under the Copyright Act’s statutory licenses would reflect the perspectives of the existing parties to the arrangement. The standard from the ‘76 Act remains today (although at the time, the statute was focused on regulating “coin-operated phonorecord players”.)

And… believe it or not, that’s not even the end of the story! That part of the Copyright Act is the part that impacts the satellite guys. But the streaming internet folks? For them it’s even worse, as the statute takes things even further to create even more incentives to further kill off these new innovations — by basically saying that a “proper” license is one with which a “willing seller” is happy. In other words, it sets the statutory rates almost entirely based on the interests of… the existing, entrenched players.

And that’s why Pandora may never be profitable if nothing changes. Because we’ve actually built into copyright law that disruptive innovation is bad and should be minimized at the interests of the legacy players.

Filed Under: copyright, copyright royalty board, disruptive innovation, innovation, internet radio, royalties, satellite radio, webcasting

from the say-what-now? dept

We’ve written a few times about constitutional challenges to the legitimacy of the Copyright Royalty Board. As we noted from the beginning, it’s pretty clear that, as a matter of fact, the CRB is unconstitutional in that it violates the Appointments Clause. That clause requires judicial appointments to be made only by the President, the courts or the heads of executive branch departments. However, the CRB is appointed by the Librarian of Congress, which you might notice is a part of the legislative branch, not the executive branch, and the Librarian of Congress is a position at a much lower level than a “department head” required under the Appointments Clause. If all that seems pretty technical, you’re right — which is also why we thought that the court cases pursuing this line or reasoning were a waste of time. At best, we said, the courts would agree that the CRB was unconstitutional, and then just have a department head “re-appoint” the same judges.

Back in February, when the appeal to one of these cases was being heard — the one brought by Intercollegiate Broadcasting Services (IBS), who represents a bunch of college radio stations — we noted that from the questions raised it seemed clear that the appeals court agreed that, on a technicality, the CRB was unconstitutional, but its main interest was in figuring out how to “minimize” the impact of admitting that a ton of royalty rates have been set and enforced based on an unconstitutional process. And, indeed, that analysis turned out to be entirely accurate.

The ruling has come out and the DC circuit appeals court has agreed that the CRB is unconstitutional… but immediately “fixes” the problem with one change and one statement. The “statement” is that even though no one really considered the Librarian of Congress a “department head” as described in the Appointments Clause, the court now says that the position is, in fact, a Department head. And the one change is that by saying that the Librarian of Congress can not just appoint the judges, but also fire them… suddenly everything is good again:

But we agree with Intercollegiate that the position of the CRJs, as currently constituted, violates the Appointments Clause… To remedy the violation, we follow the Supreme Court’s approach in Free Enterprise Fund v. Public Company Accounting Oversight Bd… by invalidating and severing the restrictions on the Librarian of Congress’s ability to remove the CRJs. With such removal power in the Librarian’s hands, we are confident that the Judges are “inferior” rather than “principal” officers, and that no constitutional problem remains.

Because of this magical sleight of hand, the appeals court decides that it need not even consider the question of whether the crazy rates that the CRB has set up in the past (when it admits they were unconstitutional) should be reviewed. In other words, this one turned out more or less as expected: even if it was obvious to nearly everyone that the CRB is unconstitutional, a little employment jujitsu suddenly makes it constitutional again. There are all sorts of reasons to be annoyed at the CRB and the royalty setting process — but the arguments over constitutionality were a sideshow all along.

Filed Under: appointments clause, constitution, copyright royalty board, librarian of congress

from the dangerous dept

We recently wrote about how different parts of the music industry — the RIAA, NMPA and DMA — had come to an agreement on new royalty rates, as well as designating royalties for “new classifications” of services. While the groups celebrated this solution for being “flexible” for new providers, the details suggest a different story. We already expressed concerns about what are apparently licensing requirements for services that shouldn’t need any license (i.e., personal music lockers). However, that was just based on the press release. When you look at the full details (pdf and embedded below), it gets even more troubling — to the point that the whole agreement should probably be rejected.

Here’s the big concern. This is a settlement among a few parties, who certainly don’t represent the entire industry. Yet, if the Copyright Royalty Board and their (typically out of touch) judges accept the settlement, the details of the settlement become law. And that’s problematic, because this thing is pretty crazy with restrictions — some of which are nearly impossible to understand. If you think the tax code is confusing, you haven’t tried to figure out what you have to pay to license certain services. Let’s just say you want to set up a locker service that allows users to buy music which automatically goes into the locker. Well, among a ton of other rules, try this sucker on for size:

In the case of a purchased content locker service, the percentage of subpart C service revenue applicable in step 1 of &sec;385.22(b)(l)(i) is 12%. For the avoidance of doubt, paragraph (l)(i) of the definition of subpart C service revenue shall not apply. The minimum for use in step 1 of &sec;385.22(b)(l)(ii) is the appropriate subminimum as described in paragraph (b) of this section for the accounting period, where the all-in percentage applicable to &sec;385.23(b)(l) is 18%), and the sound recording-only percentage applicable to &sec;385.23(b)(2) is 22%, except that for purposes of paragraph (b) of this section the applicable consideration expensed by the service for the relevant rights shall consist only of applicable consideration expensed by the service, if any, that is incremental to the applicable consideration expensed for the rights to make the relevant permanent digital downloads and ringtones.

That’s on page 40 of 44 pages. And is just one paragraph. Good luck figuring out the rest of the rules without a cadre of lawyers (oh wait… perhaps that’s the idea).

But the bigger issue is that this agreement is a way to actually sneak DRM into copyright law. While existing copyright law has anti-circumvention rules, it makes no statement on how DRM actually impacts royalties or requirements (beyond anti-circumvention). Yet, this “agreement” has multiple sections that define types of DRM and with different rules for those specific cases. That is, the agreement defines the idea of a “limited download.”

Limited download means a digital transmission of a sound recording of a musical work to an end user, other than a stream, that results in a specifically identifiable reproduction of that sound recording that is only accessible for listening for—

> (1) An amount of time not to exceed 1 month from the time of the transmission (unless the service provider, in lieu of retransmitting the same sound recording as another limited download, separately and upon specific request of the end user made through a live network connection, reauthorizes use for another time period not to exceed 1 month), or in the case of a subscription transmission, a period of time following the end of the applicable subscription no longer than a subscription renewal period or 3 months, whichever is shorter; or > > (2) A specified number of times not to exceed 12 (unless the service provider, in lieu of retransmitting the same sound recording as another limited download, separately and upon specific request of the end user made through a live network connection, reauthorizes use of another series of 12 or fewer plays), or in the case of a subscription transmission, 12 times after the end of the applicable subscription. > > (3) A limited download is a general digital phonorecord delivery under 17 U.S.C. 115(c)(3)(C) and (D).

Is this really what we want in the law? A specific legal definition of DRM that applies to others despite not being a part of the negotiations? The main issue is that this is a standard contract between private parties. That’s fine if it only applied to those parties who were subject to the negotiation. But thanks to the CRB process, the end result may be to stuff this private contract between private parties directly into the law, and that will expand copyright in highly questionable ways.

There are lots of other concerns about the document as well. It has lots of “this or that” calculations — all of which default to the “greater of” option — meaning that the rates are going to keep going up. Also, the agreement repeatedly defines “minimums” but we’ll be waiting a looooooong time for you to come back with where the “maximums” are. The whole thing is crazy confusing, and while it may be perfectly fine if it were just a contract among a few players, the second it becomes part of copyright law, we should be concerned.

Filed Under: copyright royalty board, drm, royalties, streaming
Companies: dma, nmpa, riaa

Music Industry Creates New Royalty Rates… But Did They Do So For Systems That Don't Require Royalties?

from the seems-like-it dept

There’s been some buzz in music circles about the news that the RIAA, the NMPA (music publishers) and the DMA (digital music companies) have reached an “historic” agreement on mechanical royalty rates, potentially avoiding what often is a contentious rate setting process at the Copyright Royalty Board (CRB). The CRB still needs to approve the deal, but the fact that an agreement was reached outside of having to go through such a contentious process, where the results often seem arbitrary and disconnected from reality, is mostly a good thing.

That said, I do have some concerns. Because beyond setting the rates for existing mechanical licenses, the groups also sought to create new rates for new types of service. THR has the details:

* Mixed service bundles (for example, a locker service, limited interactive service, downloads or ringtones combined with a nonmusic product such as a mobile phone, consumer electronics device or Internet service) * Paid locker services (subscription-based locker providing on-demand streaming and downloads) * Purchased content lockers (a free locker functionally provided to a purchaser of a permanent digital download, ringtone or CD where the music provider and locker have an agreement) * “Limited offerings” (subscription-based service offering limited genres of music or specialized playlists) * Music bundles (bundling music products such as CDs, ringtones and permanent digital downloads)

Now, to some extent it’s nice to see them coming to agreements with the idea of allowing certain new types of sites to easily make it clear that they are licensed under a clear rate, and move forward with that. But some of this is concerning in that it partly seems like a way to overclaim rights that copyright doesn’t, in fact, cover: for example, the license rates for locker services. As has been discussed, it’s not clear that locker services need to pay any copyright under existing law. If it’s just about enabling users to store and listen to their own music, what copyright issue is there? Yet it appears that at least some such services may be expected to pay these mechanical rates.

Filed Under: copyright royalty board, dma, nmpa, riaa, royalties

from the missing-the-point-a-bit dept

The Copyright Royalty Board is a horrific abomination of a judicial process — it’s basically a board of three totally out-of-touch judges who get to pick out of thin air what certain copyright royalties will be. They have a terrible track record, agreeing to set “webcasting” rates that would have effectively killed off most internet webcasting. Even more ridiculous is that they only realized they were writing a death sentence for webcasting after basically everyone involved in webcasting protested. Legal challenges to the rates haven’t gone well, though some are still ongoing, and many webcasters have cut separate deals to stay alive (barely) but without having to pay the CRB’s insane rates.

Some, however, have continued to fight certain aspects of the CRB rates… but many have also started to focus on legal challenges concerning the very constitutionality of the CRB itself. This is based on people remembering the Appointments Clause of the Constitution, that basically says judge appointments may only be made by the President, the courts or the heads of a department. That’s a problem. The CRB is appointed by the Librarian of Congress, who is not the head of a department (hell, isn’t even technically a part of the executive branch, since the Library of Congress is — you guessed it — a part of Congress).

Anyway, last week an appeals court listened to an appeal about this and related issues in a case brought by Intercollegiate Broadcasting Services (IBS), a group that represents the interests of various college radio stations. They have particular concerns about all of this, because many (if not all) college radio stations re-stream their broadcasts online, even though many of those streams probably violate the law (even if the original broadcasts are perfectly legal). This is due to the insanity of having different rules for internet streaming as compared to radio. IBS actually raised a whole bunch of constitutional questions about not just the CRB, but also the DMCA itself.

Unfortunately, the court is only focusing on the CRB constitutionality at this point. As I’ve noted with other similar cases, while it may feel good to challenge the constitutionality of the CRB based on the Appointments Clause, it seems like a distraction to me. At best, the courts will throw out the old rulings, and dismiss the judges… but that almost certainly will lead to the same, or a similar, panel of judges being immediately reappointed under the proper rules. And in the meantime, the more important detailed challenges to the actual webcasting rates or things like the constitutionality of the DMCA get left by the wayside….

The linked analysis of the appeals court hearing suggests that the court recognizes what is obvious to pretty much everyone: the CRB appointments are pretty clearly unconstitutional. This isn’t a complex part of the Constitution. It’s just that it’s been ignored for years. But the court is looking for ways to “minimize” the impact of such a ruling. So even if they find (correctly) that the appointments were unconstitutional, I wouldn’t expect much to change in the long run.

Filed Under: appointments clause, constitutionality, copyright, copyright royalty board, royalty rates, webcasting

As The RIAA Lobbies For More Royalties For Itself, It's Fighting (And Losing) Over Having To Pay Royalties To Songwriters

from the what's-good-for-the-goose... dept

The RIAA is in the middle of a big fight for new royalties (i.e., a performance rights tax) on songs played on the radio, going on and on about how anyone against those fees are “stealing” from them. Yet, when it comes to the royalties that RIAA members have to pay to others, suddenly those are worth fighting against. As you hopefully know, there are a few different copyrights related to music. There’s the copyright on the recording itself, which is usually held by the record label. But there is also the copyright on the song or composition, which can be held by a music publisher or the songwriter.

For whatever reason, while there is a compulsory license setup for anyone doing a cover song, such that if you cover a song, you don’t have to first get permission to do so, but you just have to pay an agreed upon rate, which is usually set by the Copyright Royalty Board (a group of judges who more or less pick a number out of a hat). There are all sorts of problems with having a group of judges trying to randomly set prices on royalties, but it is how the system is set up. What’s amusing is that after a recent Copyright Royalty Board ruling on cover songs set the rate higher than the RIAA liked, the RIAA went to court to get those rates changed. A district court turned the RIAA down, and now an appeals court has done the same.

Specifically, the RIAA got upset that the CRB said it had to pay late fees, and also that it says composition copyright holders should get a whopping 24 cents for every ringtone sold (way above the rate for songs on CDs). Instead, the RIAA argued that songwriters/publishers should receive a percentage of revenue. This one really makes me laugh. For years, various digital music startups have tried to license music from the RIAA — and all of them go to the RIAA with a “percentage of revenue” offer. In every single case the RIAA turns them down, demanding huge upfront fees and guarantees on revenue. Funny that when it’s their own money on the line, suddenly a percentage of revenue is the preferred option.

In both cases, the court rules against the RIAA, pointing out that, even though the RIAA doesn’t like the ruling, the CRB is well within its legal mandate to make both decisions. To be honest, I actually think the RIAA is correct that these rates and the reasoning behind them are ridiculous and not at all sensible. The ringtone rate, in particular, is particularly egregious, and make it difficult for creative business models that embrace things like free ringtones to exist.

However, I find it to be quite hilarious to see the RIAA arguing so vehemently against these rate rulings, when it’s demanding similar rulings on its own behalf. Apparently, the RIAA really only supports such rates when it gets to collect them. When it has to pay out, suddenly those royalties are a problem. Funny how that works…

Filed Under: copyright, copyright royalty board, royalties
Companies: riaa, sga

from the well,-that's-obnoxious dept

It’s already quite troubling that Pandora appears to be supporting the RIAA bailout tax against radios (Pandora’s competitors), but now we have a better understanding of why, thanks to a little birdie who highlighted what’s going on. Among the nasty little hidden gems in the recently agreed to webcaster settlement agreement (pdf) is that, if you want the lower rates in the settlement, you have to remove any objections to previous rate arbitrations and not participate in any future Royalty Board fights over royalties:

Article 6

Non-Participation In Further Proceedings CPB and any Covered Entity making Web Site Transmissions in reliance on this Agreement shall not directly or indirectly participate as a party, amicus curiae or otherwise, or in any manner give evidence or otherwise support or assist, in any further proceedings to determine royalty rates and terms for digital audio transmission or the reproduction of Ephemeral Phonorecords under Section 112 or 114 of the Copyright Act for all or any part of the Term, including any appeal of the Final Determination of the Copyright Royalty Judges, published in the Federal Register at 72 FR 24084 (May 1, 2007), any proceedings on remand from such an appeal, or any other related proceedings, unless subpoenaed on petition of a third party (without any action by CPB or a Covered Entity to encourage such a petition) and ordered to testify in such proceeding.

Basically, this takes away the right of any company to fight for more reasonable royalty rates in the future — which doesn’t seem like it should be allowed. Based on this, there’s basically no one left who can protest future rate increases — which means that the RIAA/SoundExchange will easily be able to repeatedly push through greater rate increases.

Thus, since Pandora and the other webcasters won’t be able to protest higher and higher rates, it needs to drag others into the fight to get help protesting constant massive rate increases: hence its support of the Performance Rights tax. In theory, if the NAB (who represents radio broadcasters) gets dragged into the fight, then there’s a big dog who isn’t subject to the draconian clause above, and can push back on the Copyright Royalty Board for lower performance rights taxes. Of course, that assumes that the NAB would fight for lower overall rates, rather than just focusing on rates for radio, and leaving the webcasters to fend for themselves…

No matter how you look at this, it’s stunning that Pandora and other webcasters would sign away their right to state their own case in front of the CRB. RIAA/SoundExchange are laughing all the way to the bank. They get to make their case to increase royalty rates… while those who get stuck with the royalty rates have to shut up and take it. Regulatory capture at its finest. Again, we’re left wondering why the Copyright Royalty Board even exists. Why are a group of old judges setting the price of music anyway?

Filed Under: copyright, copyright royalty board, performance rights
Companies: pandora

from the will-it-matter? dept

Last year, we noted that, it seemed clear that the Copyright Royalty Board was unconstitutional. This was due to a technical legal process change a few years ago (which also impacted the patent appeals board). Still, I noted that this probably wasn’t a huge deal, because even if the CRB were found to be directed by improperly chosen judges, it would likely be “corrected” quickly by having the President (or a dept head) “reappoint” those same judges. Still, it’s been odd that courts have been wary of addressing this issue. Earlier this summer two separate court rulings punted on the issue and refused to address it, instead focusing on other issues.

However, Live365 has now filed a lawsuit where this is the key issue, so hopefully a court will finally address it. Live365, of course, is at the mercy of the Copyright Royalty Board, and its ridiculous royalty rates, which make it nearly impossible to build a webstreaming business. Still, I’m not sure how much of an impact such a lawsuit can really have in the long run. As mentioned, even if it is found that the board is unconstitutional (which, a pretty plain reading of the Constitution suggests it is), it’s not clear if anything really changes. The board will just get reappointed. At best this could throw out old CRB rulings. So it could be helpful to buy some time, but it’s not clear if it addresses the underlying problem of why three old judges get to decide the business model of a bunch of companies.

Filed Under: appointments clause, constitutionality, copyright royalty board