Monday, December 28, 2015

Wait, What? The Copyright Royalty Board, Webcasting Rates and Paying Artists, Explained

Written by Ed Christman and Glenn Peoples — The Copyright Royalty Board (CRB) just announced new webcasting rates for 2016 through 2020. These are the rates services like Pandora and iHeartRadio will pay for their online streams. With the music business continuing its seemingly inexorable shift to streaming, the CRB's decision is incredibly important to a wide range of companies and people. But it's a complicated subject. So here are answers to some common questions that will help Billboard readers wade through the issue.

What just happened?
The Copyright Royalty Board has announced the webcasting rates for 2016 through 2020. The rate proceeding was called "Webcasting IV" (three rate proceedings came before it). These are statutory rates to be paid by eligible digital music services that use the compulsory license made available under the Copyright Act. A good introduction to webcaster royalties can be found here.

What is the Copyright Royalty Board?
Copyright Royalty Board is part of the U.S. Library of Congress and it consists of three Copyright Royalty Board judges who determine royalty rates for statutory licenses as provided by the U.S. Copyright Royalty and Reform Act of 2004.

Why is the Copyright Royalty Board Necessary?
The CRB is mandated by statute to set rates and typically encourages both music licensors and licensees to negotiate on rate settlements. But, more often than not, a consensus can't be reached and so a rate trial proceeds, wherein all interested parties make their cases through statements and testimony. After listening to testimony, the Judges make a determination as to what the statutory royalty rates will be for the upcoming five-year period.

Which companies are affected by this decision?
These new royalty rates are for webcasters, radio shows that transmit original programming, or simulcasts over the Internet. These are webcaster that meet the legal definition of a non-interactive digital music service. Pandora will pay these rates unless it has negotiated other rates with rights owners (it has direct deals with independent rights group Merlin and classical label Naxos). The same goes for radio companies like iHeartRadio, which has also negotiated some rates directly with record labels (such as Big Machine).

Which companies are not affected by this decision?
Webcasting IV covers only webcasters. Rates for satellite radio or cable radio are set in a different rate proceeding. Thus, only the webcasting aspect of SiriusXM Radio is affected by Webcasting IV. Cable radio services like Music Choice are not affected either.

What royalties are being paid?
The Digital Millennium Copyright Act created a master recording performance right for digital transmission. These royalties are paid to record labels, recording artist and musicians for the performance of master recordings streamed over the Internet. But Webcasting IV doesn't cover other types of performances. The U.S. is one of the few countries in the world without a performance right for master recording for performances at terrestrial radio, in public places like retail stores and bars, and on television

Does this decision affect music publishers and songwriters?
No. Webcasting IV involves only the master recording side of copyright. Royalties related to the other side of copyright, the musical work, are set in different ways. Rates for musical works are affected only to the extent that the CRB's determinations are used as a benchmark for establishing other royalty rates.

Are these royalty determinations important?
Yes. Hundreds of millions of dollars are at stake. With just Pandora alone, in 2014, the music streaming service paid out $446 million in royalties, of which, Billboard estimates, about $410 million was paid to Sound Exchange for payments to record labels, artists and musicians.

Does the CRB have final say in the rates?
Yes, to the degree that they set the rates, but their determination must be reviewed by the U.S. Copyright Register to ensure their ruling is legally correct. Moreover, their determinations can be appealed by any of the participants.

How does the money get paid to labels and artists?
If the licensee has not cut a direct deal with the copyright owners, it can get a compulsory licenses which comes with a statutory rate as determined by the CRB judges and is paid to SoundExchange, an agency set up to administer payments. Those payments are split as follows: 50 percent to the master rights owner, which are typically record labels; 45 percent to the artist that recorded the music; and 5 percent to musicians, via their unions.

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