BY DANIEL MCSWAIN, PAUL MALONEY
The Copyright Royalty Board (CRB) last week officially announced its recommendation for digital performance royalty rates for "preexisting" cable-based radio services. Based on an agreement between music industry group SoundExchange and cable television music service Music Choice (the sole remaining "preexisting" service), the proposed rates have drawn the interest of webcasters and other industry observers because of their similarity to royalty rates proposed by webcasters for Internet radio services -- and summarily rejected by the music industry (see RAIN coverage here and analysis from industry attorney David Oxenford in this issue here).

The CRB published its recommendation October 31 in the Federal Register.

The proposed agreement, up for public comment, would have Music Choice pay copyright owners and performers 7.25% of monthly gross revenues for the period January 1, 2008 through December 31, 2011. In 2012, the rate is to increase to 7.5%. According to the Register, "Each Licensee... shall make an advance payment of $100,000 per year, payable no later than January 20th of each year."

SoundExchange ("the Collective", as referred to by the Register) collects all payments from the licensees and is charged with distributing those royalty fees accordingly.

Additionally, the CRB just today published proposed terms for "new subscription services;" that is, cable television music services that were not part of the "preexisting services" at the 1998 adoption of the Digital Millennium Copyright Act. Again, this proposal is based upon an agreement by participants and would be effective through 2010. The new services would pay royalties at a rate of 15% of gross revenue or a per-subscriber fee, whichever is higher.

The participants to this agreement were XM, Sirius, MTV Networks, and SoundExchange (note: this agreement has no bearing on the XM or Sirius satellite radio services nor MTV's music television channel -- only cable television music services those or other companies may create).

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From David Oxenford in Broadcast Law Blog: "The Copyright Royalty Board has asked for comments on proposed royalty rates for the use of sound recordings by 'Preexisting Subscription Services.' [see RAIN coverage in this issue, here] In adopting the Digital Millennium Copyright Act, Congress divided digital music services into various categories, each of which are assessed different royalties for the use of sound recordings. Preexisting subscription services were those digital subscription music services in existence as of the date of the adoption of the DMCA. Basically, these were the digital cable music services that were in operation in 1997.

"In the proceeding now being resolved by a settlement between Music Choice (the one remaining service that was in existence in 1997) and SoundExchange, the companies propose a royalty of 7.25% of gross revenues of the service for the period 2008-2011, and 7.5% of gross revenues for 2012. A $100,000 minimum payment is due at the beginning of each year...

"As set forth below, this settlement sets the stage for the upcoming decision on satellite radio royalty rates -- as these two services are both governed by a royalty-setting standard that is different than that used for Internet radio...

"No settlement has been reached with the satellite radio services (except as to limited 'new subscription service' that XM and Sirius provide in conjunction with cable and satellite television packages where, according to the CRB website, a settlement has been reached) [again, see RAIN coverage in this issue, here]... SoundExchange has requested royalties that would reach 23% of a satellite radio operator's gross revenues... A decision in the case is expected before the end of the year.

"Some commenters have suggested that the 7.5% royalty rate should be viewed as a precedent for the controversial Internet radio royalties [RAIN coverage here].  As SoundExchange has argued for 'parity' and 'fairness' in royalties in connection with its push for a performance royalty on broadcast stations [here], this argument certainly has an emotional appeal.  If, as SoundExchange claims, broadcasters should pay a royalty to insure 'fairness' with other audio service providers, then Internet Radio should pay a rate that is equivalent to that of the Preexisting Subscription Services. 

"However, the decision will not provide any legal support, as the standard that applies to to Preexisting Services is different from that which applies to Internet Radio.  As we've written before, under the DMCA, the CRB is to use a 'willing buyer, willing seller' standard to evaluate what the royalty should be for Internet radio... one of the reasons that the Copyright Royalty Judges felt constrained not to offer any special rate for small webcasters.

"By contrast, the Preexisting Services (both cable and satellite radio) are evaluated under a different standard -- the so-called 801(b) standard... , which looks at a number of factors in determining the royalty.  Not only does this standard look at insuring a 'fair return' to the copyright holder, but it also looks to maximize the availability of copyrighted works to the public, and to insure stability in the industries involved by minimizing the disruptive impact of royalty changes...

"One can easily see how this standard, if applied to Internet radio, would have resulted in a decision different than that which the CRB reached, and why Internet Radio companies have asked for the adoption of that standard as part of the Internet Radio Equality Act."

David Oxenford is a Washington, DC-based partner at the firm Davis Wright Tremaine who represents Internet radio stations and other webcasters on music licensing and other regulatory and transactional issues. Read this entire Broadcast Law Blog entry here.

From the East Bay Business Times: "The nation's largest wireless phone company is teaming up with Oakland-based Pandora Media to give subscribers the option to listen to some of their favorite artists through Pandora's Internet radio service.

"San Antonio-based AT&T Inc., whose California and Nevada headquarters are in San Ramon, said Thursday that it is making Pandora available on select wireless phones. Through this music service, listeners can sample new music and create their own personalized radio stations on their handsets.

"AT&T's customers will be able to save up to 100 stations on their wireless devices. The wireless company is making the service available for $8.99 a month."

Read this entire story in the East Bay Business Times online here.

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