satellite

As "technology is turning what we once thought of as radio into something broader -- listening" (as Pew wrote in 2006), online-only and satellite radio (while still a small share of overall radio revenue) have the more positive financial forecasts for the long-term.

That's from an overview essay of the "audio" section of the Pew Research Center's Project for Excellence in Journalism new annual report on the state of the news media. The essay is called "Audio: Digital Drives Listener Experience." (While the study focuses mostly on news content, it certainly isn't limited to that, discussing Pandora, Spotify, and the Intenret radio Fairness Act, among other topics.)

Pew also concluded that NPR "may have positioned itself for the digital age better than other news radio." On-air listening declines as NPR may very well be partially the result of robust digital offerings on the web, podcasts, and mobile apps.

One digital platform that's failing is HD Radio. Now, more stations are actually dropping their HD signal than are adopting the technology, and there are fewer HD signals on the air than a year ago.

See more of the Pew study here. There are more charts from the paper here.

During testimony in the recent royalty determinations (see yesterday's RAIN here), SiriusXM reportedly revealed it has secured "direct content licenses" with more than 60 labels, giving them even broader use rights at rates below those set by the Copyright Royalty Board.

Digital Music News reports SiriusXM will pay 5%-7% of its gross revenues for these licenses, covering more than 7,000 artists, 9,000 albums, and 110,000 songs (there were no reported details of how specifically the use of the licensed music is broader than is allowed by the statutory license).

These agreements are actual, real-world settlements between active players in the music rights market. As such, these deals (both the rates and expanded allowable uses of the music) will likely be cited in arguments against music industry interests who claim the CRB-determined rates for satellite radio (and webcasting, for that matter) are "below market value." It isn't clear whether the more favorable terms of these direct deals tempered the CRB's decision. 

As we reported yesterday, the CRB set sound recording royalties for satellite radio at 9% of gross revenue in 2013, increasing 0.5% each year (to 11% in 2017). Billboard estimates SiriusXM will pay between $1.02 billion and $1.22 billion in statutory royalties to SoundExchange from 2013 to 2017.

Hypebot reports SoundExchange pressed the CRB for satellite radio royalties that increased to 20% of gross revenue by 2017 (DMN says "one resident expert" pushed for 30%), calling the CRB rates "below market."

Last month industry attorney David Oxenford reported that much of the discussion in the rate-setting's oral arguments phase "focused on the value of music in a marketplace -– essentially the 'willing buyer, willing seller' question." Currently, the law mandates that the rate-setting for royalties for these media is to be governed by the "801(b)" standard (which the record industry has argued does not reflect fair market value) (RAIN coverage here).

In March Sirius XM filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to directly license sound recordings. The complaint accuses SoundExchange and A2IM of being in violation of federal antitrust law, and New York state law (RAIN coverage here).

Digital Music News coverage is here. Read Hypebot here. Read Billboard coverage here.

Sound recording royalties for satellite radio service SiriusXM will rise from 8% of gross revenue to 9% in 2013, and continue to grow 0.5% each year (to 11% in 2017). The Copyright Royalty Board also set the new statutory rates for cable television music services. Those rates will rise from 8% of gross revenue now to 8.5% for 2014 through 2017.

The CRB announced its determinations late Friday.

This royalty is only for copyright sound recordings (i.e. not compositions), and only for satellite transmissions or cable TV (not webcasting). Most webcasters (including satellite radio and cable television radio when they stream online) pay royalties on sound recordings at a "per-performance" rate. For even the most successful webcasters, this royalty can amount to more than 50% of a company's gross revenue.

Read the brief CRB announcement of rates here.

SiriusXM has launched a new streaming on-demand feature, offering around 200 programs for instant online listening. That includes recent talk, comedy, sports and music shows, "selections from [SiriusXM's] vast audio archive," and "exclusive, never-aired content."

Though the on-demand catalog doesn't include every show offered by SiriusXM, the company promises it will be updated regularly with new content. 

The new on-demand functionality is available via SiriusXM's web media player and via its iOS mobile apps. (Android support is coming "soon.") Mobile users will be able to download to on-demand programs for offline listening. Users must subscribe to SiriusXM's Internet service (around $15 per month) to stream on-demand programming.

If this new feature sounds familiar, that's because SiriusXM has been teasing on-demand functionality for months (see our coverage from August 2011 here and October 2011 here).

SiriusXM added more than 622,000 net subscribers in Q2, the company recently announced, up 38% year-over-year. Revenue was up too, beating estimates. SiriusXM now boasts 22.9 million subscribers and expects to reach 24.5 million by the end of the year.

You can find more about SiriusXM's on-demand features from its website here. Reuters has more coverage of SiriusXM's Q2 results here.

Utah Republican Congressman Jason Chaffetz has reportedly begun crafting a bill aimed at bringing Internet radio royalty rates more in line with those of other radio platforms. The bill's key feature is a change from the controversial "willing buyer/willing seller" standard in webcast royalty determinations to the more prevalent "801(b)" standard.

Chaffetz says his Internet Radio Fairness Act of 2012 is still in draft form and isn't yet ready to be introduced. But he plans to determine his next steps by the end of this month.

When Copyright Royalty Board (CRB) judges determine the royalty rate at which webcasters pay copyright owners and performers for the use of sound recordings, they do so based on the standard -- mandated by the DMCA -- of what a "willing buyer" and a "willing seller" would agree to in a hypothetical marketplace. The judges do not (and in fact, are instructed to not) consider the "real world" ramifications of their determination, only the perceived economic value of the right. The Internet radio royalty process is unique in this way, as royalties for satellite and cable radio are based on the Copyright Act's more well-known 801(b) standard. Royalty determinations for what labels pay music publishers and songwriters are also based on 801(b).

"In setting royalties, (801(b)) assesses not only the economic value of the sound recording, but also the public interest in the wide dissemination of the copyrighted material and the impact of the royalty on the service using the music," explains attorney David Oxenford (here). Among other objectives, judges using 801(b) are instructed to set rates that "minimize any disruptive impact on the... industries involved." (Read 801(b)(1) of the Copyright Act here.)

How much of a difference does this standard make? Consider that satellite radio operator SiriusXM pays around 8% of its revenues for the right to use copyright sound recordings in its broadcasts, based on a determination using the 801(b) standard. Pandora, on the other hand, says nearly 70% of its total revenue (based on its Q1 FY 2013) will go to royalty payments (and that's based on on a deal Pandora struck that actually decreased its obligation from the CRB decision -- a decision based on "willing buyer/willing seller").

"It seems screwy that royalty rates change so dramatically based on the platform," Chaffetz explained. "When you’re listening to music in your house or in your car, you may be listening to it on your iPhone, you may be listening on the satellite radio or the FM radio. Does that mean the royalties should be so vastly different? It doesn’t seem to make sense to me. We need to play catch-up here."

A summary of the bill (according to news source The Hill) says the legislation also aims to "improve the proceedings process for rate-making cases and ensure judges on the Copyright Royalty Board have the same legal background and expertise as federal court judges who consider copyright cases."

Chaffetz says he expects push-back from the recording industry, and remains open to labels' input. "We’ll flesh all that out. I have no doubt we’ll have a good, lively discussion on that. There’s plenty of money to be made by all the various interests, it’s just I think moving toward parity is an important principle," he said.

The "801(b) vs. 'willing buyer/willing seller'" issue has come up multiple times in the history of Internet radio. The Performance Rights Act, which would have imposed a sound recording performance royalty on broadcast radio, would have moved webcast rate determinations to 801(b) (see our coverage here). Attorney David Oxenford wrote about the inherent unfairness of using different standards by platform in early 2008 (see RAIN coverage here). That same year Senators Ron Wyden (D-OR) and Sam Brownback (R-KS) introduced their Internet Radio Equality Act, which would have, like the PRA and Chaffetz's new bill, given Internet radio the 801(b) standard. That effort stalled by July (see RAIN coverage here). We have tons more coverage and analysis about 801(b), here.

Read more from The Hill online here.

National Journal's Influence Alley blog has put an eye towards the lobbying efforts of Pandora and its efforts to reform the way webcasting royalty rates are set by the U.S. Copyright Royalty Board.

In 2007, when the webcaster fought for its very survival against a royalty determination that would have it paying 70% of its revenue in royalties, Pandora relied on the crowd-sourced power of its listeners to bombard lawmakers with calls, e-mails, and faxes. Now, they're a little more sophisticated, a little more "establishment." Columnist Elahe Izadi writes, "They've grown up Washington-style."

Pandora founder Tim Westergren has reportedly been a frequent visitor to Washington, D.C. Pandora's secured the public relations services of Story Partners, and two lobbying firms (Wheat Government Relations and TwinLogic Strategies). In fact, Pandora's lobbying spend from January 2011 through March of this year reportedly totals $230 thousand (according to OpenSecrets.org here, which is where we got the chart).

"We're looking for greater parity, specifically in the language in the way our rates our set. We're not looking for a specific rate," Westergren is quoted. And it's not necessarily parity with broadcasters (which, you may know, do not pay royalties for the use of copyright sound recordings).

Izadi writes, "The U.S. Copyright Royalty Board is tasked with setting rates for Internet and satellite radio companies, but they use different rules to determine those rates. Satellite companies such as Sirius XM can argue for lower than-market-value rates." Sirius will pay somewhere between 7% and 8% of its revenue for these royalties this year. Westergren says he's simply trying to get "the same leeway to advocate for lower royalties."

Read National Journal's Influence Alley here.