CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

And when I refer to “webcasters”, I’m referring not only to my primary target audience, i.e., FCC- licensed radio stations who are webcasting. (See below for more details on the three different categories of broadcaster/webcaster). Beyond that radio-based universe is a larger universe of operators engaging in “non-interactive webcasting”, perhaps more commonly referred to as “streaming”. (These are folks who, in overly simplified terms, don’t allow the user to request and directly hear a song.) The information in this post is generally applicable to all webcasters, radio-based and non-radio-based alike. 

Radio stations who are streaming online (most often consisting of a simulcast of the station’s over-the-air signal, though perhaps offering one or more “side channels” as well) normally fall into one of three categories: commercial broadcaster, noncommercial webcaster, and noncommercial educational webcaster. Remember that the distinction between “commercial” and “noncommercial” is based not on the station’s FCC license, but rather on whether the entity offering the webcasting service is exempt from federal income taxation under Section 501(c) of the Internal Revenue Code. There is a further distinction between “noncommercial webcaster” and “noncommercial educational webcaster”, the latter being affiliated with an accredited educational institution whose students substantially staff the webcasting operations.

There are also sub-categories within each category. For instance, a noncommercial webcaster can self-classify under the “CRB” or “WSA” designations. “CRB” stations are subject to the rules put in place by the Copyright Royalty Board in its Webcasting III decision applicable to the years 2011-2015; “WSA” stations are subject to the relevant Webcaster Settlement Agreement. 

The designations of “commercial broadcaster”, “noncommercial webcaster (WSA)” and “noncommercial educational webcasters” include special categories for smaller entities which come with some benefits. By paying an extra $100 “proxy fee” with its annual minimum payment, a commercial broadcaster who had fewer than 27,777 “aggregate tuning hours” in the previous year and expects to do so again can receive an exemption from the rather onerous monthly “Playlist Report of Use” requirement. Ditto both for a noncommercial webcaster (WSA) who had fewer than 44,000 aggregate tuning hours in the previous year and expects to do so again, and for the noncommercial educational webcaster who had fewer than 55,000 aggregate tuning hours in every month (though you can go over in one month) and expects to do so again. 

You choose your category – or, if applicable, your status as a small broadcaster or microcaster – when you file your Annual Minimum Fee Statement of Account form with SoundExchange. That form is due by January 31, 2013. Note: in prior years, small broadcasters or microcasters had to file a separate “Notice of Election” form; this year that election is incorporated into the Annual Minimum Fee Statement of Account form, which includes a line where the webcaster will indicate its election to pay the $100 “proxy fee”. 

But that’s not all: your obligations continue throughout the year. With the exception of the noncommercial educational microcaster, everyone – whether payment is required or not – must file a Monthly Statement of Account form with SoundExchange within 45 days of the end of the month in question. Full-sized commercial broadcasters, noncommercial webcasters and noncommercial educational webcasters have to file Playlist Reports of Use on a regular basis – generally monthly – as well.

So consider yourself reminded: if you are engaged in “non-interactive webcasting”, you will need to find the proper Annual Minimum Fee Statement of Account Form and send it to SoundExchange along with your payment of $500.00 per channel by January 31, 2013. If you qualify either as a “small broadcaster” or under one of the “microcaster” categories, you may also pay an extra $100 per channel in exchange for an exemption from the requirement that you file Playlist Reports of Use on a monthly or quarterly basis (but you don’t need to use a separate Notice of Election form this year).  However – with one very minor exception for noncommercial microcasters – regardless of your classification or size, your obligations do NOT end on January 31, 2013. You will need to file Statement of Account forms and, possibly, Playlist Reports of Use throughout the year.   

You can get more detailed information about every category via the “How do I Pay” page on the SoundExchange website. We’re here to help as well.

[UPDATE:  This morning, after we had posted this piece, our friends at SoundExchange sent around a note advising webcasters of a new SoundExchange-produced video in which they “break down what your service needs to submit to be compliant with the statutory license for 2013”.  You can find that video at this link.  And, of course, webcasters can also get help from the SoundExchange Licensee Relations group at 202-559-0555.]

The CRB got the ball rolling back in January, 2011, when it opened the proceeding and invited all interested parties to join in.  As the Copyright Act provides, copyright owners and NCE broadcasters and entities (e.g., NPR, PBS) can negotiate deals among themselves and the CRB can then rubberstamp those deals (subject to various procedural niceties designed to protect folks who might object to some or all of the deals’ terms).

Sure enough, essentially all of the relevant parties were able to get together and hammer out mutually agreeable arrangements, as I reported back in April (with respect to Non-PBS and Non-NPR stations) and June (with respect to PBS and NPR stations).  The CRB has now formally accepted those deals, rejecting minimal objections from a few parties who were technically not even eligible to participate before the CRB.

As an overall matter, rates for the next five years will increase over those currently in effect – there’s a surprise – but not by much.  The increase in every category tends to be no more than 2% over the corresponding rate from the previous five-year period.  The precise dollar figures that will apply are set out in a number of tables and rule sections in the Federal Register.  Since there are close to 200 separate data points, I’m not going to lay them all out here.   I will, however, briefly summarize the factors that come into play in determining which of those figures applies to which types of NCE broadcaster. 

Type of Station.  First, as has historically been the case, royalty rate calculations will vary depending on the type of station in question.  For these purposes there are three types of station: (a) NPR/PBS affiliates; (b) non-NPR radio stations affiliated with educational institutions; and (c) other NCE radio stations that are neither NPR affiliates nor licensed to an educational institution. 

NPR/PBS stations.  For NPR and PBS affiliates (including radio stations licensed to educational institutions), royalties will be based on how each individual piece of music is used.  In particular, they will vary depending on whether the broadcast is (a) a network program or (b) the work of an individual affiliated station (with the latter costing less than the former), and also on whether the musical work in question appears (i) in a “featured presentation” or (ii) merely as background or theme music (again, with the latter costing less than the former).  Rates for PBS and its affiliates will be greater than those for NPR and its affiliates.  The same rates will apply regardless of whether the piece of music is licensed by ASCAP, BMI or SESAC.

Non-NPR radio stations affiliated with educational institutions.  The most obvious change for this universe of stations is the elimination of the one-size-fits-all flat fee approach which has historically been used.  Instead, 2013-2017 rates payable to ASCAP and BMI will involve a tiered system that takes into account the size of the educational institution’s student body.  Different rates will apply to schools with (a) fewer than 1,000 full-time students; (b) 1,000-4,999; (c) 5,000-9,999; (d) 10,000-19,999; and (e) 20,000 or more.  Stations with ERP of 100 watts or less will be entitled to the lowest rate (i.e., the rate for schools with fewer than 1,000 full-time students), regardless of the actual size of the school’s student body. 

No such tiering will apply for SESAC music, however.  Instead, this class of station will pay a flat annual fee of $140, with increases each year thereafter based on a cost of living coefficient equivalent to the greater of: (a) the change in the Department of Labor’s Consumer Price Index in the prior year or (b) 2%.

Other NCE radio stations.   NCE stations not fitting into either of the two classes described above will, as expected, pay flat annual rates, but the rates will vary based on: (a) the size of the population within each station’s 60 dBu contour (along with any additional population provided by translators or boosters); (b) the nature of the station’s programming; and (c) whether the music is licensed by ASCAP/BMI, on the one hand, or SESAC, on the other.  

With respect to the first variable, there are eight separate population tiers, the lowest being fewer than 250,000 and the highest topping off at 3,000,000 or more.  

As to the second, there will now be separate grids of royalty rates for (a) music stations and (b) “talk format” stations.  The former category includes all stations which devote at least 20% of their programming to content in which music is the “principal focus of audience attention”.   The latter includes stations whose program content “primarily consists of talk shows, news programs, sports, community affairs or religious sermons (or other non-music-oriented programming)” and who don’t devote at least 20% of their programming to music annually.

And finally, the royalty grids for music and talk NCE stations will be the same for ASCAP and BMI songs.  SESAC content will be subject to a separate set of rates which will be lower than the ASCAP/BMI rates.  The rates will all rise in gradual increments annually over the five-year term.

Recording Rights

Finally, the cost of the recording rates and terms will increase very slightly (by only a few dollars) for every type of noncommercial broadcast station.

The grids laying out all the various rates are set out in the Federal Register notice.  You can use them to find the rates that will apply to your particular station.  And you can always contact me if you have questions finding the rate applicable to you.  That may not be necessary, though, because you can rest assured that ASCAP, BMI and/or SESAC will be contacting broadcasters sooner rather than later, asking them to put pen to paper on their new agreements, with these new rates, for 2013.

Intercollegiate raised a number of arguments, but the one that obviously got the court’s attention was the Appointments Clause claim. The Appointments Clause? Maybe not as familiar to the Great Unwashed as, say, the Commerce Clause or the First Amendment, it’s still a f’real part of the Constitution – check for yourself at Article II, Section 2, Clause 2. For those of you who never bothered to memorize the Appointments Clause for your Civics Class, here ‘tis:

[The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

Intercollegiate argued that the CRB’s members are “principal” rather than “inferior” officers and, as such, must be appointed by the President and confirmed by the Senate.  Since CRB members aren’t appointed by the Prez (or confirmed by the Senate), they’re constitutionally invalid, as are their decisions.

This argument is not new. It surfaced three years ago in a CRB appeal. In that case the argument wasn’t raised in a timely manner, so it was ignored in the Court’s opinion. But Judge Kavanaugh, in a separate concurrence, specifically mentioned it with seeming approval. A couple of months later, a commercial company (Live365) raised the same argument in a U.S. District Court and lost; Live365 appealed that loss, but ultimately settled out before its appeal got too far along.

The third time’s the charm. Intercollegiate properly raised the argument in its own 2011 appeal and the D.C. Circuit has now spoken. Because the Librarian of Congress (who appoints CRB members) was very limited in his/her ability to remove CRB members, and because the CRB was not subject to the direction and supervision of any “principal officer”, well, then, CRB members are themselves “principal officers”. Not having been appointed by the President, they cannot function consistently with the Appointments Clause.

Not to worry, though. Relying on an approach used by the Supreme Court in a similar situation in 2010, the D.C. Circuit has opted to “invalidat[e] and sever[] the restrictions on the Librarian of Congress’s ability to remove” CRB members. By reading those pesky provisions out of the CRB law as Congress wrote it, the court figures that the CRB will henceforth be constitutional.

Constitutional, that is, as long as the Librarian of Congress is a “Head of Department” (as required by the last line of the Appointments Clause). No problem there, either, according to the D.C. Circuit: the Library of Congress is a “component of the Executive Branch” (meaning that it’s a “department”, constitutionally speaking), so the Librarian of Congress is a “Head of Department”. QED. (To get to this point, the Circuit had to tiptoe around at least one earlier case that suggested that the Library of Congress was a “congressional agency”.)

Bottom line: The CRB wasn’t constitutional, but now (with the helpful intervention of the D.C. Circuit) it is. 

Where does that leave orders issued by the CRB back in its benighted, unconstitutional days? The particular order that was the subject of Intercollegiate’s appeal has been vacated and shipped back to the CRB – that would be the New and Improved CRB, Now With Real Constitutional Authority! – for further consideration.  While Intercollegiate did, of course, raise some substantive gripes about the old CRB's royalty ruling, it'll be back to square one for those gripes. Intercollegiate will have to present them again to the CRB.  If, as one might expect, the new CRB does exactly what the old CRB had done, royalty-wise, Intercollegiate will have to bring its gripes back up to the D.C. Circuit all over again.  But next time, it won't have the Appointments Clause argument in its holster.

It’s possible that others subject to previous CRB rulings could now claim that those rulings have no force and effect, thanks to the D.C. Circuit’s decision. Whether or not anybody will view that as a worthwhile exercise remains to be seen.

This is the point where we would ordinarily observe that the losing party before the D.C. Circuit can still seek rehearing, or maybe even Supreme Court review. Chances of further appeals in this case, however, are effectively zero. Intercollegiate won its appeal, so it’s not likely to ask for further consideration by the Circuit or the Supremes. And the CRB isn’t likely to, either. After all, the Circuit’s decision saved the CRB from unconstitutional oblivion – why would the CRB want to appeal that? So we’re guessing that, with the judicially-imposed revisions to the Congressionally-enacted CRB statute in place, life at the CRB will go on largely as it has in the past.

The amount in question varies depending on a number of factors. Rates for PBS and its affiliates would be greater than those for NPR and its affiliates. They would also vary depending on whether the broadcast is a network program or the work of an individual affiliated station (with the latter costing less than the former). Context would also come into play: does the musical work in question appear in a “featured presentation”, or is it background or theme music (the former would be more expensive than the latter)?

The across-the-board increase is relatively small.   Regardless of PBS vs. NPR, network vs. individual affiliate station, feature vs. background/theme, the increase in every category tends to be no more than 2% over the corresponding rate from the previous five-year period. 

The CRB has invited comments on the NPR/PBS proposals. Those comments are due by July 26, 2012. Whether or not CRB receives any comments on this part of the puzzle, we expect it to include these PBS/NPR rates along with the proposed rates for other, non-PBS/non-NPR categories of stations that it announced last April.  

Those earlier proposed rates were not, of course, etched in stone and may be modified somewhat based on the few other comments filed in response to CRB’s April notice, although no major changes are expected. The other comments focused on the possible creation of a separate tier for very, very small noncommercial broadcasters.

We will, of course, keep you posted about any developments. Again, if you are a PBS or NPR affiliate, you’ll want to start figuring out how these rates will affect you and perhaps look closely at the actual proposed royalty rates now that we know what they are.

There were seven such agreements. In its latest notice, the CRB sets forth those proposals in a collection of proposed rules (actually, proposed changes to the rules found in 37 C.F.R. Part 381). They include eight separate grids of rates covering licensees of various types and sizes, in various markets, providing various types of programming. To say that there’s a lot of information to consider and digest here is a gross understatement.

Since the CRB’s notice (with all of its proposed rules, tables, rates and terms) has just been released, we can’t pretend that we’ve studied it carefully. But we will. In the meantime, here's a very early, very quick and dirty review of what we see as the high points: 

It’s unclear what is happening with regard to NPR and PBS stations. The rule that previously applied to this subset of noncommercial broadcasters has been removed and the space held open for future use. No explicit reason was given. It could be that NPR and PBS reached specific licensing agreement; could also be that these stations are just going to be treated as equals to their fellow non-college and university noncomms.

Those general noncommercial broadcasters will pay slightly more for performance of musical works (as would be expected) during the upcoming five-year period, but the change is not drastic. Also as expected, they will pay the same amount to ASCAP that they pay to BMI, with each of those entities receiving more per station than SESAC.   While smaller stations (according to their predicted 60 dBU contours) will pay about the same whether they are playing large amounts of music or not, there are distinct differences among larger stations, depending on whether those stations are music- rather than talk-focused.

There is also a slight increase for noncommercial stations affiliated with a college or university. However, the bigger change on this end is the elimination of a one-size fits all flat fee in favor of a tiered system that takes into account the size of the student body when determining payments to ASCAP and BMI (no such tiering exists for SESAC). However, even within this tiered system, smaller stations (those with an ERP of 100 watts or less) get a break.

Anyone who might be affected by copyright rates to be charged NCE broadcasters until the end of 2017 would also be well advised to dig into the CRB’s notice. With a paltry 30-day comment period, the sooner you get started on figuring out how the proposals could affect you, the better off you’ll be.

Before then, some background on SiriusXM v. SoundExchange.

First, why might folks not like SiriusXM and SoundExchange?

SiriusXM is the spawn of Sirius and XM Radio, the two original satellite radio operators. When they merged to form SiriusXM, many felt the FCC too readily acceded to their promises to refrain from anticompetitive business practices, promises that, also to many, rang hollow and seemed to lack conviction.

And SoundExchange has long been viewed as less than sympathetic, particularly because of the arduous recordkeeping and reporting requirements it imposes on webcasters. And then there are the seemingly ever-increasing royalties it sucks out of webcasters and the less than transparent manner in which it appears to run its business. (On a personal note, I don’t think SoundExchange deserves a bad reputation. I’ve found many of the folks there to be more than helpful and willing to work with broadcasters making a good faith effort to comply with the requirements of the statutory copyright license.)

Second, about that lawsuit.

Webcasters are required to pay copyright royalties for music they transmit. The “easy” way to do that is to send the money to SoundExchange, which serves as the agent of the copyright holders (much like ASCAP, BMI and SESAC do on the broadcast side). The royalty rates SoundExchange charges are set by the Copyright Royalty Board (CRB) periodically.

But motivated parties can sidestep SoundExchange by going straight to the copyright holders to negotiate separate licenses for each piece of music to be transmitted. That approach can be very advantageous. Direct deals can lead to more favorable royalty rates than would be available through the CRB ratemaking process. In its most recent rate ruling, the CRB ordered SiriusXM to pay 8% of gross revenues, and in the next CRB go-round SoundExchange is reportedly ready to ask for an increase up to 13%; by contrast, direct licensing could have tied down a royalty rate in the 5%-7% range.

Being able to negotiate a bunch of direct deals at a substantially lower rate could also be useful in future CRB ratemakings. Such lower rate deals would provide empirical proof of what the actual market for webcasting rights would bear, the standard the CRB is supposed to use in setting rates.  A significant rate reduction across the board through CRB ratemaking would be huge for SiriusXM, which reportedly spent $200 million in royalties in 2011.

Furthermore, direct licensing has practical benefits. The two sides can agree on their own reporting procedures (broadcasters always complain that the standard CRB-mandated, SoundExchange-enforced paperwork regimen is too onerous). They can waive various stringent conditions (such as limitations on the number of songs from one artist within a given time period). Economies of scale can be created across multiple platforms that also allow for better marketing (think interactivity and social media, for example).

A primary downside of direct licensing: it tends to be less convenient to achieve, requiring lots of leg work followed by lots of separate, possibly difficult, negotiations which may or may not result in deals. 

Apparently, SiriusXM tried its best to enter into direct licenses. It says it entered into 80 of them, but claims to have been shut out of many, many more.  Figuring that its lack of success was not just a matter of bad luck, SiriusXM filed suit in the U.S. District Court for the Southern District of New York. It alleged that SoundExchange and A2IM ,“acting in concert with one another and with their individual recording company members, have erected an industry-wide conspiracy to boycott and tortiously interfere with Sirius XM’s efforts to secure through the workings of a competitive market copyright rights critical to the conduct of its business.”

Specifically, SiriusXM claims that SoundExchange, A2IM and others coerced record companies not to do business directly with SiriusXM. The coercion supposedly involved “implicit and explicit threats to enforce compliance” as well as efforts to “misle[a]d record companies as to their economic interests and even encourage[ ] some record companies to terminate license agreements they had already concluded with SiriusXM”. 

According to SiriusXM, a conspiracy involving SoundExchange, A2IM and others was designed to ensure that webcasting royalties would have to be set by CRB decision, and that the CRB decision would have to be based on essentially speculative testimony. No direct licenses, no negotiated settlement and no real evidence of what actual market participants actually want.  

In filing its lawsuit, SiriusXM did not need to prove its case in its entirety. Rather, it just needed to advance enough factual claims that, if proven at trial, would establish its entitlement to the relief it’s seeking. In its complaint, SiriusXM refers to various communications from the defendants – mailings to their members, public statements, etc. – all allegedly designed to spread the word loud and clear that

direct licensing is harmful to the Defendant’s scheme to establish and maintain super-competitive royalty rates. Hold the line and don’t sign up [for direct licensing with SiriusXM].

And sure enough, SiriusXM quotes a bunch of such communications, all of which seem to support its claims. (Here’s a link to a copy of SiriusXM’s complaint, so you can see for yourself what it’s alleging.)

SiriusXM also alleges that several artists and music labels refused to enter into licenses with SiriusXM because those artists and labels were supposedly scared that (a) SoundExchange would reduce the royalties to which they were entitled and (b) they would end up as pariahs in the music industry, blackballed from board memberships or other leadership positions.

Whether or not SiriusXM will be able to prove all its allegations to the satisfaction of a trier of fact in a court of law remains to be seen. 

Still, we can speculate about how all this might affect some key players not directly involved in the suit.

First, those we’ll call “winners”: 

Broadcasters. Broadcasters don’t have a dog in this fight, per se. In fact, that’s the beauty of this lawsuit from the broadcasters' perspective.   If SiriusXM wins, broadcasters will reap the benefits without any effort. 

What benefits? The possible dismantling of SoundExchange, or the imposition of some limiting consent decree against SoundExchange, or the forced introduction of a competitor receiving agent.  A SiriusXM win would certainly help establish actual market values that would serve as a “willing buyer/willing seller” standard in future SiriusXM ratemaking proceedings. Although such numbers would technically have no direct bearing on the broadcasters’ next CRB ratemaking proceeding (i.e., Webcasting IV, due to begin in 2014 to set rates for 2016-2020), those numbers would provide important concrete data – possibly the only such data – regarding the value of a digitally transmitted sound recording. Moving further out toward the edges, there’s also the simple hope that a SiriusXM victory might embolden more smaller, so-called “independent” labels to license their copyrighted material directly to radio stations as well as SiriusXM. 

This would be especially important if the broadcasters’ own worst case scenario – enactment of the Performance Rights Act – were to occur. We’ve thankfully heard little about this legislation for a couple of years, but imagine if (a) it were too pass and (b) SoundExchange were given the right to administer those royalties as well. Broadcasters would then be in virtually the same position SiriusXM is in right now: paying royalties on two fronts and completely bound by the rules and procedures set by the CRB and SoundExchange. In this scenario, any relaxation of the SoundExchange grip that SiriusXM might achieve through its lawsuit would ultimately benefit broadcasters. 

SiriusXM. If nothing else, SiriusXM gets some street cred from the broadcasters?  SiriusXM is taking up this fight with SoundExchange on its own. By contrast, when broadcasters took on SoundExchange and the Webcasting II decision, they did so en masse, with the bulk of the broadcasting industry marching in lock step.

But more than that, SiriusXM made the right play. Not necessarily the winning play – we won’t know that for a while – but the right play. Litigation is expensive, but not as expensive as the $200 million in royalties that SiriusXM claims to have paid last year. Add in the fact that a victory would not only reduce that expense, but also afford SiriusXM more flexibility in future negotiations and the ability to innovate.  

And even if it loses, SiriusXM is likely to be able to add a few more direct licenses to the 80 it already has (out of 500 or so that it sought). That should give it a little more bargaining power in future ratemaking proceedings by fully demonstrating the value of a sound recording under the “willing buyer/willing seller” standard applicable to satellite radio.  And regardless of whether that pans out, well, as one commentator (The Motley Fool) put it: “SiriusXM is part of a legal complaint where it really doesn’t have much to lose beyond legal fees. If its complaint doesn’t hold up, SiriusXM is back to where it is now.  If it has merit, SiriusXM should be able to strike better licensing terms with labels that value the promotional power of being broadcast to the provider’s 21.9 million subscribers.”

Smaller Independent Recording Artists.   Unlike major artists represented by major labels, these artists are more likely to be at the mercy of the bigger players. SiriusXM’s lawsuit, successful or not, is likely to give these artists and their labels a more prominent voice. There’s also a little leverage that might lead to a chance to work out the deals they really want, deals that aren’t just about money but about creating future opportunities for themselves.

Royalty Logic. You’ve probably never heard of this company. It’s the scrappy underdog to SoundExchange, a wannabe designated receiving agent that has repeatedly been turned away by the CRB. Much like BMI got its start after ASCAP encountered legal troubles, could Royalty Logic position itself as the answer to SoundExchange’s anti-competitive behavior – a ready-made competitor?

And now the “losers”:

SoundExchange. SoundExchange may well win this lawsuit, but I doubt that will happen quickly or inexpensively. At a minimum, I predict that the lawsuit will survive a motion to dismiss. To be sure, the evidence alleged by SiriusXM in support of the alleged conspiracy is largely circumstantial. But the Federal Rules of Civil Procedure say that a court, when considering a motion to dismiss, must view all factual claims in SiriusXM’s favor. I think there’s enough in SiriusXM’s complaint to get it past a motion to dismiss and into the discovery phase. Once it gets that far, any number of possible resolutions would be available, most favorable (at least in some ways) to SiriusXM and unfavorable to SoundExchange. 

Furthermore, where SiriusXM has little to lose because its situation can’t get worse, SoundExchange has everything to lose, because its situation can’t get much better than it is right now, at least in terms of market share. 

The CRB. The CRB is a bigger part of the practical problems here than it is the solution to those problems. From allowing SoundExchange to exist without competition to siding with SoundExchange on virtually every contested fact in the 2007 Webcasting II decision (and many other ratemaking proceedings), the CRB may have created the environment that allowed questionable, if not illegal, activity to flourish. It’s legal authority and constitutionality has already been questioned. This might be enough to rethink the entire regime. 

We won’t know how the litigation will shake out for some time But the ultimate result in the case may be beside the point. The mere initiation of the case may represent an early tremor signaling the onset of a seismic event, an event that would likely, one way or another, fundamentally affect all the players. Check back here for updates.

This year my post will be more streamlined than in previous years. That’s because, for the first time in about five years, there is some semblance of stability in the webcasting world. In previous years we’ve had intervening court decisions, actions by the Copyright Royalty Board (CRB), proposed legislation, settlement agreements and other factors that contributed a sense that the system was constantly in flux. Not this year. The only substantive changes from last year are: (1) an increase in the royalty rate that is applied to each service category and (2) slight changes to the particular forms to reflect that increase. (And even the increase in royalty rate is no surprise – it’s just what was provided in the five-year plan adopted by the CRB in 2010.)

In addition, the SoundExchange website has really improved since I started these reminders, as has SoundExchange’s outreach to the industry. Most registered webcasters (those who have filed the Notice of Use of Sound Recording Under Statutory License form and made payments/filed Playlist Reports of Use in the past) have probably received a reminder from SoundExchange already. So it’s easier to get clear information about an already simplified process with which many radio stations are already pretty familiar. I've heard from a number of folks that SoundExchange’s responsiveness to individual inquiries has improved as well.

Another reason for this year’s more streamlined approach: we aren’t in the business of just giving it away. If you’re still not clear on the obligations, you’re reaching out to us – or another law firm – seeking to utilize our specialized expertise. We’re happy to help, but bear in mind that there may not be a one-size-fits-all solution available for your particular circumstances.  I, for one, would prefer to provide clients with individualized guidance to ensure that they are fully compliant and can remain that way with the minimum cost and effort.

With that behind us, the 2012 SoundExchange basics come down to a simple “who”, “what”, and “when” – as in, “who am I”, “what must I file” and “when do I have to file it by”.

Who: Any radio station almost certainly falls into one of three basic service categories: commercial, noncommercial (determined by the webcasters’ 501(c)(3) status, not its FCC-licensure) or noncommercial educational (a noncommercial webcaster affiliated with an educational institution whose operations are also substantially staffed by students). Within each service category, there are sub-categories for small broadcasters or microcasters that offer relief if the webcaster stays under a certain aggregate tuning hour threshold (27,777 ATH/yr for commercial broadcasters, 44,000 ATH/yr for noncommercial and 55,000 ATH/month for noncommercial educational). Note that some service categories and, especially, small broadcaster or microcaster sub-classifications may require you to also file a Notice of Election by January 31. (Failure to opt into service categories subject to this deadline could bar you from the category for the rest of the year.)

What: Regardless of the category, each webcaster is required to make payments to SoundExchange. The amount due is tied to the royalty rate for the webcaster’s particular service category:

• commercial broadcasters pay $0.0020 per performance;
• noncommercial webcasters of all stripes get the first 159,140 ATH per month free and pay on a per performance basis after that (noncommercial webcasters following the CRB decision for 2011-2015 pay $0.0021 per performance; noncommercial webcasters opting into the general noncommercial webcasting settlement agreement pay $0.00067 per performance)
• noncommercial educational pay $0.0020 per performance

Of course, all webcasters must also pay a $500.00 per station annual minimum fee.

Most stations must also file Playlist Reports of Use with SoundExchange, listing key information about every song played during the relevant reporting period. The self-classification process becomes especially important here, as noncommercial webcasters operating under the settlement agreements have relaxed reporting requirements, while small broadcasters and noncommercial and noncommercial educational microcasters may be able to pay a $100 “proxy fee” to be exempted from the Playlist Report of Use requirement entirely.

When: Notices of Election, if applicable, and Annual Minimum Payment Statements of Account are due on January 31.Monthly Statements of Account are due every month thereafter, within 45 days of the end of the month to which they pertain (i.e., by March 16 for January, April 14 for February, etc.). These filings must occur, for most service categories, even if you do not have a payment to make for that month (whether because you didn’t reach the required noncommercial threshold or because your accumulated royalties haven’t exceeded $500.00 for the year to date). You must also file your Playlist Reports of Use on this same schedule (subject to certain relaxations for qualifying noncommercial webcasters who might only file quarterly or the small broadcasters or noncommercial/noncommercial educational microcasters who might not file at all). 

That’s the basic structure – same as last year. Clients of the firm should already have received a specialized e-mail as well that outlines the choices you must make and the factors that will influence your decision; our e-mail also provides links to the specific forms you will need. Otherwise, SoundExchange has accumulated all the information and link to the relevant form on one convenient page (Internet-only, non-FCC licensed webcasters will find their information here as well). You should feel free to contact us if you have further questions.

A.        Noncommercial webcasters who have NOT elected to participate in any major webcaster settlement agreement

There is absolutely no distinction on the noncommercial side between a webcaster that operates a broadcast station and one that does not. But there is a distinction between an entity that elects to participate in the general noncommercial webcasters settlement agreement (the “General Agreement”) and one that does not.  (Note: Participation in that agreement offers significantly better terms, in my view.) Fortunately, you can elect that status even if you have not done so before. (Helpful reminder: even if you have previously elected that status, you must “re-up” every year.) For reasons discussed in Section C below, I strongly recommend that the General Agreement option be chosen, if at all possible.

However, if you cannot or decide not to participate in the General Agreement or any other webcaster settlement agreement, your obligations are:

Annual Minimum Statement of Account Form and Fee – File an annual minimum fee of $500 per channel by January 31, 2011 using the 2011 Noncommercial Webcaster Minimum Fee Statement of Account form found here. A separate form must be filed for each channel or station. 

Monthly Statement of Account Form and Fee – File any fees incurred for exceeding the 159,140 aggregate tuning hour maximum, along with the 2011 Noncommercial Webcaster Monthly Usage Statement of Account form found here.  You must file this form even if no fees have been incurred, marking “zero” in the "excess performances" column.  Again, a separate form must be filed for each channel or station.

Playlist Reports of Use – Playlist Reports of Use must be filed on a quarterly basis using the template report for filing (in Excel format) found here, unless you exceed 159,140 aggregate tuning hours in a given month during 2010 or 2011, in which case you file on monthly basis. Also note that you may be able to opt out of this requirement if you qualify as a Noncommercial Microcaster (see Section D below for details).

Notice of Election – No notice of election is required. 

B.        Noncommercial webcasters who HAVE elected to participate in the webcaster settlement agreement between CPB (on behalf of PUBLIC RADIO STATIONS) and SoundExchange

As in previous years, some noncommercial stations do not have to file forms with SoundExchange. Entities subject to this exemption include station that are: CPB-supported; NPR members; National Federation of Community Broadcasters members; or part of American Public Media, the Public Radio Exchange or Public Radio International. Under the terms of the separate CPB/SoundExchange settlement agreement, NPR’s Public Radio Interactive is making those payments. Stations participating in the CPB/SoundExchange agreement will be contacted by Public Radio Interactive with regard to their obligations.

C.       Noncommercial webcasters who HAVE elected to participate in the General Agreement and are NOT considered Microcasters because they have an average of at least 44,000 aggregate tuning hours per year 

While a decision (“Webcasting III”) by the Copyright Royalty Board last December sets the default royalty rates and related terms for non-interactive webcasters, those rates and terms vary somewhat from rates and terms specified in the General Agreement. If you are a party to the General Agreement (and I recommend that all eligible entities take this option), you are still subject to certain obligations. (As mentioned in Section A, above, you must renew this classification each year.) Those obligations include:

Notice of Election – File a Notice of Election by January 31, 2011 on the 2011 Notice of Election for Rates and Terms for Noncommercial Webcasters Form found here. 

Annual Minimum Statement of Account Form and Fee – File an annual minimum fee of $500 per channel by January 31, 2011 using the 2011 Noncommercial Webcaster Minimum Fee Statement of Account form found here. A separate form must be filed for each channel or station.

Monthly Statement of Account Form and Fee – File any fees incurred for exceeding the 159,140 aggregate tuning hour (ATH) maximum, along with the 2011 Noncommercial Webcaster Monthly Usage Statement of Account form found here. You must file this form even if no fees have been incurred, and you must calculate and insert your total ATH in the appropriate columns even if you do not exceed the maximum. Again, a separate form must be filed for each channel or station.

Playlist Reports of Use – Playlist Reports of Use must be filed on a quarterly basis using the template report for filing (in Excel format) found here, unless you:

exceed 159,140 aggregate tuning hours in a given month during 2010 or 2011, in which case you file on monthly basis; and

do not exceed 44,000 aggregate tuning hours in the entire year 2010, in which case you can pay $ 100 for the right to be exempted from this requirement altogether, as per section D, below. 

D.        Noncommercial Webcasters who HAVE elected to participate in the GENERAL AGREEMENT and ARE considered Microcasters because they had fewer 44,000 aggregate tuning hours last year.

This section applies to extremely small noncommercial webcasters who have signed onto the General Agreement. As we have explained in years past, these webcasters can be exempted from the playlist reporting requirement and, by definition, will not be paying royalties because they will never exceed 159,140 aggregate tuning hours in any given month.  Again, to be eligible, you must have elected to participate in the General Agreement in previous years and renew that election this year.

If you choose this category, your obligations are:

Notice of Election – File a Notice of Election by January 31, 2011 on the 2011 Notice of Election for Rates and Terms for Noncommercial Microcaster Form found here. If you wish to avoid filing Playlist Reports of Use, you must file a $100 proxy fee with this form.

Annual Minimum Statement of Account Form and Fee – File an annual minimum fee of $500 per channel by January 31, 2011 using the 2011 Noncommercial Microcaster Minimum Fee Statement of Account form found here. A separate statement of account must be filed for each channel or station.

Monthly Statement of Account Form and Fee – By definition, a station in this classification will not exceed 159,140 aggregate tuning hours, so no monthly statement of account is required.  

Playlist Reports of Use – Of course, the benefit of this classification is that you can opt out of filing Playlist Reports of Use. If you do not choose this option, the reports must be filed on a monthly basis; SoundExchange prefers that you adhere to the template report for filing (in Excel format) found here. Each Playlist Report of Use is also due within 45 days of the end of the month to which it pertains. 

Again, the requirements described in all of the above sections do not apply to "noncommercial educational" webcasters, i.e., noncomm stations whose operations are not substantially staffed by students. If you are a noncommercial educational webcaster, you should review our post relating to your particular situation.

Remember, your annual minimum statement of account forms and payments (and Notice of Election, if applicable) are due by January 31, 2011.  You cannot file these forms electronically, and there is a penalty for late payment (or worse consequences, for late-filing a Notice of Election), so if you haven’t gotten started yet, now would be a good time.

Annual Minimum Statement of Account Form and Fee - You must file an annual minimum fee of $500 per channel by January 31, 2011 (or within 45 days of commencing webcasting). The fee must be filed along with the 2011 Noncommercial Educational Webcaster Minimum Fee Statement of Account form found here. A separate form must be filed for each channel or station. 

Monthly Statement of Account Form and Fee – You must also file the 2011 Noncommercial Educational Webcaster Excess Monthly Liability Statement of Account form found here. If you exceeded the 159,140 aggregate tuning hour maximum, you must submit any resulting fees along with the form.  You must file this form even if no fees have been incurred, and you must calculate and insert your total ATH in the appropriate columns even if you do not exceed the maximum. Again, a separate form must be filed for each channel or station.

Playlist Reports of Use – Playlist Reports of Use must be filed on a quarterly basis using the template report for filing (in Excel format) found here, unless you:

exceeded 159,140 aggregate tuning hours in a given month during 2010 or 2011, in which case you file on a monthly basis; or

did not exceed 55,000 aggregate tuning hours in any given month in 2010 and do not expect to exceed that level in the year 2011 – in which case you can file the proper Notice of Election form (see below) and pay $100 for the right to be exempted from this requirement altogether.

Notice of Election – There is no need to file a Notice of Election unless you qualify for exemption from filing of Playlist Reports of Use. If you never exceeded 55,000 aggregate tuning hours in any month in 2010 and choose to pay a $100 “proxy fee” in lieu of filing reports, you may elect to do so by filing a Notice of Election. You do that by filing the 2011 Noncommercial Educational Webcaster Notice of Election form found here. If you do not meet the eligibility standards, or if you choose not to seek an exemption, you need not file the form.

Again, these forms apply to stations that are noncommercial educational webcasters. If you are not a noncommercial educational webcaster, please check our posts describing the requirements for commercial webcasters or noncommercial (but not educational) webcasters.

Remember, your annual minimum statement of account forms and payments (and Notice of Election, if applicable) are due by January 31, 2011.  You cannot file these forms electronically, and there is a penalty for late payment (or worse consequences, for late-filing a Notice of Election), so if you haven’t gotten started yet, now would be a good time.

A.        Commercial broadcasters, whether or not participating in the Webcaster Settlement Agreement between the NAB and SoundExchange:

There used to be a distinction between those broadcasters who had chosen to participate in the settlement agreement (NAB/SoundExchange Agreement) between the National Association of Broadcasters and SoundExchange and those who had not signed onto that agreement. However, the recent Webcasting III decision of the Copyright Royalty Board (CRB) has eliminated any such distinction on the commercial side. As a result, all Commercial Webcasters who are (a) FCC licensees of an AM or FM radio station and (b) simulcasting at least one channel on the Internet, have these obligations in 2011:

Notice of Election – There is no requirement to file a notice of election unless you are not currently participating in the NAB/SoundExchange Agreement and wish to do so (although as far as I can see there is absolutely no benefit to joining that agreement now). 

Annual Minimum Statement of Account Form and Fee – File an annual minimum fee of $500 per channel by January 31, 2011 using the 2011 Broadcaster Minimum Fee Statement of Account form found here. (Note: The form refers to the NAB/SoundExchange Agreement but that is of no consequence because the Webcasting III decision eliminated all distinctions between the rates and terms specified by the CRB and those laid out in the NAB/SoundExchange Agreement. As a result, all commercial webcasters who are also broadcasters are now created equal for copyright royalty purposes.) 

Monthly Statement of Account Form and Fee – File any fees incurred beyond the $500 annual minimum already paid by using the 2011 Broadcaster Monthly Liability Statement of Account form found here. You must file this form even if you’re not actually paying because your cumulative fees for the year have not yet exceeded $500.  Each Statement of Account is due within 45 days of the end of the month to which it pertains. 

Playlist Reports of Use – Playlist Reports of Use must be filed on a monthly basis. SoundExchange prefers that you adhere to the template report for filing (in Excel format) found here. Each Playlist Report of Use is also due within 45 days of the end of the month to which it pertains. 

B.        SMALL commercial broadcasters who HAVE elected to participate in the Webcaster Settlement Agreement between the NAB and SoundExchange:  

A select few broadcasters who are simulcasting on the web also qualify as “Small Commercial Broadcasters” and are treated differently, mainly because they can be exempted from filing Playlist Reports of Use. 

This distinct classification applies only to those broadcasters who: (1) elected to participate in the NAB/SoundExchange Agreement; and (2) had fewer than 27,777 aggregate tuning hours in the previous year.  These Small Commercial Broadcasters have one additional step to complete before January 31, but they will save a lot of time in the future because they do not have to file playlist reports of use on a monthly basis.  Operators qualifying as “Small Broadcasters” have these obligations in 2011: 

Notice of Election – File a Notice of Election by January 31, 2011 on the 2011 Notice of Election for Rates and Terms for Small Broadcasters Form found here. This Notice of Election must be accompanied by your $100 “proxy fee”. 

Annual Minimum Statement of Account Form and Fee – File an annual minimum fee of $500 per channel by January 31, 2011 using the 2011 Small Broadcaster Minimum Fee Statement of Account form found here. 

Monthly Statement of Account Form and Fee – File any fees incurred beyond the $500 annual minimum already paid by using the 2011 Small Broadcaster Monthly Liability Statement of Account form found here. While it is extremely unlikely that a small broadcaster’s cumulative fees for the year would exceed $500, you must file this form every month whether or not any payment is due. Each Statement of Account is due within 45 days of the end of the month to which it pertains. 

Playlist Reports of Use – Of course, the benefit of this classification is that you can opt out of filing Playlist Reports of Use. If you do not choose this option, the reports must be filed on a monthly basis.  SoundExchange prefers that you adhere to the template report for filing (in Excel format) found here. Each Playlist Report of Use is also due within 45 days of the end of the month to which it pertains. 

Remember, your annual minimum statement of account forms and payments (and Notice of Election, if applicable) are due by January 31, 2011.  You cannot file these forms electronically, and there is a penalty for late payment (or worse consequences, for late-filing a Notice of Election), so if you haven’t gotten started yet, now would be a good time.

That’s why we weren’t surprised to see the CRB use those settlement agreements as its starting point in Webcasting III. And we’re certainly not surprised that the CRB was able to quickly dispose of the attempts from each side to move the needle by a couple points. It doesn’t appear that either the webcasters or SoundExchange (representing the recording artists) is utterly dissatisfied with the final result – we’re certainly not hearing the outcry that greeted Webcasting II. 

For now that’s all we’re going to say about the proceedings themselves. If you really want to know more, you can take the time to pore over the 137 page decision. But we suspect you won’t because, like most people, you don’t really want to know how the sausage is made; you just want it on the plate in front of you. So we’ve compiled this handy chart comparing the royalty rates for the various webcaster classifications for 2011-2015. Two important notes: (1) as in previous years, there is a $500 annual minimum fee per channel which functions similar to a non-refundable deposit against payment obligations incurred under these rate structures; and (2) noncommercial rates only apply if station exceeds 159,140 ATH/month. 

 If you’re paying attention, two things jump out here. First, the CRB has taken the royalty rates found in the major WSAs and more or less applied them across the board to webcasters meeting the definition for the relevant class, whether or not the webcaster originally opted into an available WSA. (For webcasters who opted into a WSA, the WSA still takes precedence.). And second, there are fewer and fewer differences between the various classes of broadcasters.  

When you think about it, this makes sense, since the ultimate goal here is to figure out the going market rate for a performance – which suggests that there should be little to no difference across each class, although it still seems appropriate to offer a benefit (in the form of the first 159,140 ATH free) for noncommercial webcasters.

Of course, that’s not the end of the meal. A heaping helping of mandatory playlist reports still sits on your plate and, frankly, many webcasters find them pretty hard to swallow.  But you don’t have to worry about them right now. We figure you’re just about full after everything you’ve already digested, so we’ll put those away and reheat them in the very near future when we offer a refresher course on the required filings you’ll need to make throughout 2011. 

Check back here in January, in advance of the first deadline of 2011, which would be January 31, the deadline for the filing of notices of elections and annual minimum payments.

First, the decision may be a reliable indicator of the future. It’s clear that the CRB is likely to rely on the current state of affairs in setting rates and terms for webcasters during the years 2011-2015. So when the CRB gets around to establishing  2011-2015 rates, we won’t be surprised if noncommercial (and commercial) webcasters will get tagged again with this same $500 per channel annual minimum.

Second, the CRB’s decision provides a glimpse at some interesting data. According to the decision, SoundExchange claimed that it cost about $803 per channel per year to administer the webcasting statutory license.  If that’s really the case, then SoundExchange is losing money – to the tune of $303 a pop – on the majority of noncommercial stations.  

Interestingly, the CRB’s decision indicates that approximately 730 webcasters paid royalties to SoundExchange in 2009.  Of those, about half (i.e.., 363) were noncommercial.  Yet payments by noncommercial webcasters constituted only about one percent of all royalty payments.  Why?  Because 305 of the 363 reporting noncommercial webcasters – almost 85 percent – paid only the annual minimum of $500 per channel because they never exceed the monthly aggregate tuning hour maximum of 159,140 ATH.  

This fact demonstrates the important practical reality of this particular proceeding. For the vast majority of noncommercial webcasters currently reporting to SoundExchange, the minimum $500 annual per channel fee is the only royalty which they will have to pay to SoundExchange. 

From that perspective, the $500 fee is not merely an interesting but minor component of the royalty obligation. Rather, it appears that for most noncommercial webcasters, it is their royalty obligation. 

Of course, it’s not entirely clear how reliably representative the CRB’s figures are. After all, those figures reflect a total of only 363 noncommercial webcasters, which is not a lot, given the number of licensed noncommercial radio stations in the country – almost ten times that number (3,223) as of June, 2010, according to the FCC. We don’t know why the other stations aren’t accounted for. They may have chosen not to webcast because even the $500 fee was too much; or maybe they ar webcasting, but just not complying with reporting requirements; or maybe they just don’t feel like webcasting, whatever the royalties might be. Still, it’s interesting to contemplate the possibility that noncommercial webcasters’ obligations to SoundExchange may turn out, in practical effect, to be limited to $500 per year per channel.

The CRB is now effectively proposing to adopt the terms of two of the 2009 agreements as the official rules governing the 2011-2015 term after parties to those agreements suggested that their agreed-to terms might usefully be applied them to all similarly-situated webcasters.  The main difference: where the 2009 settlement agreements were elective (i.e., parties could choose to be subject to the agreements or not), the agreed-to terms will now govern all webcasters in the relevant category.  

The particular agreements relate to (a) participating commercial broadcasters and (b) noncommercial educational broadcasters streaming on the web. (Commercial broadcasters and noncommercial webcasters remain free to enter into their own individual, private, and voluntary agreements in lieu of the regulations but, of course, the entire purpose of a statutory licensing scheme is to relieve copyright users of that burdensome task.) 

The full terms proposed by the CRB may be found in the notice of proposed rulemaking published in the Federal Register. You can also find summaries of the agreements on which those terms appear to be based here (i.e., the settlement between SoundExchange and the NAB regard commercial broadcasters) and here (i.e., the settlement between SoundExchange and noncommercial educational webcasters). 

Note that these are still just proposed rules. The CRB will take comments on the proposals until April 22, 2010. It will then review any comments it receives and will decide whether to make these proposed rules final and official.

While we do not expect many individual broadcasters to file comments on these rates and terms – after all, the rates and terms have already been negotiated out and agreed to by many, if not most, of the affected parties – we are available to discuss this in more detail and assist you in filing comments if you desire.

We will also notify you with regard to any further developments with regard to the 2011-2015 terms and conditions for these commercial broadcasters, noncommercial educational webcasters, as well as any developments in the other proceedings of interest to the webcasting community (primarily the noncommercial, but not educational, webcasters).

As a threshold matter, Judge Walton rejected efforts to have the complaint tossed on jurisdictional grounds. No problem there, said the Judge, the District Court does indeed have jurisdiction – that is, the necessary authority – to hear such constitutional challenges.

Having brushed that question to the side, the Judge charged on to the merits.

As we reported last September, Live365’s argument consisted of a two-prong attack based on Article II of the Constitution. That section refers to two separate types of “officers” of the U.S.:   “principal” officers and “inferior” officers. Under the Constitution, “principal” officers must be appointed by the President and confirmed by the Senate; “inferior” officers, on the other hand, are not subject to the President/Senate limitation, but they may be appointed only by either the President, the courts, or “heads of departments”. Live365 (and Judge Kavanaugh before it) doubted that CRB judges satisfied either set of criteria.

Live365 first argued that CRB judges are “principal” officers because:

• they function without any real supervision from the Librarian of Congress;
• they’re not subject to limitations to which “inferior” officers are (such as limited duties, limited jurisdiction, temporary tenure, ability to be removed from office);
• they’re not subject to performance appraisals from their superiors;
• they have the same powers and responsibilities as their predecessor body, the Copyright Royalty Tribunal, whose members were directly appointed by the President as “principal” officers.

The trouble is that, while all those factors might indeed support Live365’s wished-for conclusion, the Supreme Court has not yet adopted any “bright line” test in this area. Rather, the Supreme Court has thus far chosen a case-by-case approach, looking at the peculiar matrix of factors presented in each individual case. Taking his cue from the Supremes, Judge Walton did the same here.

And to Live365’s disappointment, he decided that the defendants had the better argument. In his view, CRB judges should be deemed “inferior” (but only in the best sense, of course), largely because:

• CRB judges receive direction and supervision from the Librarian of Congress and the Register of Copyrights, who can promulgate and enforce binding ethical rules;
• the Librarian of Congress and Register of Copyrights provide all the judges’ administrative resources  and assign other duties.
• the Register of Copyrights can review the CRB judges' decisions for “legal error”.

But even Judge Walton acknowledged that there is room for disagreement here. Noting Judge Kavanaugh’s “understandable” observations, Walton conceded that “[t]he current state of the law has essentially created a gray area”, thanks to “the limited guidance the Framers of the Constitution provide as to where ‘[t]he line between ‘inferior’ and ‘principal’ officers . . . should be drawn,’ and the Supreme Court’s refusal to ‘decide exactly where the line falls between the two types of officers.’”

Having satisfied himself that the CRB judges are “inferior officers”, the Judge next analyzed Live365’s claim that, as such, they miss the Constitutional boat because they aren’t appointed by either the President, a “Head of Department”, or a court, like the Constitution requires.   

CRB judges are appointed by the Librarian of Congress. In Live 365’s view, the Librarian of Congress isn’t a “Head of Department" because he’s really part of the Legislative, not Executive, Branch. Not a crazy argument, since the Librarian reports to Congress, portrays itself as part of Congress, and has, in other contexts, been deemed by the D.C. Circuit to be part of the Legislative Branch. Hey, he’s the Librarian of Congress, for crying out loud.

Judge Walton was not persuaded. Sure, the Library of Congress is treated as a component of the Legislative Branch in the U.S. Code, but the Librarian (according to Walton) functions as an Executive Branch head: the Librarian is appointed (and can be removed) by the President and is in no way limited by Congress or Members of Congress. Moreover, the Copyright Act, in creating the Librarian of Congress, vests the Librarian with the power to appoint several employees in the manner afforded to other Executive Branch heads.

In light of those factors, Judge Walton concluded that Live365 had “not met its burden of showing that there is a substantial likelihood that it will succeed on the merits of its alternative Appointments Clause challenge”. The emphasis on “substantial” was the Judge’s, not ours – from which a reader could reasonably conclude that the Judge might think that there was at least some possibility (although obviously not a “substantial likelihood”) that Live365’s argument might prevail. So perhaps hope should spring eternal. After all, the Judge was merely ruling on the “preliminary injunction” aspect of Live365’s request, i.e., the part in which Live365 asked the Judge to order the CRB to stop its proceedings pending resolution of Live365’s request for a permanent injunction.

In seeking a preliminary injunction, a party is expected to demonstrate not only that it is likely to succeed on the merits of its ultimate claim, but also that it will sustain “irreparable harm” if a preliminary injunction is not granted. On this point, Live365 argued that, if it were forced to participate in a CRB rate-making proceeding while Judge Walton pondered Live365’s request for a permanent injunction, Live365 would incur more than $1 million in costs. Unfortunately for Live365, mere monetary harm generally doesn’t rise to the level of “irreparable” in the world of preliminary injunctions. And what’s worse, Judge Walton found that the other side would be harmed if the preliminary injunction were to be granted. The “already-tight schedule” of the CRB proceeding would have to be further “compressed”, and recording artists would not get paid during this period, which could adversely (and possibly profoundly) affect their finances. The Judge also decided that the public interest would not be harmed if the webcasting case goes forward.  Bottom line: request for preliminary injunction denied.

So the CRB lives on to set rates, at least for the time being. Live365 may continue to press for a permanent injunction, although the short-term outlook there isn’t great in view of Judge Walton’s detailed, and unfavorable, analysis of Live365’s constitutional arguments. Still, that analysis did include the acknowledgement that the question is far from settled, and Live365 has the added comfort of knowing that, once it moves past Judge Walton, it will find itself in the D.C. Circuit, i.e., Judge Kavanaugh’s house. Since Live365 has a pretty good idea that that judge, at least, is likely to be sympathetic to its arguments, don’t be surprised if Live365 picks itself up off the canvas and keeps slugging to get to the next round.

We’ve written plenty about the challenge to the March 2, 2007 decision of the Copyright Royalty Board which instituted rates and terms to be paid to owners of sound recordings for the years 2006-2010, including the appeal of that decision by several sectors of the webcasting community to the United States Court of Appeals for the District of Columbia Circuit. 

Our most recent post on the topic summarized the opinion of the Court of Appeals that upheld most aspects of the CRB decision. The only aspect of that decision that the Court tossed back to the CRB: the annual minimum fee to be paid by both commercial and noncommercial webcasters. The Court of Appeals determined that the CRB had provided absolutely no justification supporting this amount. Why $500? Why not $100? Why not $250? The CRB’s inability to justify the $500 requirement violated the Administrative Procedure Act’s requirement that, at a minimum, a new rule have some factual or legal underpinning – i.e., it was not reached in an arbitrary or capricious manner. 

The Court sent the CRB back to the drawing board. On December 23, 2009, the CRB began sketching. It published a Notice of Proposed Rulemaking in which it proposes to require every commercial and noncommercial webcaster to pay an annual minimum fee of – you guessed it –$500 per channel. These webcasters will only pay more at such time as their cumulative webcasting royalties for the year exceed $500.  

Our conversations with clients lead us to believe that the $500 per channel annual minimum payment was one of the least controversial aspects of the March 2007 CRB decision. Most commercial webcasters are going to exceed $500 pretty quickly anyway, so this is merely a down payment applied to later royalty payments. The noncommercial webcasters view the $500 payment as minimally burdensome even if they never exceed the monthly allowed maximum of 159,140 aggregate tuning hours which triggers additional payments. 

As a result, we envision minimal objection or contrary suggestions and expect the $500 annual minimum payments to be reinstated as a matter of law in the near future. But if you do have strong feelings one way or the other, you can submit comments to the CRB by January 22, 2010.

The reporting rules are part of the system established by the CRB for assuring collection and payment of appropriate royalties to copyright holders. Using webcaster-supplied playlists reflecting the frequency with which songs are played on the web, SoundExchange can fairly distribute the royalties it collects. When the CRB first finalized the playlist reporting requirements in 2006, all webcasters were required to file quarterly reports with SoundExchange listing every song played by the webcaster during two seven day periods in that quarter. In December 2008, the CRB proposed to change those quarterly filings to “census” filings – i.e., monthly filings containing information about every song played during the month. The recently-published rules formally adopt that census filing approach.

Under the “new” rules,  census reporting – that is, reporting within 45 days of the end of each month the required information about all songs played during that month – is required for all webcasters except

• broadcasters simulcasting an over-the-air broadcast on the Internet which have such a small listenership that they do not exceed the $500 annual minimum payment per year (in other words, any very small commercial webcasters and noncommercial webcasters that do not exceed 159,140 aggregate tuning hours in any month); and
• preexisting satellite digital audio radio services, new subscription services or business establishment services who cannot accurately measure listenership for technological reasons. (These folks must still report their playlists, but can do so on a modified “aggregate tuning hour” basis.)

Of course webcasters who elected to participate in one of the several settlement agreements reached in the past couple of years are bound by the playlist reporting requirements in the applicable agreement. These webcasters should review their particular settlement agreement, and let us know if you have any questions about your reporting requirements.

The song-related information which must be filed has not markedly changed, though there is one key exception applicable to broadcasters. The reportable information still consists of:

• The name of the webcasting service
• The category transmission code, although this has changed slightly, with broadcasters now using one of the following category codes:
  • Eligible nonsubscription transmissions of broadcast simulcast programming not reasonably classified as news, talk, sports or business programming (essentially, simulcast of a broadcast station’s music programming);
  • Eligible nonsubscription transmissions of non-music programming reasonably classified as news, talk, sports or business programming (essentially, a broadcast station’s news, talk, sports or business programming); and
  • Transmissions of broadcast simulcast programming not reasonably classified as news, talk, sports or business programming made by an eligible new subscription service (this category involves subscription-only simulcast of music programming by a broadcast station)
• The featured artists
• The sound recording title
• The International Standard Recording Code, or a combination of (a) album title and (b) marketing label
• Actual total performances of the song, or a combination of (a) aggregate tuning hours and (b) channel or program name and (c) number of times the song was played during the relevant period

For the last category (actual total performances of the song or the listed combination), the “combination” alternative is applicable only to a preexisting satellite digital audio radio service, a new subscription service, a business establishment service and broadcasters who do not exceed the annual minimum payment required for a given channel (currently $500). 

The new rules have been purged of unnecessary references to prior license terms, obsolete categories (e.g., “small webcaster”) and the like. And illustrating the March of Technology, the CRB has deleted the option of filing the reports on floppy diskettes.

Notably, the Copyright Royalty Board did not adopt the following proposed changes: 

• Any form of “proxy fee” or other exemption from filing altogether, even for the smallest webcasters;
• Imposition of a late fee for tardy or non-filed playlist reports; or
• An exemption from playlist reporting of songs played during syndicated radio programming

While we have focused here on the applicability of these rules to broadcasters who are also webcasting, a section of the newly final rules applies slightly different standards to “preexisting subscription services”. Please contact us if you believe you qualify as a “preexisting subscription service” and require guidance as to how the new rules apply to you. 

Again, the CRB’s changes go into effect on November 12, 2009.

Live365’s argument, which draws from the reasoning advanced in both of the earlier cases, goes something like this.

The Constitution (Article II, to be precise) permits the President to appoint “officers of the United States”, as long as such appointments are subject to the advice and consent of the Senate. The same provision also permits Congress to designate certain “inferior officers” who can be appointed without the one-two punch of presidential appointment and Senate confirmation – BUT the Constitutional power to appoint those “inferior officers” is limited to the President, the courts, and “heads of departments”.

So there appear to be two types of U.S. “officers” identified in the Constitution: those which we can call “principal officers”, requiring Presidential appointment and Senate confirmation; and those which the Constitution refers to as “inferior officers”. But the appointment process to which CRJs are subject does not satisfy the Constitutional criteria for either type. CRJs are appointed by the Librarian of Congress. They thus cannot be “principal officers”. And since the Librarian of Congress is not a “head of department”, so the argument goes, CRJs cannot be “inferior officers”, either.   Accordingly, CRJs cannot be deemed to be validly-appointed U.S. “officers”, and their actions – including, for example, orders establishing royalty schedules – must be deemed to have no lawful effect.

Based on this line of argument, the Live365 case will hinge on:

• Whether the Court agrees that the CRJs rise to the level of “officers” of either type; and
• The proper characterization of the Library of Congress is a “department” whose “head” (i.e., the Librarian of Congress) may be given the power to appoint “inferior officers” under Article II of the Constitution.

Live365's complaint also argues that, because there is a high likelihood that the Court will find the CRJs to be unconstitutional and without authority, the Court should immediately order the CRB to terminate the upcoming proceeding to set the rates for 2011-2015. According to Live365, that proceeding is “a costly, intensive, year-long proceeding that may later be deemed null and void by a judicial determination that the CRB was constituted and sat in contravention of the Appointments Clause [of Article II].” 

We think that Live365 makes a very good initial argument. But that’s easy to do in a complaint. So we’re really interested in seeing what the government argues in response – and whether the Court does, in fact, rule on the preliminary injunction before the parties in the webcasting proceeding must make their next filings (direct statements) on September 29, which kicks off the trial-related frenzy that is the next phase of the CRB proceeding.

Recall that, for webcasting royalty purposes, the term “noncommercial” is defined by tax code (Section 501) considerations, not by the conventional FCC definition of the term. That is, a noncommercial webcaster is an entity which either (a) is already tax-exempt under Section 501 or (b) has applied for tax-exempt status or (c) is a government entity acting within its public purpose. As a general default matter, noncommercial webcasters must comply with the royalty rates set out in the March 2, 2007 decision of the Copyright Royalty Board (CRB) and other applicable regulations, which require:

a $500 annual minimum fee per channel (though a recent Court of Appeals decision has raised questions about the continued validity of this fee);

commercial per performance rates, for listenership above 159,140 aggregate tuning hours in any given month (about 220 simultaneous listeners at every moment in the month);

reporting of information about all songs played for two seven-day periods per quarter

compliance with the "performance complement" elements of the statutory license limiting, among other things, the number of songs played from the same album or artists in a given time period.

Noncommercial entities can avoid these default requirements in a variety of ways. For example, some entities are covered by the agreement (which was recently extended) between SoundExchange and the Corporation for Public Broadcasting. 

The two new agreements now provide still more ways of opting out of the default CRB regs. Here is how those new agreements work.

The General Agreement

The General Agreement is available to any noncommercial webcaster, not covered by the CPB/SoundExchange agreement, which simulcasts an over-the-air signal (though it can also have other streams). The terms of the General Agreement apply to the years 2006-2015.

To take advantage of the General Agreement, the eligible noncommercial webcaster must file a notice of election by September 15, 2009 or within 30 days of commencing webcasting, whichever is later. (The notice forms are available on the SoundExchange website.)This will cover the webcaster for every subsequent year unless the webcaster revokes its participation by January 31 in any future year. The noncommercial webcaster must also make good on all unpaid royalties owed for the period 2006-2009 before September 15, 2009. 

The General Agreement calls for participating noncommercial webcasters to pay only a $500 annual minimum fee per channel by January 31 of each year as long as the webcaster does not exceed 159,140 aggregate tuning hours (ATH) in a given month. This is essentially the same requirement imposed by the CRB default regs, except that under the new General Agreement the webcaster must file a Statement of Account each month, whether or not it exceeds the ATH max.

However, if the webcaster exceeds 159,140 ATH, it must pay royalties at the following rates and time periods:

2006-10:    $0.0002176 per performance or $0.00251 per ATH for a music channel or $0.0002 per ATH for news/talk/business/sports channels)

2011:         $0.00057 per performance

2012:         $0.00067 per performance

2013:         $0.00073 per performance

2014:         $0.00077 per performance

2015:         $0.00083 per performance

(For comparison purposes, the CRB-imposed per performance rates range from $0.0008 to $0.00019 over the period 2006-2010. No CRB rates have been set for 2011-2015.)

Royalties for the excess transmissions can be calculated on the ATH basis by multiplying twelve songs per hour (a permitted approximation) by the number of listeners in each hour. 

The General Agreement imposes reporting requirements on participating webcasters. Specifically, they must file quarterly reports (due within 45 days of the end of each quarter) listing all songs played during two seven-day periods during the quarter. While a similar reporting obligation was previously in place, the new deal permits webcasters to report simply the number of times each song was played and the number of listeners per hour, rather than the specific number of listeners for each song.

During the period 2011-2015, if the webcaster exceeds a monthly average 159, 140 aggregate tuning hours in any given year, it must engage in “census reporting” for the entire following year. That means that it will have to report every song played during the year – although the ATH reporting method (i.e., number of times each song is played, along with the total number of listeners per hour) can be used instead of the more specific (and onerous) reporting of the number of listeners to each particular song.

Additionally, if a webcaster certifies that it had fewer than 44,000 ATH in the previous year (about five-six simultaneous listeners at every moment in the year) and that it reasonably expects to stay below that number in the coming year, it can avoid the reporting requirement altogether by filing a $100 “proxy fee”.  This certification must be made by September 15, 2009 or within 30 days of commencing webcasting, whichever is later, and again by January 31 of every year in which the webcaster is eligible for, and chooses, this “microcaster” status. The noncommercial webcaster can exceed the 44,000 ATH level one year in this time period and still retain this "microcaster" status as long as it implements technological measures to ensure it does not exceed the limit again. 

Noncommercial Educational Webcasters

Any noncommercial educational webcaster not covered by the CPB/SoundExchange agreement can choose to be covered by the terms of this second new agreement for the years 2011-2015 (or, for reporting purposes only, 2009-2010 as well). To be eligible, the noncommercial webcaster must: (a) be directly operated by, or affiliated with and officially sanctioned by, a domestically-accredited primary or secondary school, college, university or other post-secondary degree granting institution; (b) staff its webcasting operations substantially by students; and (c) not have exceeded 159,140 ATH in any month during the preceding year.

To take advantage of the educational webcaster agreement, a noncommercial educational webcaster must elect this status by January 31 of EACH YEAR or 45 days after the end of the month in which it begins webcasting operations, whichever is later. In other words, this does not automatically renew, unlike the General Agreement). 

Any noncommercial educational webcaster choosing to participate in this agreement must pay a $500 annual minimum fee per channel by January 31 of each year.  

If an educational webcaster exceeds 159,140 aggregate tuning hours in a given month, then the overage will be subject to the following royalty rates, depending on the year in which the overage occurs:

2006-10:    The current CRB-mandated commercial rates

2011:         $ 0.0017 per performance

2012:         $0.0020 per performance

2013:         $0.0022 per performance

2014:         $0.0023 per performance

2015:         $0.0025 per performance

In the event that the 159,140 ATH level is exceeded, royalties can be calculated on the ATH basis by multiplying twelve songs per hour (a permitted approximation) by the number of listeners in each hour.

The educational webcasting agreement imposes reporting requirements on participating webcasters. Specifically, they must file quarterly reports (due within 45 days of the end of each quarter) listing all songs played during two seven-day periods during the quarter. While a similar reporting obligation was previously in place, the new deal permits webcasters to report simply the number of times each song was played and the number of listeners per hour, rather than the specific number of listeners for each song.

If a webcaster certifies that it had fewer than 55,000 ATH for all but one month in the previous year (that would amount to about 75 simultaneous listeners at every moment in the month) and that it reasonably expects to stay below that number in the coming year, it can avoid the reporting requirement by filing a $100 “proxy fee”.  (The educational webcaster may exceed the limit for one month, once, without losing its eligibility as an “educational webcaster” as long as it implements certain technical measures to ensure compliance going forward.) This alternative to the reporting requirement is available not only for 2011-2015, but also for 2009-2010. A webcaster choosing the option for 2009-2010 should file the required certification along with the $500 annual minimum fee due January 31, 2010.

If an educational webcaster exceeds 159,140 average monthly ATH in a given year, then for the entire following year it must engage in “census reporting”, i.e., every song played during the year (but it can simply report the number of times the song was performed, rather than the full listenership for each performance).

Finally, every noncommercial educational webcaster must keep, for a period of at least three calendar years, "server logs sufficient to substantiate all information relevant to eligibility, rate calculation and reporting". So hastily deleting files to save server space may cost you more in the end.

That’s right.  SoundExchange, representing the holders of performance copyrights (held by artists, record labels and others), has announced that it has agreed to terms governing the payment of royalties by four more groups of webcasters.   Despite the plethora of earlier settlement agreements, there remained one category of folks not covered by any royalty agreement: noncommercial entities with FCC licenses that are not part of the public radio system. 

The good news is that, with the completion of the settlement agreements recently announced by SoundExchange, most of these should now be covered in one of the agreements summarized below. 

We won’t have the final details until the full terms of each settlement are published in the Federal Register.   (Note: The agreements won’t become effective until 30 days following Federal Register publication.)  Still, from the information that SoundExchange has released, we know the following.

Religious and Non-Commercial Webcasters

A large subset of “noncommercial entities with FCC licenses that are not part of the public radio system” consists of religious broadcasters. To those of you in that group we say: your prayers have been answered. 

According to the press release issued by SoundExchange, an agreement was reached with the National Religious Broadcasters Music Committee governing royalty rates for the years 2006-2015. 

Webcasters choosing to participate will pay a per performance rate that begins slightly lower than those set by the CRB but will increase through the term.  Fees will be calculated by multiplying the applicable annual royalty rate times the number of songs played times the number of listeners.  “Small stations” – not defined in the press release – may be able to pay a “proxy fee” (as do small commercial broadcasters) to avoid filing records containing information of all songs played. 

This agreement establishes rates through 2015.  In other words, it supplants not only the rates which the CRB set in March, 2007, but also those that the CRB still has under consideration for upcoming years.

College Radio

Many, though not all, college broadcasters also fall into the population of “noncommercial entities with FCC licenses that are not part of the public radio system”.  To those of you in that group we say: it’s time to graduate to a new royalty scheme.

These folks will pay an annual set fee of $500.00 as long as they do not exceed 159,140 “aggregate tuning hours” in a given month.  (If they exceed that ATH level, they will be subject to the royalty scheme set up for commercial per-performance rates in the agreement between SoundExchange and the National Association of Broadcasters earlier this year.)  

Sound Exchange’s press release on this agreement indicates that “college stations and other noncommercial educational webcasters” will pay only a minimum annual fee and will have relaxed recordkeeping requirements. 

XM-Sirius

Thought this one was already resolved, did you? Well, we discussed the rates paid by XM-Sirius a few weeks ago, but that was for the performance of the sound recordings via their satellite feed. This one is for performance via their website.

Again, all we have to work from is a barebones press release, but the terms appear to involve payment on a per performance basis through 2015, though the specific rate has not yet been publicly disclosed.

The Mysterious Fourth Agreement???

While SoundExchange reported that a total of four new agreements had been reached, it didn’t release any details about the final agreement.   Why the mystery?  Who knows?  It could be that this last agreement is the coolest of them all.  We’ll just have to wait and see.

You can be sure that we’ll pass on the full details of each agreement – including who is eligible for which agreements and what steps those eligible parties must take to participate – when publication in the Federal Register occurs.  Once that happens, we’ll also be in a position to update the step-by-step guide to webcasting royalties (which we posted several months ago) to include a breakdown of the latest agreements. Check back here at www.CommLawBlog.com for more information as it comes available.

March 2, 2007:  Copyright Royalty Judges (CRJs) reach a decision regarding the rates and terms applicable to digital performances of sound recordings and making ephemeral recordings for the years 2006-2010. (Rehearing was denied on April 16, 2007.)

April 26, 2007: The Internet Radio Equality, the first of several attempts to overturn the ruling by legislation, is introduced in the House of Representatives (neither this nor any ensuing bill is enacted into law). 

May 30, 2007:  Several webcasters appeal the CRJs' decision to the United States Court of Appeals for the District of Columbia Circuit; these are eventually consolidated into one case.

July 12, 2007: The Court of Appeals denies the webcasters' request to stay the implementation of the new rates and terms, as a result of which the new rates and terms go into effect on July 15, 2007. 

. . . LOTS of time passes . . .

January 15, 2009: The Corporation for Public Broadcasting and SoundExchange, Inc., reach a deal for payment of royalties by eligible public radio stations for the years 2006-2010. This moots any concern about the CRJs’ decision as far as parties to this deal are concerned.

February 16, 2009:  The National Association of Broadcasters and SoundExchange reach a similar deal covering over-the-air broadcasters for the years 2006-2015. This moots any concern about the CRJs’ decision as far as parties to this deal are concerned.

July 7, 2009:  So-called "pureplay" webcasters and Sound Exchange reach a deal for payment of royalties for the years 2006-2010 by these web-only radio stations. This moots any concern about the CRJs’ decision as far as parties to this deal are concerned.

. . . VERY LITTLE time passes . . .

July 10, 2009: The United States Court of Appeals issues its ruling in the appeal of the March 2, 2007 CRJs’ decision.

In other words, more than two years after the CRJs’ decision was issued, the Court finally got around to resolving the appeals – and only after virtually every one of the major parties affected by that decision had already taken matters into their own hands and reached private deals obviating the royalty payment structure established by the CRJs.

The Court of Appeals by and large ruled against the webcasting community, finding the majority of the CRJs’ decision to be valid under the Administrative Procedure Act.  The Court remanded one portion of the case to the Copyright Royalty Judges: the $500 annual minimum fee paid by both commercial and noncommercial webcasters. 

In a move that will be analyzed by close readers of this blog and constitutional scholars alike – and that's not to imply that these groups are mutually exclusive – the Court declined, for the second time in as many weeks, to rule on the constitutionality of the Copyright Royalty Judges themselves.

Let's start with what is easily the most interesting part of the case:  the claim by Royalty Logic, Inc. that the Copyright Royalty Judges themselves have been unconstitutionally appointed to their positions.  (FYI – Royalty Logic is a SoundExchange wannabe seeking to be designated as a "receiving agent" allowed to collect webcaster royalties and distribute them to the copyright owners.) 

Does that claim of unconstitutionality ring a bell?  Yeah, we discussed a similar claim last week, when Judge Kavanaugh raised the issue in his concurring opinion in an appeal of a separate CRJ royalty decision (involving satellite radio).  Judge Kavanaugh concluded that the CRJs “appear to be” "principal officers" of the government, whose appointment constitutionally requires Senate confirmation. Since CRJ appointments don’t include any Senate OK, then the current appointment mechanism is unconstitutional, he suggested.

Royalty Logic used a different tack, something along the following lines. The Constitution authorizes Congress to delegate the power to appoint “inferior officers”, but that power can be given only to the President, the courts, or “Heads of Departments”. Everyone agrees that: (a) CRJs – who are appointed by the Librarian of Congress – are “inferior officers”; and (b) the Librarian of Congress is neither the President nor a court. Royalty Logic argued that the Librarian was also not a “head of department” and, therefore, the CRJ appointments were unconstitutional. 

While that latter point was disputed by SoundExchange and the Department of Justice, the Court chose not to resolve the issue. Instead, the Court observed that Royalty Logic hadn’t bothered to raise the issue of constitutionality in its initial brief, and had thrown in the argument only as a supplement several months later. The Courts don’t look kindly on such piecemeal presentation, especially when the issue raised supplementally has potentially “far-reaching consequences” which should not be resolved on the basis of “hasty, inadequate, and untimely briefing”. So the Court politely declined to consider that question further.

Under either Judge Kavanaugh's or Royalty Logic's formulation of the constitutionality argument, the result is the same: the entire underpinning of the CRJs’ operation (including every rate they have set) is called into question.  But despite the seemingly crucial importance of this point, the Court chose not to resolve it in either the satellite case or the webcaster case.  

Having sidestepped the constitutionality conundrum, the Court methodically plowed through the substantive challenges to the CRJs' decision. The Court found in each instance that the CRJs had not exceeded their authority.  A reviewing court, in determining whether an agency has acted in an "arbitrary and capricious manner", generally accords a rather large degree of deference to the forum whose decision is being reviewed.  The Court applied that generous standard of review to the "willing buyer/willing seller" standard applicable to this statutory license in one magnificent summary: 

The statute does not require that the market assumed by the [CRJs] achieve metaphyiscal perfection in competitiveness.  

Given this wide and forgiving scope of statutory authority, the CRJs got it right, for the most part.  The lone exception was the annual minimum payment of $500 required to be paid per channel (or station) by commercial and noncommercial webcasters alike.  This figure – which actually serves as more of a "deposit" with regard to most commercial webcasters, who can count this against amounts paid throughout the year – was supposedly chosen as a reasonable reflection of the administrative costs incurred by SoundExchange in receiving and distributing the royalties incurred by each webcaster. 

However, after combing through the 13, 288 pages of testimony and 192 exhibits introduced through 39 witnesses over 48 days of trial, the Court found absolutely no evidence supporting this $500 annual minimum payment.  With regard to commercial stations, the imposition of this annual minimum payment without a cap on the overall stations to which it applies constituted an unexplained departure from two voluntary agreements that had been in place.  That, my friends, is the epitome of arbitrary and capricious. 

The Court remanded this issue to the CRB for further consideration.  We wonder whether proceedings will actually continue.  Not only are most of these matters already settled, but this is one area where most webcasters really haven't raised much of a complaint. It's been our experience that commercial webcasters invariably exceed that $500 figure anyway and – though this isn't to say they're happy with the amount or wouldn't mind paying less – most noncommercial webcasters pay their $ 500 per year and don't complain if it ends there.

If that's the case – and it's indeed the end to this case – was this decision ultimately nothing more than "too little, too late"?  Perhaps with respect to the narrow issue of webcast royalties, but obviously not with respect to the much more fundamental issue of the constitutionality of the CRJs. Having shone a bright light on that issue twice in two weeks, but having left it undecided, the Court has effectively invited future parties to litigate it properly. That’s when the fireworks may begin.

• Every pureplay webcaster must make a $25,000 annual minimum payment. This will serve as a deposit against the overall royalty payments for the year if the overall number exceeds $25,000.
   
• Webcasters are divided into three groups for purposes of calculating overall royalty payments: 

• Large Webcasters
  • These are defined as entities with at least $1.25 million in annual revenues
     
  • “Large” webcasters must pay the greater of: 

• 25% of total revenues; or
   
• a “per performance” rate that is about half of that established by the March, 2007 CRB decision.  (For instance, under the settlement the 2009 rate is $0.0093 per song per listener, while the rate set in the March, 2007 CRB decision is $0.0018 per song per listener.)
   
• “Large” webcasters must submit “census” filings of playlist reports. These monthly filings consist of information about every song played as opposed to quarterly reports of songs played during two seven-day periods during the quarter.  These reports must be retained for at least four years
   
• Small Webcasters
  • These are defined as entities with: 

• Less than $1.25 million in annual revenues; and
   
• Less than the maximum allowable "aggregate tuning hours" in the year (which ranges from 8 million to 10 million ATH, depending on the year)
   
• “Small” webcasters must pay the greater of: 

• A percentage of revenues, calculated as follows:
   
  • 2006-2008: 10% of the first $250,000 in revenues and  12 percent for $ 250,000-$ 1, 249,999
     
  • 2009-2015: 12% of the first $250,000 in revenues and 14 percent for $250,000-$1,249,999;

OR

• 7% of expenses
   
• “Small” webcasters must submit “census” filings of playlist reports. These monthly filings consist of information about every song played as opposed to quarterly reports of songs played during two seven-day periods during the quarter.  These must be retained for at least four years.  But small webcasters can pay a proxy fee in exchange for relaxed reporting requirements.

• Pureplay Webcasters who also Offer Subscription Services
  • These are webcasters that offer some form of syndicated or subscription service in addition to a straight music stream.
     
  • They must pay the same rate as paid by broadcasters participating in the SoundExchange/NAB deal.

SoundExchange is pitching this “discounted” rate structure as an experiment. According to SoundExchange, “Time will tell if revenue sharing is the right move for both the recording community and webcasters, but we’re willing to take the risk in the hope that artists, rights holders and webcasters can all benefit.” But then again, SoundExchange maintains that the original rates were fair.

Reviews from the webcaster side are mixed. Pandora founder Tim Westergren calls the new rates “quite high”, but envisions that heavy users of his site will bear the brunt of the cost.  He surmises that free users of Pandora might find themselves limited to 40 free hours per month, with an “opt-in” fee of 99 cents if the user exceeds that limit.  (He notes that that would give the listener unlimited music for an entire month for the same amount he/she would pay for a single song download.)

The settlement will become effective 30 days after it is published in the Federal Register.

The CRB received 43 comments in response to its initial proposal to increase the two-seven-day-per-quarter filing requirement to full "census" reporting.  These comments could be divided into four basic categories: 

• Copyright Owners  (including SoundExchange) who support the move to census reporting as a means of accurately distributing copyright royalty payments. 
   
• Educational and Commercial Radio broadcasters who oppose the proposed change as unduly burdensome, if not impossible.  
  
  
  • Some comments stated outright that increased reporting requirements would result in the commenter ceasing its webcasting altogether, due to a lack of "finances, staff' and technology" to engage in monthly reporting. 
     
  • Other comments noted the particular hurdle facing educational broadcasters, many of whom still allow disc jockeys to freely choose their songs rather than relying on an automated playlist.  These commenters urged the CRB to exempt from any increased reporting requirement those educational broadcasters who pay only the $ 500 annual minimum royalty fee per channel and never exceed the 159,140 aggregate tuning hour maxiumum in a given month.
     
• A Service that Simulcasts the Over-the-Air Broadcasts of Mainly Noncommercial Stations on the Internet
  
• Commercial Providers of Software that Allows Radio Stations and Webcasters to Automate Their Playlist Reporting, two of whom opposthe increased census reporting because of concerns over cost and technology burdens.

The Notice of Inquiry hones in on this particular issue of cost and administrative burden.  Noting that the Copyright Act requires the CRB to establish a method of notifying copyright owners that their sound recordings are being publicly performed under the statutory license, the Notice of Inquiry provides only two alternatives:  the current quarterly reporting requirement and the proposed monthly requirement.  In addition to seeking suggestions as to a possible third alternative that can be both informative and cost-effective, it also asks the following questions (among others): 

• How many small webcasting entities will be adversely impacted by the proposed monthly census reporting? 
   
• What percentage of broadcasters use automated playlists?  What is the cost of preparing a report using the automated playlist and how would that cost increase if census reporting is instituted? For those not using automated playlists, how are reports generated and filed?
   
• Specific to SoundExchange: 
  
  
  • What is the current methodology used to allocate and distribute royalties to copyright owners? 
  • How would that methodology change with census reporting and, in particular,  how would it increase accurate and efficient royalty distribution?
  • What cost savings or additional burdens can copyright owners expect through census reporting?
     
• Who, if anyone, should be exempted from the proposed census reporting?   Possibilities include:
   
  • A revenue-based cut-off (with comment sought on the proper amount for the cut-off)
  • Strictly along the lines of the royalties paid (such as those who do not exceed the $ 500 annual minimum payment)
  • Commercial  vs. Noncommercial
  • Based on the webcaster's physical size or number of employees

We're assuming that the NAB will again file comments on behalf of broadcasters, but you should feel free to provide your tales of horror and woe (or any other information) to the CRB in written comments due May 26, 2009, with reply comments due on June 8, 2009.