Navigating the Tangled Web of Webcasting Royalties

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To make matters more complicated, Navigating the Tangled Web most recorded songs also have multiple copyright owners. Songwriters, compos- of Webcasting Royalties ers, and publishers of a musical composi- tion (a “song”) have rights in the song. BY CYDNEY A. TUNE AND CHRISTOPHER R. LOCKARD For example, these owners have the right to receive royalties every time a copy of the song is sold in sheet music form or ver since Napster launched to Services such as iTunes sell permanent as part of an album, as well as when the enormous popularity in 1999 and downloads and ringtones that consum- song is broadcast over the radio, the In- Edrew the ire of heavy metal band ers download to their computers and ternet, speakers in a restaurant, or when Metallica, the record industry has looked cell phones. Other companies, such as it is performed in a concert. Addition- at online music with a highly suspicious Amazon.com, sell physical phonorecords ally, artists who perform on a recorded and combative eye. The last decade has (like records and CDs). Music is also version of a song (a “sound recording”), seen record labels fight numerous Web contained in other online content, such and the owner of the copyrights in that sites and software makers that have fa- as podcasts, commercials, and videos car- sound recording (generally the record cilitated the distribution of online music ried on Web sites like YouTube. Finally, label), also have the right to receive and even individuals who simply shared thousands of Web sites, known as web- royalties for sales of that sound recording or downloaded music. But while some casters, stream music over the Internet and for the digital transmissions of that companies have attempted to distribute to listeners. Each of these uses implicates sound recording. music without obtaining licenses or pay- different licensing and royalty schemes. ing royalties, many other Web sites sim- The term “webcasting” generally refers Performance Rights ply want to distribute or perform music to the distribution of an audio or video The right to perform music publicly legally within the confines of copyright file over the Internet using streaming impacts webcasters most significantly. law. However, such companies have en- media technology. Some webcasters are Traditional radio station broadcasters ob- countered a confusing, impractical, and companies that operate Federal Commu- tain licenses from the performance rights intimidating maze of laws and regulations nications Commission (“FCC”)-licensed organizations—the American Society governing music copyrights. radio stations that stream their over-the- of Composers, Authors and Publishers The last several years have seen both air programming simultaneously on the (“ASCAP”), Broadcast Music, Inc., and enormous growth in the number of Web Internet. Other companies deliver their SESAC (collectively, the “PROs”)—that sites seeking to capitalize on online mu- programming solely over the Internet. together represent virtually all songwrit- sic and tremendous controversy over the Even in this latter category, there is a wide ers, composers, and music publishers in amount of royalties owed to copyright range of businesses. Some webcasters offer the United States for purposes of licens- owners by Web sites that broadcast, or a format similar to traditional radio, where ing and collecting royalties from any webcast, music online. These webcasters all listeners hear the same preprogrammed public performance of a song. However, have struggled in the face of ever-chang- set of songs at the same time. Other when music is broadcast over the Inter- ing rules and resistance from the record webcasters have developed technology net, the Digital Millennium Copyright industry. Over the last year, however, that allows users to create their own chan- Act (“DMCA”) requires both traditional copyright owners and webcasters have nels by rating songs, artists, or genres that broadcasters and Internet-only webcast- negotiated compromises on many of their they do or do not like. Still other webcasters to obtain additional licenses from, differences, bringing some clarity to this ers offer subscription services that allow and pay additional royalties to, the complicated framework. users to select music on demand. Some owners of the copyrights in the sound Those wanting to take advantage of webcasters are even expanding into new recordings and the performers featured in the exciting opportunities associated forms of delivery—for instance, Pandora the sound recording. with online music must understand what music streams now can be listened to via music licenses are required for different iPhones and some Blu-ray players. Song Licenses and Royalties media and methods of distribution, how Under U.S. copyright law, the owner Over-the-air radio station broadcast- these licenses are obtained, and what of a copyrighted work, such as a song, has ers obtain licenses from and pay royal- royalties will need to be paid. These the exclusive right to make copies of the ties to the PROs for use of songs, which complexities are not insurmountable, and work, prepare derivative works based on compensate the composers and copyright an understanding of the various licenses the copyrighted work, distribute copies of owners of songs that are broadcast by and royalty obligations is essential in the work, and display or perform the work these traditional radio stations. When today’s webcasting environment. This publicly, including, in the case of a sound the signal of an over-the-air radio sta- article is intended as a guide through that recording, by means of a digital audio tion is simulcast over the Internet on a tangled legal web. transmission. Webcasters’ use of music nonsubscription basis, the fees for such may implicate three of these rights—the use are generally covered by the music Overview right to reproduce the work, the right licenses that have already been obtained There are myriad ways that music is to distribute the work, and the right to from the PROs. However, if the broad- used and distributed on the Internet. perform the work publicly. caster is operating an Internet station

Published in Entertainment and Sports Lawyer, Volume 27, Number 3, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. that is not also being broadcast simulta- license must be obtained and royalties that implies an association between the neously over the air, or if the over-the- negotiated directly from the sound re- music and the product is prohibited. The air license does not cover a simulcast, a cording copyright owner, who has discre- compulsory license only applies to record- separate Internet-only license must be tion over whether to give such a license ings lawfully made, so webcasters may not obtained from the PROs. and over what fees to charge. lawfully play unauthorized bootlegs. To Webcasters whose streaming of music SoundExchange is a nonprofit make it more difficult for members of the is not connected to a radio broadcast organization that was established by public to record music from the streams station must also obtain a license from, the Recording Industry Association of that are being transmitted, there are also and pay royalties to, the PROs for the use America (“RIAA”) and designated by various antipiracy efforts with which web- of their songs. Each PRO uses different the U.S. Copyright Office to administer casters are required to cooperate. licenses and royalty rates, although all the compulsory licenses for digital perfor- Webcasters that offer interactive charge a minimum royalty. In addition, services or features, such as temporary or they include royalties that are based permanent downloads, cannot obtain a either on revenues or on Web site usage. Section 114 license and thus must negoti- Fees may also vary based on the type of ate a performance rights license directly service. For example, ASCAP charges a with the record company that owns the higher fee for interactive Web sites that When a webcaster copyrights in that sound recording. If a we- let users select specific songs on demand streams music bcaster does not have either a direct license or create highly customized playlists. or a compulsory license, that webcaster is over the Internet, potentially liable for copyright infringe- Sound Recording Licenses and ment and, as such, can be subject to dam- Royalties this action ages and penalties. It is therefore important The DMCA requirement that to comply fully with all of the requirements royalties be paid to performers and the also implicates of the law, including the following. copyright owners of sound recordings should not be overlooked. These per- another important Registration With the Copyright Office formance royalties are not applicable to To obtain a compulsory license for over-the-air broadcasts, because such right mentioned sound recordings, a webcaster must first radio stations had historically been register with the Copyright Office by fil- viewed as providing a substantial, in- previously—the ing a Notice of Use of Sound Recordings kind promotional consideration to the Under Statutory License and pay a filing record labels and performers. However, right to copy a fee before the digital transmission of mu- this long-standing regime is the subject sic begins. When filing a Notice of Use of legislation currently working its way work. form, webcasters need to obtain both a through Congress (H.R. 848 and S. 379, Section 112 and a Section 114 license. A introduced February 4, 2009). If enacted Section 114 license grants the webcaster into law, terrestrial broadcasters would, the right to perform the sound recording, for the first time, be required to obtain li- while a Section 112 license grants it the censes for the airing of sound recordings. mances of sound recordings, collect the right to make “ephemeral copies” of the Even if that legislation does not pass, the royalties from such licenses, and pay the work (a transient copy made during the performance right in sound recordings collected royalties to the sound record- digital transmission process). applicable to all webcasters will remain. ing copyright owners and performers. The DMCA created a compulsory Half of the royalties collected go to the Compliance With the Performance license for certain digital transmissions, performers and half are paid to the sound Restrictions while other digital transmissions do not recording copyright owner. The Copy- To qualify for a compulsory license, a qualify for the compulsory license. A right Royalty Board (“CRB”), which is webcaster must comply with a number compulsory license means that one may appointed by the Librarian of Congress of restrictions covering how the sound use the sound recording without having (which appointment some argue is un- recordings are used. These restrictions to obtain the specific permission of the constitutional), sets the royalty rates for are intended to reduce the incidence of copyright owner as long as the statu- compulsory licenses. unauthorized downloading of a specific tory formalities are adhered to, royalties To qualify for a compulsory license, sound recording being webcast by making are paid, and certain usage restrictions a webcaster must meet a number of it more difficult for listeners to anticipate are followed (see discussion later in this requirements, which are described in certain music selections. It is important article). A compulsory license cannot be the following sections. In addition, the to note that these restrictions do not obtained for interactive services, such as compulsory license is only available for allow some practices that are commonly on-demand performances, downloads, webcasters that are principally engaged used by over-the-air radio stations and and podcasts. Whenever an interactive in playing music rather than in the sale may thus require some webcasters to service or other digital transmission does of products, and the use of music together modify their practices to qualify for a not qualify for a compulsory license, a with visual images of a product in a way compulsory license, although recent ne-

Published in Entertainment and Sports Lawyer, Volume 27, Number 3, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. gotiations have resulted in relaxation of The Webcaster Must Transmit other hand, the royalties that are paid by some restrictions, as described below). Copyright Information While the webcasters under the compulsory license The Service May Not Be Interactive. Music Is Playing. While the music is are set on an industry-wide basis. In Janu- Generally the term “interactive” refers to playing, the webcaster must identify in ary 2006, the CRB was established to set a service that allows a listener to select text on its Web site certain informa- rates and adjust them every five years. specific sound recordings on demand or tion, including the title, the album from The CRB, which has three judges and develop a program specially created for which it came, and the featured artist. also hears cases concerning compulsory that listener. Thus, an Internet trans- Note that this information may not be license issues, issued its rates decision in mission for which the webcaster selects displayed before the music is played. In March 2007, retroactive to January 2006 the music qualifies for the compulsory addition, if technically feasible, the mu- and lasting through December 2010. It license, but one that allows a consumer sic must be accompanied by information mandated that all commercial webcasters to select from a menu of specific sound that is encoded by the copyright owner, eligible for the compulsory license pay a recordings does not. It is acceptable for a identifying the sound recording title, minimum annual fee of $500 per channel webcaster to receive play requests as long featured artist, and related information or station plus royalties calculated on a as the webcaster decides which requests concerning the sound recording. per-performance basis. In a per-perfor- to play and when they will be played. The Webcast Must Comply With mance calculation, a performance is one However, what exactly constitutes Specific Sound Recording Restrictions. listener listening to one song; if two listen- an interactive service is the subject of There are restrictions on how often music ers listen to the same song, that would be some confusion and debate. Yahoo!’s from the same artist or from the same al- two performances. The per-song/per-listen- LAUNCHcast music service has been bum may be played. These restrictions are er rate established by the CRB is $0.0018 embroiled in an eight-year-long case with called the “sound recording performance in 2009 and $0.0019 in 2010. Royalty rates record labels over whether its service is complement” and have two components: for programming that primarily involves interactive. On August 22, 2009, the “talk” are lower. For webcasters that oper- U.S. Court of Appeals for the Second • One-Album Restriction. Program- ate many channels/stations through the Circuit issued an important decision ming may not include more than same service, the minimum annual fees are concluding that LAUNCHcast was three selections from any one capped at $50,000. not interactive and thus could obtain a album on a particular channel Under the CRB rates, noncommer- compulsory license. Despite the fact the within any three-hour period, and cial webcasters pay an annual minimum service allows users to customize individual no more than two such selections fee of $500 in exchange for the right to stations based on their favorite songs, art- may be played consecutively. broadcast up to 159,140 aggregate tuning ists, albums, and music genres, the court • Featured-Artist Restriction. Pro- hours per month (an average of about 215 found that LAUNCHcast users could not gramming may not include more simultaneous users). For aggregate tuning predict playlists and thus the service was than four different selections hours, one listener who listens for one not a substitute for the purchase of music; by the same featured artist, or hour would be one aggregate tuning hour, therefore, it did not fall within the scope from any set or compilation, on while two listeners who listen for half an of what Congress intended to exclude from a particular channel within any hour each would also constitute one aggre- the compulsory license. three-hour period, and no more gate tuning hour. Two listeners who listen While this case provides a helpful road than three such selections may be for one hour each would constitute two map for creating a Web site that is not played consecutively. aggregate tuning hours. Noncommercial interactive, the decision turned on specific webcasters exceeding this usage limit must facts and is limited to the Second Circuit; A Program Schedule May Not Be pay a per-performance fee equal to what therefore, similar cases could turn out dif- Published in Advance. The webcaster commercial webcasters are charged. ferently, and the definition of interactive is may not publish in advance a program The CRB rates were heavily criticized still an open question. Given the complex schedule that identifies when a specific by webcasters large and small, com- and changing analysis involved, if a web- sound recording, album, or featured artist mercial and noncommercial, and many, caster wishes to allow listeners to develop will be played. The webcaster is permit- like Pandora, argued they would have to personalized music streams, the webcaster ted to announce that a particular sound go out of business if they are forced to should seek legal counsel to determine recording or artist will be coming up, pay the CRB-set rates. The rates were whether the service would qualify for the but the exact time may not be provided. alleged to cost large webcasters as much compulsory license. However, certain over-the-air simulcast- as 70 percent of their revenue and small The Webcaster May Not Auto- ers are exempt from this restriction. webcasters as much as 1,200 percent of matically and Intentionally Cause Any revenues. Despite the significant criti- Device Receiving the Transmission to ROYALTIES cism, the CRB refused to revisit its deci- Switch Channels. The webcaster may If a webcaster does not qualify for sion, and the controversy moved to the not automatically and intentionally the compulsory license, a license must courtroom as various webcasters appealed cause the device receiving the transmis- be negotiated directly with the sound the rate determination. On July 10, sion to switch from one program channel recording copyright owner, who is free 2009, the U.S. Court of Appeals for the to another. There is an exception for to charge any royalty rate it desires or District of Columbia released its opinion transmissions to a business establishment. refuse to grant a license at all. On the in the closely watched consolidated ap-

Published in Entertainment and Sports Lawyer, Volume 27, Number 3, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. peal, generally upholding the CRB rates they had reached a settlement over rates may not post its playlist on any Web site. as not being “arbitrary and capricious,” owed by the thousands of over-the-air although it remanded to the district broadcast stations that offer simulcasts or Small Webcasters court SoundExchange’s mandatory $500 stand-alone webcasts. Under the agree- SoundExchange also made a settle- per-channel minimum fee. ment, stations participating in the settlement offer in February 2009 to small However, while the legal challenge ment pay rates about 16 percent lower webcasters, defined as those with less played out, webcasters took their battle than the rates set by the CRB for 2009 than $1.25 million in annual revenues. to the media and to Congress, pressuring and 2010, but will then owe increased Under this offer, webcasters would SoundExchange to strike a compromise. rates for the period of 2011–15, a period pay an annual minimum fee, which is In October 2008 and again in June 2009, for which the CRB has not yet set rates. credited against royalties owed by the Congress passed Webcaster Settlement The rates range from $0.0015 per per- webcaster. Royalties are calculated as Acts, giving SoundExchange author- formance for 2009 to $0.0020 for 2012 a percentage of revenue or expenses, ity to enter into royalty rate settlement and $0.0025 for 2015. Broadcasters also rather than per performance. However, agreements with webcasters that would must pay an annual minimum fee of $500 if a small webcaster transmits more than be legally binding on all sound recording per channel or unique stream (up to a 5 million aggregate tuning hours in a copyright owners. After intense, drawn- maximum of $50,000), which is credited year, royalties for the excessive transmis- out negotiations, numerous settlements against the per-performance royalties. sions will be charged at the CRB-set were eventually reached. Additionally, commercial radio sta- rates. In summary: tions that qualify as small broadcasters Public Radio (webcasting less than 27,777 aggregate • “Microcasters,” or webcasters On January 15, 2009, SoundExchange tuning hours per calendar year) may with less than $5,000 in revenue, and the Corporation for Public Broad- pay a $100 proxy fee in place of filing $10,000 in expenses, and 18,067 casting (“CPB”) announced that they records-of-use reports. New webcasters aggregate tuning hours annually, had agreed on statutory performance may opt in within 30 days of the date pay only $500 with no additional royalties for noncommercial educational when a station begins webcasting. Broad- royalties owed, as well as a $100 public radio entities. The agreement, casters participating in the settlement proxy fee that exempts them from which covers National Public Radio, are prohibited from participating in the certain reporting requirements. American Public Media, Public Radio CRB’s rate determination proceeding for • Webcasters with annual revenues International, Public Radio Exchange, the period of 2011–15. between $5,000 and $50,000 pay and up to 450 public radio webcasters se- Stations participating in the settle- an annual fee of $2,000, plus roy- lected by CPB, ensures SoundExchange a ment also receive the advantage of alties equaling the greater of (i) single up-front royalty payment of $1.85 waiver agreements that NAB negotiated 10 percent of their first $250,000 million and requires stations to provide with EMI Music North America; Sony in gross revenue and 12 percent consolidated usage and playlist reporting Music Entertainment; UMG Recordings, of their additional revenue, or (ii) to SoundExchange. The payment covers Inc.; Warner Music Inc.; and the As- 7 percent of all their expenses. all royalties owed by these stations from sociation of Independent Music. These • Webcasters with annual revenues the period of January 1, 2005, through agreements allow such broadcasters to of more than $50,000 would pay a December 31, 2010 (although the CPB webcast without many of the restrictions minimum fee of $5,000, plus roy- will owe SoundExchange additional imposed by the Section 114 “perfor- alties equaling the greater of (i) fees, if estimated aggregate tuning hours mance complement” discussed previ- 10 percent of their first $250,000 exceed the expected amount). On July ously. So long as the substantial majority in gross revenue and 12 percent 30, 2009, SoundExchange and the CPB of the audience is over-the-air listeners of their additional revenue, or (ii) reached another settlement extend- and a broadcast does not depart materi- 7 percent of all their expenses. ing their settlement through 2015 in ally from typical over-the-air program- exchange for a $2.4 million payment by ming practices, broadcasters simulcasting However, this settlement offer was not the CPB, with additional fees of up to their over-the-air broadcasts will not attractive to most small webcasters because $480,000 due if the covered stations col- be subject to restrictions on consecu- it requires them to pay additional royalty lectively exceed certain aggregate tuning tive performances of songs by the same amounts at the higher CRB-set rates, ret- hour limits in a given year. Additionally, artist or album, provided that not more roactive to 2006, if the webcaster is sold. although the biggest webcasters will be than one-half of a single album is played Additionally, the rates were set through obligated to provide SoundExchange consecutively. Such broadcasters may 2015, and participating webcasters are ex- with detailed reporting information, the also announce the song name and artist cluded from participating in the CRB rate agreement gives small stations signifi- before a song is played, but only if a writ- determination proceedings for the period cantly reduced reporting obligations. ten or visual schedule does not specify of 2011–15. A new, small webcaster wish- the time of a particular performance. ing to elect into this settlement must file Over-the-Air Radio Station Broadcasters The waiver agreements also eliminated an election notice with SoundExchange On February 15, 2009, SoundEx- the requirement that webcasters retain no later than the first date on which the change and the National Association of records of their ephemeral recordings for webcaster would be obligated to make a Broadcasters (“NAB”) announced that six months. A webcaster, however, still royalty payment for such year.

Published in Entertainment and Sports Lawyer, Volume 27, Number 3, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. “Pureplay” Webcasters lenient record keeping requirements for that are primarily news, sports, or talk, the On July 7, 2009, a deal was struck college radio stations. Webcasters opting rate would be $0.0002 per aggregate tuning with SoundExchange that is available to in to that agreement pay a $500 mini- hours. Going forward, these stations would all “pureplay” webcasters; that is, stand- mum annual fee in exchange for the right owe per-performance rates of $0.00057 in alone, noninteractive webcasters that to broadcast up to 159,140 aggregate tun- 2011, escalating to $0.00083 in 2015. derive most of their revenue from their ing hours per month, which is the same These royalties are significantly lower webcasting operations. Under that deal, as the framework under the CRB rates. than those set by the CRB in 2007, and large pureplay webcasters, those with However, webcasters that exceed 159,140 they are about one-third of the cost revenue in excess of $1.25 million, which aggregate tuning hours will only owe webcasters would pay under the CBI participate in the settlement pay royalties per-performance rates at the same rates as deal. However, webcasters electing into to SoundExchange equal to the greater agreed to by the NAB, a discount on the the religious deal will have more strin- of 25 percent of their revenue or a per- CRB-set rates. The agreement also allows gent reporting requirements. Except performance rate that is substantially less stations averaging less than 55,000 ag- for extremely small microcasters (those than the previously set CRB rates. The gregate tuning hours to pay a $100 proxy averaging less than five simultaneous new rates start at $0.00093 per perfor- fee in lieu of providing reporting data to listeners), religious broadcasters will not mance for 2009, rise to $0.00110 for have the benefit of reduced record keep- 2012, and max out at $0.0014 for 2015. ing requirements. Instead of paying per-performance royalties, small pureplay webcasters that partici- Other Webcasters pate in the deal have the option of paying Commercial webcasters also have the SoundExchange the greater of 7 percent While complex option of being governed by a settle- of their expenses or 12 percent of their and seemingly ment reached on July 30, 2009, between first $250,000 in gross revenue, and 14 SoundExchange and SIRIUS-XM. This percent of revenue above $250,000. These overwhelming, agreement covers the period of 2009–15, webcasters would be subject to a cap on the and results in slightly lower royalty number of aggregate tuning hours they can if successfully rates—$0.0016 in 2009 and $0.0017 in broadcast monthly as well as a recapture 2010—than under the CRB rates set in provision that would force these webcasters navigated, 2007. The 2009 and 2010 rates are not to pay retroactively four years’ worth of the as low as those under the NAB settle- money that would have been owed under this maze of ment, but they end up cheaper than per-performance rates if they are sold to a the NAB settlement rates in 2013–15, larger entity (unless such webcaster pays licenses offers maxing out at $0.0024. There is also a per-performance rates for one year prior to $500 per-channel minimum fee, which the acquisition). Also, the small pureplay many exciting cannot exceed $50,000. Webcasters that webcaster rates end in 2014. elect into the SIRIUS-XM settlement are A third category of pureplay webcast- possibilities and locked into the rates through 2015, even ers, those that offer bundled, syndicated, if the CRB sets lower rates. Participants or subscription services, will owe royal- opportunities for in the settlement are also prohibited ties at the same per-performance rates from participating in litigation regarding agreed to between SoundExchange and webcasters. the CRB’s rate-making proceedings. the NAB. All webcasters participating in For other webcasters that are not this settlement owe a minimum annual eligible for, or do not participate in, one payment of $25,000. To participate, web- of these settlements, the rates set by CRB casters must file a notice of election with in 2007 still apply through the end of SoundExchange no later than January SoundExchange. 2010. This includes small webcasters that 31 each year. Those doing so will be pro- The second agreement, with North- generate minimal revenue and cannot hibited from participating in the CRB’s western College and the National Religious afford the $25,000 minimum annual 2011–15 rate-making proceedings. Broadcasters Music License Committee, is fee of the pureplay deal. It also includes open to both religious and other noncom- large webcasters that derive substantial Other Noncommercial Webcasters mercial webcasters. The agreement offers revenue from non-webcasting sources, as On July 30, 2009, the last day on the same $500 per-channel fee for stations well as aggregator services that host small which it had authority to do so under streaming up to 159,140 monthly aggregate webcasters. Although there is a possibil- the Webcaster Settlement Act of 2009, tuning hours that is offered under the CBI ity that a compromise could be reached SoundExchange reached settlement deal. However, for those webcasters that between SoundExchange and some of agreements with two groups representing exceed that limit, the “religious” deal offers these groups with respect to the royalties noncommercial webcasters left out of substantial savings. Through 2010, those owed dating back to 2006, unless Congress previous settlements. An agreement with webcasters will owe either a royalty of passes another Webcaster Settlement Act, College Broadcasters, Inc. (“CBI”) pro- $0.0002176 per performance or $0.00251 SoundExchange lacks authority to enter vides for special royalty rates and more per aggregate tuning hours. For stations a settlement that would be binding on

Published in Entertainment and Sports Lawyer, Volume 27, Number 3, Fall 2009. © 2009 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. sound recording copyright owners who are dressed in Section 115 of the Copyright ers that offer noninteractive, audio-only not members of SoundExchange. These Act, which grants a compulsory license streams that fall within the Section 114 groups will likely play a major role in CRB’s for the reproduction and distribution of compulsory license described previously rate-making proceedings for the period of physical phonorecords (such as CDs) are exempt from paying mechanical 2011–15, which have already begun. and digital phonorecord deliveries (such royalties. Webcasters are also allowed to Additionally, webcasters that offer as permanent digital downloads, limited conduct certain promotional interactive interactive services are left out of the digital downloads, and buffer copies). A streaming without paying royalties. SoundExchange royalty scheme. As mechanical license is available for any discussed previously, only webcasters that song that has been distributed to the CONCLUSION qualify for the Section 114 compulsory public in the United States. Royalty fees This article includes only the basics of license can take advantage of the CRB for this license are generally included webcasting licensing and royalty payments. royalty process or SoundExchange settle- in the license royalties paid by webcast- There are additional filing and reporting ments. Even if SoundExchange wanted ers to the record companies, and then requirements for each of the licenses and to reach an agreement with webcasters passed on to music publishers (often via royalty options. For a webcaster to hold that offer interactive services, such as on- the Harry Fox Agency), and finally to a valid continuous compulsory license, demand performances, downloads, and songwriters and composers. specific reporting requirements set by podcasts, it does not have the authority On October 2, 2008, the CRB an- SoundExchange must be met so that to do so under current copyright law. nounced that mechanical royalties owed SoundExchange can determine that the by Web sites such as iTunes and Amazon. royalties have been properly computed and REPRODUCING AND DISTRIBUTING com that offer permanent music down- paid by the webcaster. Similar requirements MUSIC loads would remain at $0.091 per down- apply to a mechanical license. Addition- When a webcaster streams music over load for a five-year period from January 1, ally, there are separate statutory licenses the Internet, this action also implicates 2008, through December 31, 2012. This available for satellite radio, digital cable another important right mentioned decision also set mechanical royalties radio, and digital business services that are previously—the right to copy a work. for physical phonorecords at $0.091 per not covered here. The act of transmitting the digital audio song and for ringtones at $0.24 per song. While complex and seemingly over- files creates “ephemeral” or transient cop- For songs longer than five minutes, a rate whelming, if successfully navigated, this ies of the work on a computer. Section of $0.0175 is charged for each minute maze of licenses offers many exciting pos- 112 of the Copyright Act gives webcast- or fraction thereof. The RIAA filed an sibilities and opportunities for webcasters a statutory right to make ephemeral appeal of the CRB decision in February ers. But, like quickly evolving technol- recordings part of its broadcast of sound 2009, protesting the late fees and royalty ogy, copyright law is ever-changing, and recordings pursuant to the Section 114 rate for master recording ringtones. the battle over future music royalties compulsory licenses previously described. Royalties owed for interactive music promises to continue to affect these still- Royalties paid to SoundExchange cover streaming and limited downloads were developing laws. Therefore, it is critical this reproduction, which is why a web- the subject of a deal negotiated by the that webcasters stay abreast of the latest caster must obtain a Section 112 license RIAA, the Digital Media Association, technological and legal developments. in addition to a Section 114 license the National Music Publishers’ Associa- If they can, they may find themselves when filing a Notice of Use, as previously tion, the Nashville Songwriters Associa- the beneficiary of the next big Internet described. Once a webcaster has obtained tion International, and the Songwriters initial public offering. v Section 112 and Section 114 licenses, as Guild of America in September 2008. well as licenses from the PROs, and pays This deal set the mechanical royalty at the associated royalties described in the 10.5 percent of revenue, minus royal- Cydney A. Tune leads Pillsbury’s copyrights Performance Rights section to Sound- ties paid to the PROs for performance practice section and media & entertainment Exchange and to the PROs, no other royalties. Limited or restricted down- industry team and represents and advises clients licenses or royalties are usually required. loads are downloads that will be deleted in a variety of intellectual property issues, includ- However, webcasters that do not or become inaccessible automatically ing copyrights and trademarks, as well as in a qualify for a Section 114 compulsory after a certain period of time or due to broad array of entertainment, licensing, and license must, in addition to obtaining a failure to comply with requirements, e-commerce matters. She can be reached at cyd- direct licenses from record companies for such as payment of a monthly fee. The [email protected], and her bio can be their performance of a sound recording, rule applies both to subscription-based viewed at www.pillsburylaw.com/cydney.tune. obtain licensing for their reproduction Web sites and Web sites supported by and delivery of music. A license and the advertising, and also contains flexibility Christopher R. Lockard is an associate in Pills- royalties for any ephemeral copy made for new business models. The agreement bury Winthrop Shaw Pittman Lip’s San Francisco should be included in any direct license also established minimum royalties: a office and practices in the areas of intellectual from a record company. set fee per subscriber for subscription- property and corporate law, including copyright, Additionally, a royalty known as a based services; for nonsubscription based trademark, entertainment, licensing, and internet mechanical royalty is owed to the owners services, the fee is a percentage of the law matters. He can be reached at christopher. of the copyrights in the songs being sold royalties paid to record companies for [email protected]. or downloaded. Such activities are ad- the sound recording license. Webcast-