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

A.        Noncommercial Webcasters Who HAVE NOT Elected to Participate in any major Webcaster Settlement Agreement

If you are a noncommercial webcaster – and are not eligible for or have chosen not to participate in any of the settlement agreements applicable to noncommercial webcasters – then you are still governed by the March, 2007 decision of the Copyright Royalty Board. You must:

File your annual minimum fee of $500 per channel by January 31, 2010 using the 2010 Noncommercial Webcaster Annual Minimum Statement of Account form found here.

File any fees incurred for exceeding the 159,140 aggregate tuning hour maximum with the 2010 Noncommercial Webcaster Monthly Usage Statement of Account form found here. You must file this form even if no fees have been incurred, marking “zero” for the amount to be paid.

File playlist reports of use on a monthly basis.

B.        Noncommercial Webcasters Who HAVE Elected to Participate in the Webcaster Settlement Agreement between PUBLIC RADIO STATIONS and SoundExchange

Stations 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 do not have to file forms with SoundExchange. Under the terms of their settlement agreement, NPR’s Public Radio Interactive is making those payments. These stations will be contacted by Public Radio Interactive with regard to their obligations.

C.        Noncommercial Webcasters Who HAVE Elected to Participate in the GENERAL NONCOMMERCIAL WEBCASTER SETTLEMENT AGREEMENT and are not considered Microcasters because they have an average of at least 44,000 aggregate tuning hours per year

There are two settlement agreements that apply to noncommercial webcasters simulcasting an over-the-air broadcast station. The first applies to any noncommercial webcaster, whether affiliated with an educational institution or not. These noncommercial webcasters must re-elect this status every year, or be covered by the CRB decision of March, 2007 as described in Section A, above.   They must:

File an annual minimum fee of $500 per channel by January 31, 2010 using the 2010 Noncommercial Webcaster Annual Minimum Statement of Account form found here.

File a Notice of Election by January 31, 2010 on the 2010 Noncommercial Webcasters Statement of Election Form found here.

File any fees incurred for exceeding the 159,140 aggregate tuning hour maximum with the 2010 Noncommercial Webcaster Monthly Usage Statement of Account form found here. You must file this form even if no fees have been incurred, marking “zero” for the amount to be paid.

File playlist reports of use on a quarterly basis (monthly if the webcaster exceeded 159,140 aggregate tuning hours in any month in 2009 or in any month in 2010).

D.        Noncommercial Webcasters Who HAVE Elected to Participate in the GENERAL NONCOMMERCIAL WEBCASTER SETTLEMENT AGREEMENT and ARE considered Microcasters because they had fewer 44,000 aggregate tuning hours last year

These are extremely small noncommercial webcasters who 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.  They must:

File an annual minimum fee of $500 per channel by January 31, 2010 using the 2010 Noncommercial Microcaster Annual Minimum Statement of Account form found here.

File an additional $100 “proxy fee” in exchange for the exemption from playlist reporting obligations, which occurs with the filing of the “Notice of Election” form found here. 

These webcasters do not have to file any Statement of Account forms for 2010 since, by definition, they will not be paying royalties. If, for some reason, they have miscalculated and exceed 159,140 aggregate tuning hours in a month, they will “true up” their payments for 2010 in January 2011.   

There is no requirement to file playlist reports of use.

E.        Noncommercial Educational Webcasters Who Have Elected to Participate in the NONCOMMERCIAL EDUCATIONAL WEBCASTER SETTLEMENT AGREEMENT [Blogmeister Note: This portion of this post was revised on January 19, 2010 in response to the reader comment found below. See our explanation and further clarification in our responsive comment, below.]

Noncommercial webcasters affiliated with an educational institution whose operations are substantially staffed by students are eligible for the Noncommercial Educational Webcaster Settlement Agreement. They must:

File a Notice of Election by January 31, 2010 on the 2010 Noncommercial Educational Webcaster Statement of Election Form found here. They must certify as to whether they have remained below an average of 55,000 aggregate tuning hours per month (and thus can pay a $100 proxy fee in exchange for the right to be exempted from playlist reporting or go ahead and engage in playlist reporting covering two seven day periods per quarter) or whether they have exceeded 159,140 aggregate tuning hours in any given month (and thus must engage in monthly reporting of all songs played). Stations that exceed 55,000 aggregate tuning hours in a given month but do not exceed 159,140 aggregate tuning hours in a given month will engage in playlist reporting covering two seven day periods per quarter. In any event, there does not have to be any reporting of aggregate tuning hour or actual total performance data, whereas stations that do not participate in this Noncommercial Educational Webcaster Statement must engage in full out, monthly “census” reporting of all songs played during the month that includes actual total performance data.

File a Notice of Election by January 31, 2010 on the 2010 Noncommercial Educational Webcaster Statement of Election Form found here. They must certify as to whether they have remained below an average of 55,000 aggregate tuning hours per month (and thus will pay a $100 proxy fee to be exempted from playlist reporting) or whether they have exceeded 159,140 aggregate tuning hours in any given month (and thus must engage in monthly reporting of all songs played).

File any fees incurred for exceeding the 159,140 aggregate tuning hour maximum with the 2010 Noncommercial Webcaster Monthly Usage Statement of Account form found here.   They must file this form even if no fees have been incurred, marking “zero” for the amount to be paid.

File playlist reports of use on a quarterly basis (monthly if the webcaster exceeded 159,140 aggregate tuning hours in any month in 2009 or in any month in 2010 or not at all if the webcaster stayed below an average of 55,000 aggregate tuning hours per month and chooses to pay a $100 proxy fee instead of filing these reports). 

Again, these forms and payments are due by January 31, 2010. Because that is a Sunday, SoundExchange will accept the forms on Monday, February 1, 2010. However, you cannot electronically file these forms and there is a penalty for late payment (or worse in terms of late-filing a Notice of Election), so we suggest you get started now. Please do not hesitate to contact a Fletcher, Heald & Hildreth, P.L.C. attorney if you have any questions.

A.        Commercial Webcasters Who Have NOT Elected to Participate in the Webcaster Settlement Agreement Between the NAB and SoundExchange (or any other potentially applicable settlement agreement):

If you (a) are a commercial webcaster and (b) either are not eligible for or have chosen not to participate in the settlement agreement between the National Association of Broadcasters and SoundExchange, then you are still governed by the March, 2007 decision of the Copyright Royalty Board. You must:

File your annual minimum fee of $500 per channel by January 31, 2010 using the 2010 Commercial Webcaster Annual Minimum Statement of Account form found here; AND

File annual fees calculated using the per performance rate of $0.0019 for 2010 and using the 2010 Commercial Webcaster Monthly Usage Statement of Account form found here; AND

File playlist reports of use on a monthly basis. 

B.        Commercial Broadcasters Who HAVE Elected to Participate in the Webcaster Settlement Agreement Between the NAB and SoundExchange: 

Commercial webcasters who are simulcasting an over-the-air signal are eligible to participate in the Webcaster Settlement Agreement between the National Association of Broadcasters and SoundExchange. However, eligibility rests on whether you elected to participate by April 2, 2009. If you did not file this election form, you canNOT now choose to participate in this settlement agreement; instead, you must follow the procedures set forth in Section A, above.  

If you did make the proper election before September 15, 2009, you must:

File your annual minimum fee of $500 per channel by January 31, 2010 using the 2010 Broadcaster Annual Minimum Statement of Account form found here; AND

File annual fees calculated using the per performance rate of $0.0016 for 2010 and using the 2010 Broadcaster Monthly Usage Statement of Account form found here; AND

File playlist reports of use on a monthly basis.

C.        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 exempt from filing playlist reports of use. These broadcasters elected to participate in the agreement between the NAB and SoundExchange and 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, as we have already noted, will save a lot of time in the future because they do not have to file playlist reports of use on a monthly or even quarterly basis. They must: 

File your annual minimum fee of $ 500 per channel by January 31, 2010 using the 2010 Small Broadcaster Annual Minimum Statement of Account form found here; AND

File an additional $ 100 "proxy fee" in exchange for the exemption from playlist reporting obligations, which occurs with the filing of the "Notice of Election" form found here; AND

File a 2010 Small Broadcaster Monthly Usage Statement of Account form found here. By definition, a station with fewer than 27,777 aggregate tuning hours will never have its cumulative royalties for the year exceed $ 500, but you must file this form certifying your listenership and marking a “zero” in the line indicating how much to be paid that month.

Again, these forms and payments are due by January 31, 2010. Because that is a Sunday, SoundExchange will accept the forms on Monday, February 1, 2010. However, you canNOT electronically file these forms and there is a penalty for late payment (or worse consequences, for  late-filing a Notice of Election), so we suggest you get started now. Please do not hesitate to contact a Fletcher, Heald & Hildreth, P.L.C. attorney if you have any questions.

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.

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.

In order to be covered by the settlement, a webcaster must: 

• Be Licensed by the Federal Communications Commission;
• Originate programming (not be solely a repeater station);
• Be a member or affiliate of:
  
  • NPR
  • American Public Media
  • Public Radio International,
  • Public Radio Exchange, 
  • the  National Federation of Community Broadcasters, or
  • or be a public radio station that is qualified to receive funding from CPB.
    
• Qualify as a "noncommercial broadcaster" under the statutory licensing rules; and
• Webcast as part of the mission that entitles the owner to be exempt from taxation under Section 501 of the Internal Revenue Code, or, if it is owned by a government entity, operate for a public purpose. 

The 450 or so qualifying stations agreed to make a $1.85 million lump sum payment to SoundExchange covering the years 2006-2010.  We now understand that individual stations covered by this settlement will be making their payments to NPR Public Interactive.

So, public radio licensees, keep an eye out for correspondence from NPR Public Interactive.  If you believe yourself to be covered by this settlement and don't hear something from NPR Public Interactive in the very near future, please let us know, as first reports to SoundExchange will be made in mid-July.

We have prepared a series of interlinked informational slides to guide you along the path. By clicking on the links that apply to your own situation, you can wend your way through the Webcast Royalty Maze. (Don’t worry about making a mistake: you can go back at any time if you think you've answered a question wrong or if you think that you'd like to take advantage of some other available option.)

NOTE: This was created prior to the execution of settlement agreements in August 2009 that cover noncommercial webcasters and noncommercial educational webcasters.  If you are a noncommercial webcaster who might be eligible for one of these agreements, please look for an updated version of this step-by-step guide or contact us for more information.

So, let's begin with an easy one: If you are engaged in the non-interactive public performance of sound recordings by means of a digital audio transmission, click here. 

If you are not engaged in the non-interactive public performance of sound recordings by means of a digital audio transmission, then the statutory license for webcasting does not even apply to you.