The National Association of Broadcasters ("NAB") has been relatively quiet on the streaming front — at least in terms of the Internet Radio Equality Act being the savior for radio broadcasters seeking to reduce the rates they pay for streaming in light of the March 2, 2007 decision of the Copyright Royalty Board ("CRB")to increase rates for the years 2006-2010.
The NAB stepped up though, as an intervenor in the appellate challenge to the new rates and joining Bonneville International and the National Religious Broadcasters Music License Committee on a brief filed with the United States Court of Appeals for the District of Columbia Circuit on March 10, 2008.
Webcasters should not consider this the equivalent of a virtual cavalry riding in to save the day, as oral arguments in the case have not even been scheduled. But the brief makes several key arguments designed to effect meaningful permanent change in the ways the rates are calculated and implemented which would result in savings over the long term. Key arguments include:
- The CRB decision violates the Administrative Procedure Act ("APA") by imposing a per-performance, per-listener royalty and completely ignoring evidence demonstrating that a flat, annual royalty rate would be more appropriately assessed to broadcasters who are simulcasting on the Internet. In other words, the CRB did not consider that all simulcasters are not created equal and did not explain the reasons it lumped all webcasters together, especially in light of arguments that the webcasting landscape had changed significantly since the last rate proceeding. Among the differences the brief enumerates are:
- Requiring payment of royalties on a per performance basis is not a viable business model for broadcast simulcasters, as they cannot derive sufficient advertising revenues from the additional streaming operation
- The recent history of these proceedings demonstrates a need to treat Internet-only webcasters and broadcast simulcasters differently, as they have traditionally distanced themselves from each other and the performance rights organizations which collect royalties for use of musical works (ASCAP/BMI/SESAC) apply a flat fee to broadcast simulcasters
- Broadcast simulcasters generally provide a different service than Internet-only webcasters, with the former often offering more varied and locally-focused services and the latter mainly playing music; yet, at the same time, it is the broadcast simulcaster that is more likely to spur subsequent sales of records played on their Internet stream
- The decision further violates the APA because it is arbitrary; it also violates the Copyright Act because it ignores the standards required by Section 114 of the Act in several ways, including:
- For some odd reason, the CRB decided that noninteractive music services such as broadcast streaming services are comparable to the interactive services that are explicitly forbidden under this statutory license and which are functionally and economically miles away from each other (the CRB appears to have made this comparison because, well, interactive services pay royalties for use of sound recordings too…)
- The CRB’s decision not to offer a lower per performance rate to broadcast simulcasters was arbitrary — and simply wrong — in that it was based simply on an assumption by the CRB that no circumstances had changed since the last proceeding
- The economic model used to compute the royalty rates for all webcasters is fundamentally flawed beyond legally acceptable limits. It relies on mathematically impossible assumptions set forth by the chief expert testifying in favor of the accepted calculation method. It also relies on testimony by this same expert that has since been proven to be incorrect. In fact, the expert attempted to explain away apparent inconsistencies in his testimony by stating that webcasters could simply raise prices to recoup costs — something most webcasters are unwilling to do.
- Perhaps most important to many webcasters is an attack on the CRB’s refusal to let webcasters continue to elect between the per performance basis of calculating royalties and the preferred aggregate tuning hours method. The brief notes that software allowing per performance calculation is not widely available.
While broadcasters will no doubt be encouraged that their national trade association has weighed into this fight, we feel compelled to douse the flames a little. The standard for winning an appeal of this type is quite high, with basically only an overt violation of law or a demonstration that the CRB’s actions were completely arbitrary and capricious leading to a webcaster victory. If the CRB, likely supported through amicus briefs filed by the recording industry and SoundExchange, can show any basis for its decision, the decision will be upheld. Perhaps a more realistic hope is that the Court of Appeals will be moved to affirm in part and remand in part, honing in on the rather unexplained decision to require only per performance payment of royalties. While not a total victory, several webcasters we have talked to would be relieved if they can revert to paying their royalties on an aggregate tuning hour basis.