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

First, the White Paper urges Congress to “clarify that infringement by streaming . . . is a felony in appropriate circumstances.” (We can hear it now – “Book ‘em, Dan-O. Streaming in the first degree”.) The brief discussion accompanying this recommendation isn’t entirely clear, but the appearance of the word “streaming” got our attention. 

At first glance, one could take “streaming” here to mean “webcasting” in the broadest sense. In that case it would be a good idea to heed our frequent admonitions about jumping through all of SoundExchange’s various hoops. But our gut instinct is that this isn’t the “streaming” that the Administration is worried about. Rather, the White Paper refers to “the illegal streaming of content” – so we’re guessing that its real target is something along the lines of the illegal file sharing we’ve discussed in the past, or maybe the live streaming of broadcast content – often sporting events – by some users of services like UStream.com or Justin.Tv.  That more limited interpretation makes more sense in terms of the actual economic damage involved. But given the plain language meaning of “streaming”, we can’t rule out the possibility that the Administration may indeed want to criminalize any unauthorized streaming of music. Such a get-tough approach would arguably be consistent with the Administration’s recommendation (described below) concerning performance rights.

The second item of interest appears in the very last section of the White Paper, which recommends that “Congress create a right of public performance for sound recordings transmitted by over-the-air broadcast stations." That's right – the White House is now on record as officially endorsing the Performance Rights Act (PRA). According to the White Paper, the fact that the U.S. has no performance right for recordings “disadvantages” U.S. copyright owners overseas, since “[t]hey are not permitted to collect overseas royalties because they are not granted rights in the U.S.” The White Paper contains no extensive discussion (much less specific support) for this assertion. Indeed, the entire section on this point is a total of five sentences long.

We don't know how much effect this endorsement will have. The PRA has yet to be reintroduced in either the Senate or the House in the 112th Congress, and the last time it was introduced (in the 111th) it clearly didn’t have the votes to pass.  But, as endorsements go, this is a pretty big one. If nothing else, it might lead to the introduction of a bill, thus starting the legislative process yet again. Or it could resurrect the currently dormant discussions between the NAB and the RIAA regarding an accord on this issue. (The success of any legislation will likely depend on those two parties reaching an agreement that both can live with.) But the White House could play a role here, especially if it follows up on the White Paper by using its “bully pulpit” to bring the parties to the negotiating table.  Let’s just say the gauntlet has been thrown down and we think the PRA can fairly be described as “in play” at this point. 

Of course, despite the fact that these recommendations come from the White House, they are nothing more than recommendations. It is up to Congress to act on them or not, as it sees fit. And it remains to be seen whether Congress will do so.  We’ll just say that, if it does, we hope that Congress will consider all points of view and move cautiously, with clarity and precision, to ensure that legitimate rights, including First Amendment rights, are not infringed.

• Revenue-based royalty payment structure for over-the-air performance of music

The NAB proposes that the performance right royalty be calculated as 1% of a station’s revenue for commercial stations with at least $1.25 million in revenue. The following tiers would apply to smaller and/or noncommercial radio stations:

• Annual revenues                                                                    Payment

< $50,000 (commercial or nonprofit)                           Lesser of $100/year or 1% of revenue

$50,000-$100,000 (commercial or nonprofit)       $500/year

> $100,000 (nonprofit only)                                           $1000/year

$100,000-$500,000 (commercial only)                     Lesser of $2,500/year or 1% of revenue

$500,000-$1.25 million (commercial only)              $5,000/year

> $1.25 million (commercial only)                                   1% of revenue

Stations making only incidental use of music (e.g., news, talk or sports stations) would not pay at all for use of copyrighted music. Similarly, no payment obligation would arise from music used in religious services broadcast on the radio, although religious music stations would still be subject to the rate structure above.

Note that these royalty levels would be phased in subject to the extent of inclusion and activation of radio chips in mobile devices (see below).

• Broadcasters would receive a break on royalties arising from their webcasting/streaming or other non-terrestrial transmissions.  Those non-broadcast rates would be tied to the “pureplay” webcasting rates, resulting in a reduction in current streaming rates. This new calculation approach would be effective until December 31, 2016, with rates to be adjusted for six years terms thereafter.

• The NAB and MusicFirst would push for legislation requiring the inclusion and activation of radio chips in mobile devices, with an acceptable phase-in period and inclusion of HD when feasible. Because the electronics manufacturers would likely oppose such a requirement, the Term Sheet specifies a “market-based phase-in” approach to the royalty rates listed above. That phase-in would apply if the NAB and musicFirst “determine that legislation mandating the inclusion of radio chips on mobile devices is unattainable”, and would apply as follows:
  
  
  • The percentage rate would be “tied to (mirror) the market percentage of mobile devices that include an enable radio chip”, although a 0.25% floor would apply regardless of penetration. In other words, even if no mobile devices included chips, large commercial stations would be on the performance royalty hook for 0.25% of their revenues; they would then increase in a way that mirrors the market percentage of mobile devices until 75% of all mobile devices have a radio chip, at which point the full rates kick in.
  • The phase-in approach would apply to small, noncommercial, religious and/or non-music stations as well.
  • The discounted rates for webcasting/streaming/non-terrestrial transmission would not take effect until 50% of all mobile devices have a radio chip.  But if that 50% threshold is not reached by 2016, any existing streaming rates will continue to apply.

• Broadcasters would report their data using the sample reporting methodology currently used by ASCAP/BMI rather than the more intensive “census” reporting currently submitted to SoundExchange for the webcasting statutory license

• The NAB and musicFirst would agree to the following “policy” considerations:
  
  
  • The Copyright Royalty Board (CRB) would have absolutely no involvement in setting terrestrial or streaming rates.
  • The agreed-to royalty structure would be predicated on the express acknowledgement by AFTRA that broadcasters have a right to fully simulcast their terrestrial broadcasts on the Internet. In other words, the ongoing dispute regarding the requirement to remove some broadcast commercials from streamed content will be resolved.
    
  • The text of any eventual bill would explicitly acknowledge the “value to artists and record labels of promotion on free, over-the-air terrestrial radio”. 

From a practical perspective, we should also note that, by including the radio chip as an essential element of the deal, the NAB has roped the electronics manufacturers into the process. Ditto for AFTRA, with respect to the provision about streaming commercials. Of course, the presence of these particular additional players is technically not necessary for the resolution of the essential question of whether or not any performance royalty obligation exists. But by increasing the number of parties at the negotiating table, the NAB has almost certainly assured that the negotiation will take considerably longer than would otherwise be the case.

But now that we know what the Term Sheet looks like, the real question is: does it make sense for broadcasters?

Hard to say for sure, because different stations will be affected in different ways. Even the smallest station might have trouble paying $100 per year if it’s barely meeting expenses anyway. But that same station might find – maybe now, maybe in the relative near-term – that the reductions in streaming royalties more than offset the new royalties for over-the-air broadcasts in the long term. Locking in reduced streaming royalty rates now may pay handsome rewards down the line, particularly if, absent some such legislation, the CRB continues its exponential increase of webcasting royalties.

For that reason, you might want to run some numbers yourself.  Figure out how much you’d be paying this year, and for the next five years, under the NAB’s proposal. (We’re happy to help you work through this – though, as lawyers, we can’t vouch for the math.) Compare that to what you’re paying now.   If your overall royalty obligation would go up, would the increase be completely untenable under your current budget (or your anticipated budgets for future years)?

But before you answer, consider a couple of other factors. The NAB’s approach would remove the CRB from the rate-setting process, and would ideally substitute a more rational, and predictable, rate-setting mechanism going forward. Nothing wrong with that. Moreover, the NAB Term Sheet would also streamline reporting requirements for webcasting – which could relieve broadcasters of a significant headache and thereby encourage them to stake out a more substantial web presence.

And while the question of performance royalties – or anything relating to your pocketbook – is among the most important issues facing any radio broadcaster, it’s not the only issue. It’s just one of many legislative and policy matters facing the industry. NAB members expect, and need, the NAB to represent them before Congress and the agencies on all these issues. And for itself to survive, the NAB has to be sure that it’s doing precisely that. As I noted in an earlier post, the siege effort that the NAB has waged for years against the PRA has been successful, but costly. And unless something happens – like a negotiated settlement – it’s likely to continue to be costly for years more, sapping the NAB’s, and broadcasters’, political capital.

Of course, if you’re an unhappy NAB member, speak up about it – especially if your unhappiness derives from a lack of communication from between leadership and membership. That’s one of your rights as a member and the only way any final deal will be the best deal for the majority of radio broadcasters.

We’ve also heard that the way the Request came by its official docket number was a bit, um, unorthodox, but what the heck – the FCC controls its docket number assignment processes, and as long as it can keep those numbers straight, it can assign them however it wants.

While documents can be misfiled or mislaid by even the best of us, the Commission’s delay in making a copy of the Request available for public review is troubling. In our experience the Secretary’s office is one of the tightest-run ships around, so it’s striking that they reportedly haven’t been able to come up with a stamped copy. Unfortunately, thanks to the delay, we’ve already burned through five of the 30 days provided for comments. Since the deadline for comments was thoughtfully set for the Tuesday after Labor Day weekend, every day counts here.  (Yes, we know that this doesn’t affect us, because we’ve already got our copy. But what about everybody else?)

Perhaps most distressing is the question of why there has been any problem here at all.  After all, the Commission issues public notices and opens up dockets all the time. Presumably it has a standard operating procedure to assure that everything is in order before a proceeding is initiated, a docket number assigned, public comments invited, etc. And (also presumably), if that SOP had been followed, somebody would have realized that the stamped copy of the Request – i.e., evidence that the Request had in fact been filed at all – had apparently gone missing. We like to think that the process would then have stopped until the supposedly errant copy had been wrangled back into the files.

So the fact that the public notice was hustled out as a “late release” (supposedly on Friday evening, but did anybody actually see it released before Monday morning?) is odd. After all, what’s the hurry here? Why was it so darned important to get the notice out the door on August 7 when August 10, 11, 12, etc., all would presumably have done just as well?

It is, of course, entirely possible that there are perfectly reasonable answers to these questions. But we’re having trouble coming up with any. The seemingly slapdash haste with which the invitation for comments was issued is particularly problematic in view of the fundamental questions of First Amendment protections and scope of FCC authority posed by the Request.

Unless and until the Commission provides some explanation for both (a) the delay in getting a copy (and particularly a stamped copy) of the Request posted for all to see and (b) the decision to release the public notice on a rush-rush basis late on a Friday with the stamped copy still AWOL, folks at the FCC should not be surprised if many of us take their paeans to “transparency” (like here, or here, or here) with more than a grain of salt.

In June MusicFIRST filed its Request, alleging that, “[b]y using their licenses over public airwaves to promote their own pecuniary interests and to distort an important matter of public debate”, broadcasters are violating their public interest obligations. The Coalition suggested that the Commission should consider “strengthening the license renewal process and shortening license terms”.

Acting with unusual speed – in our experience, this kind of declaratory ruling request can gather dust for months, if not years, before the FCC even acknowledges that it’s been filed – the Commission has invited comments. In particular, the agency is looking for input on the following points:

• whether and to what extent certain broadcasters are “targeting and threatening artists who have spoken out in favor of the PRA,” including a refusal to air the music of such artists;
• the effects of radio broadcasters’ alleged refusal to air advertisements from MusicFIRST in support of the PRA;
• whether and to what extent broadcasters are engaging in a media campaign, coordinated by NAB, which disseminates falsities about the PRA; and
• whether certain broadcasters have evaded the public file requirements by characterizing their on-air spots in opposition to the PRA as public service announcements.

MusicFIRST is clearly trying to get broadcasters’ attention by attacking them where they are arguably most vulnerable – in the soft white underbelly of the regulatory/licensing process.

Of course, the Request does not ask the FCC to address the merits (or lack thereof) of the PRA . . . and properly so, since the FCC has neither the expertise nor the statutory authority to weigh in on such issues. Rather, the Request gets the FCC’s attention by claiming that at least some broadcasters may not be playing by the rules and may be acting unfairly in some way. Using that as a hook, MusicFIRST suggests regulatory responses (e.g., shortened renewal terms, possible disciplinary action) that might, um, incentivize broadcasters to be more, er, open to the PRA and its advocates.

The Request is particularly interesting for what it does not provide: any significant, detailed, factual information to support its extravagant claims of some industry-wide cabal resulting in rampant disregard for any particular rule(s). While the Request purports to “reveal a pattern of threats and intimidation by which broadcasters are using their licenses” improperly, the Request describes in the tersest possible manner a total of five instances of such supposed misconduct. And those instances are not identified with respect to the station(s) in question or the artists who were supposedly threatened or intimidated. While such vague, unverified and unverifiable charges may have worked for Joe McCarthy back in the day, we thought that government had gotten past that particular gambit by now. Apparently not.

Moreover, even if the five examples sketched anonymously in the Request could be shown to be every bit as bad as MusicFIRST would have us believe, that would still reflect the conduct of but a very, very small handful of stations in a radio industry numbering more than 14,000 stations. (By the way, one of the five anonymous instances referred to in the Request has been tracked down by a newspaper: it turns out to be a 100-watt noncommercial high school station in Delaware at which the students opted for a one-month boycott of MusicFIRST-related artists two years ago. It would be difficult to claim with a straight face that that incident reflects some industry-wide “pattern of threats and intimidation”.)

The Request also alleges that “broadcasters are refusing to accept ads” from MusicFIRST and its allies relative to the PRA. Again, however, the “evidence” of such refusals is slim at best. The Request mentions six – count 'em, six – stations (by call sign) which purportedly declined the MusicFIRST spots. It also says that a request to run the spots “in 38 different markets on a variety of different types of stations” was sent to Clear Channel – and as of the date of the Request, Clear Channel had not responded, even though “[i]t has now been over a week since we sent the script.” No real smoking gun there.

The Request claims that broadcasters are “spread[ing] malicious and untruthful information about the PRA.” MusicFIRST’s knickers are all in a twist because, for example, some anti-PRA materials distributed by some broadcasters refer to the PRA as a “tax”.   MusicFIRST’s position is that the term “tax” can refer only to situations involving making payments to a government, and since the PRA provides for no such payments, well, then, obviously, use of the word “tax” has got to be a Big Lie. But the word “tax” also means “a heavy burden”, without reference to the precise nature of the burden. If the promo items in question had been hypertechnical legal documents in which the use of the word “tax” called for ultra-precision, MusicFIRST’s criticism might have some basis. But the materials don’t appear to have called for such nice distinctions. And since pretty much everybody agrees that the PRA would, in fact, impose a heavy burden on broadcasters, it’s hardly malicious or untruthful to refer to it as a “tax”.

Finally, MusicFIRST frets that all of this supposed nefarious skullduggery is being orchestrated by the NAB and is “blatantly anti-competitive”.

So, gesticulating wildly at all that blue smoke and all those mirrors, MusicFIRST urges the Commission to come to the rescue. Interestingly, while the gist of the Request sounds an awful lot like a complaint under the long-gone Fairness Doctrine, MusicFIRST defensively claims that that’s not the case. But it asserts that broadcasters “have a statutory duty to use their monopoly . . . responsibly and not simply to further their own economic interests.”

The Commission, for its part, acknowledges that “substantial First Amendment interests are involved in the examination of speech of any kind.” It also recognizes that no remedies may be necessary, or available, to address the activities which MusicFIRST alleges.

But none of that is stopping the Commission from jumping right into this fracas with both feet, notwithstanding the anonymous, non-specified, unverified and unverifiable nature of MusicFIRST’s claims. By doing so, the FCC seems to be signaling its sympathy for the artists’ position – for sure, by inviting any comments at all the Commission appears to be giving the benefit of every conceivable doubt to MusicFIRST.

If you want to chip in your two cents’ worth, you have until September 8, 2009 to file comments. Reply comments are due by September 23.