The U.S. Court of Appeals for the D.C. Circuit on Tuesday (9/18) affirmed music streaming rates established for 2016 through 2020 set by the Copyright Royalty Board — the so-called “Web IV” rates that didn’t sit well with the appellant in this case, SoundExchange.
SoundExchange filed an appeal with the Court in an attempt to get several arguments in front of the federal appellate court, following the final determination of the Royalty Board.
In essence, SoundExchange sought to upend the CRB-establish rates.
All of SoundExchange’s arguments were rejected by the Court.
The case concerns the rates paid by webcasters to license copyrights in digital sound
recordings. Webcasters stream digital sound recordings to listeners over the internet. A so-called “noninteractive” webcasting service chooses the recordings to play for listeners,
whereas an “interactive” service allows an individual listener to select music on demand.
Congress established a statutory copyright license for noninteractive webcasters in the Copyright Act. The statutory license enables noninteractive webcasters to transmit
recordings by paying a standard royalty rate rather than negotiating licensing agreements with copyright holders.
Every five years, the Copyright Royalty Board sets the standard rates noninteractive webcasters must pay to play recordings over the Internet under the statutory license.
The appeal raised challenges to the Board’s most recent rate determination on a number of grounds. Based on a proposed “benchmark agreement” derived from the ad-based, non-interactive services market offered by Pandora Media and iHeartMedia, the statutory
royalty rate for ad-based commercial noninteractive webcasters was established at $0.0017 per song performance for 2016, to be adjusted in later years to account for inflation.
SoundExchange protested, and opposed the use of the Pandora and iHeart
agreements as benchmarks. But, the Board rejected SoundExchange’s concerns as Pandora and other webcasters began incorporating “steering” capability into their services in recent weeks.
“Steering” involves technology enabling a webcaster to alter the natural frequency of performances under its algorithm. If a webcaster chooses to “steer” in favor of a
given record label, it will play songs from artists on the label more often than its algorithm would otherwise yield. Steering benefits a record label because broader exposure can help
attract additional listeners to the label’s artists and generate revenue for the label from traditional sources like music sales and merchandise.
Agreements with iHeart and Warner, and between Pandora and an entity named Merlin, show that if the webcaster steered in favor of the record company—increasing the number of plays for the record company’s artists by a certain percentage—the webcaster could reduce the per-performance license rate it paid to the record company.
That’s what irked SoundExchange. It proposed its own benchmark agreement
for the Board to consider. SoundExchange’s proposal, though, involved agreements negotiated between interactive webcaster services and copyright owners.
This led the CRB to use the SoundExchange benchmark (with the steering adjustment) and the Pandora benchmark (which already accounted for steering) to set the zone of reasonable rates for the subscription-based webcasters. Selecting a rate within that range, the Board set the statutory royalty rate for subscription-based commercial
noninteractive webcasters at $0.0022 per song performance for 2016, to be adjusted in ensuing years to account for inflation.
That still didn’t meet SoundExchange’s goals.
SoundExchange challenged four aspects of the Copyright Royalty Board’s webcaster license determination:
- the adoption of the Pandora and iHeart benchmarks over SoundExchange’s objections
- the adjustment downward of SoundExchange’s proposed benchmark rate for subscription-based services in an effort to capture “effective competition”
- the decision to set separate license rates for ad-based and subscription-based commercial webcasters
- the revision of the requirements for auditors to qualify to perform verification of royalty payments
Each one of these challenges were dismissed by the Appeals Court.
“SoundExchange faces an uphill battle in challenging the Board’s selection of its benchmarks,” the Court ruled.
The court’s ruling can be accessed here.
The NAB is “delighted” by the decision, NAB EVP/Communications Dennis Wharton said on Tuesday.
