Webcasting IV: The Pieces Start to Fall Into Place

Recent decisions resolve some questions, influence the eventual resolution of others.

If you're a webcaster, we've got some news for you. While the Copyright Royalty Board (CRB) has yet to conclude its Webcasting IV proceeding, it has issued two orders recently that wrap up some aspects of that proceeding. And the Register of Copyrights has issued a separate ruling that could affect aspects of the proceeding not resolved by the CRB's orders. So those of you who have been awaiting with bated breath the word on webcasting rates and terms for the 2016-2020 period - and you know who you are - this is for you.

It is, of course, about time. After all, Webcasting IV began in January 2014. One would think that the CRB shouldn't need two full years to reach its conclusions. In this case, one would be wrong. (In fact, I'm guessing that CRB's final decision won't appear until mid-December, which would be consistent with its timing in Webcasting III, when a decision for the 2011-2015 term was issued in December, 2010. FWIW, that would still be quicker than Webcasting II, when the decision covering the 2006-2010 term wasn't issued until March 2007, more than a year after the rates were supposed to have gone into effect).

In any event, the CRB's two recent decisions directly involve, first, Noncommercial Educational Webcasters, and next, public radio stations. The Register's ruling could affect all other webcasters.

Noncommercial Educational Webcasters - the SoundExchange/CBI Agreement

First up, the CRB has adopted (with one exception) the terms of a settlement agreement between SoundExchange and College Broadcasters, Inc. (CBI). The approved terms, which include the rates for the 2016-2020 term, will apply to "Noncommercial Educational Webcasters" (NEWs).

Not sure whether you're subject to these terms? To be an NEW, a webcaster must, among other things:

• be exempt from federal income taxation under Section 501 of the Internal Revenue Code (or at least have applied for that status) or be operated by a governmental entity;
• be directly operated by, or affiliated with and officially sanctioned by, a domestically accredited primary or secondary school or college or university, or other post-secondary degree-granting educational institution;
• be substantially staffed by students of the educational institution;
• not be a "public broadcasting entity"; and
• take steps not to make transmission in excess of 159,140 "aggregate tuning hours" on any individual channel or station in any month, if it exceeded that threshold in any month during the previous year.

For all you webcasting radio stations out there, remember that the definition of "Noncommercial Educational" for webcasting purposes bears no relationship to your FCC license. Just because the FCC may characterize you as "noncommercial educational" does not mean that you are an NEW for copyright purposes.

Under the SoundExchange/CBI deal adopted by the CRB, the key rates and terms for 2016-2020 will be:

• An annual minimum fee of $500 for each individual channel, side channel or station engaged in webcasting under the statutory license;
• A maximum monthly threshold of 159,140 aggregate tuning hours (ATH);
• Payment on a "per performance" basis at the rate eventually applied to "Noncommercial Webcasters" if the 159,140 ATH threshold is reached (it is interesting to note that, apparently, NO NEWs exceeded that threshold in the past three years);

The option of paying a $100 "proxy fee" in lieu of filing Reports of Use if the webcaster did not exceed 80,000 ATH in more than one month during the previous year.

This leaves the licensing scheme for NEWs pretty much unchanged from 2011-2015, save for one item. That exception - which works in the webcasters' favor - involves the last bullet point above. During the 2011-2015 term, the $100 proxy fee was available only until the webcaster hit 55,000 ATH. The new deal increases that trigger to 80,000 ATH, which will allow even more NEWs to take advantage of the proxy fee, thus reducing their recordkeeping burdens and technological needs.

The one provision of the SoundExchange/CBI deal that the CRB declined to bless just now is the provision that would have made SoundExchange the "Collective", i.e., the sole designated receiving agency to administer the statutory license by collecting and distributing royalties from NEWs. The CRB will get around to selecting a Collective when all the rest of the Webcasting IV proceedings are concluded. (SoundExchange probably doesn't have much to worry about, though, since the CRB observed that no other entity has been proposed to serve as the Collective with respect to any of the webcaster classifications. As a result, it's almost certain that SoundExchange will eventually get the nod.)

Public Radio Webcasters - the SoundExchange/NPR-CPB Agreement

Things moved similarly smoothly for public radio webcasters. This group includes National Public Radio (NPR), American Public Media, Public Radio International and Public Radio Exchange, as well as up to 530 originating public radio stations. (To qualify, a radio station must be either: an affiliate of NPR, American Public Media, Public Radio International, or Public Radio Exchange; a member of the National Federation of Community Broadcasters; or qualified to receive funding from the Corporation for Public Broadcasting (CPB) pursuant to its criteria). The CRB has adopted a partial settlement negotiated by SoundExchange, on the one hand, and NPR and CPB (on behalf of the public radio webcasters), on the other. (As with the NEWs arrangement described above, the CRB declined for the time being to name SoundExchange as the Collective, even though the agreement called for it.) There don't appear to be any manifest changes in rates or terms from the arrangements in effect during the 2011-2015 period. However, public radio will continue to administer the arrangements as in the past, so eligible stations should be on the lookout for direct notice(s) from NPR or an NPR affiliated entity for guidance.

Other Webcasters

What of everyone else - the Commercial Webcasters (including "pureplay" webcasters), the Commercial Broadcasters, the Noncommercial Webcasters that don't fall into either the Noncommercial Educational or the Public Radio classifications? What will they pay? What will be their cut off for the highly coveted "small" or "microcaster" classifications that enjoy exemption from the Report of Use filing requirement? Will those "small" or "microcaster" classifications even exist (there was scant, if any, mention of them in any of the parties' pre-hearing briefs to the CRB)?

The jury - or, more accurately, the CRB - is still out on those and other similar questions. But the webcasters did score a victory recently when the Register of Copyrights issued a memorandum saying that direct licensing agreements between webcasters and record labels can be entered into evidence and considered by the CRB in the ratemaking process.

The backstory here starts with Section 114(f)(5)(C) of the Copyright Act, which bars the CRB - in setting rates and terms for future periods - from relying on settlement agreements entered into by webcasting representatives, on the one hand, and SoundExchange, on the other, pursuant to the Webcaster Settlement Act of 2009. The particular agreements that the CRB may not rely on were intended to settle lawsuits seeking to overturn the CRB's 2007 Webcasting II decision; they led to the overall licensing structure that has largely stayed in place since the agreements were reached. But Congress did not want the particular settlement agreements to guide the CRB going forward because of the peculiar circumstances from which they arose: those agreements were, in the Congress's words, motivated by "the unique business, economic and political circumstances of webcasters, copyright owners and performers rather than as matters that would have been negotiated in the marketplace by a willing buyer and willing seller."

Since then, webcasters have in many instances engaged in direct licensing negotiations with copyright holders for the right to use the copyrighted works. These negotiations, of course, had nothing to do with the Webcaster Settlement Act of 2009 or the long-past litigation over the Webcasting II decision. Rather, they constituted arm's length efforts by webcasters and copyright holders to determine the actual current value of digital performance of sound recordings.

However, some of these licenses contained language very similar - even identical - to language that appeared in the settlement agreements reached under the Webcaster Settlement Act of 2009. Because of that, SoundExchange argued that the CRB should not consider them as part of the CRB's effort to set rates and terms for the 2016-2020 period. Webcasters, by contrast, argued that, while likely influenced by the earlier settlement agreements, these negotiated licenses were separate and distinct from the limited universe of settlement agreements identified by Congress as out-of-bounds for the CRB.

The Register (for a number of detailed reasons we don't need to get into here) agreed with the webcasters, which is probably a good thing for webcasters. SoundExchange is seeking a sharp increase in webcasting rates for 2016-2020. But, under the directly-negotiated licenses that the CRB may now consider as part of its rate-making deliberations, webcasters like Pandora, IHeartMedia and others are paying significantly less than SoundExchange is asking for. Importantly, the terms of those licenses stand out as actual, concrete examples of what a willing buyer and willing seller in this marketplace would agree on - in, fact, have agreed on - as the actual value for digital performance of a sound recording. In that regard they may provide the CRB more persuasive evidence of the proper rates to be set.

Webcasters seeking more of the same - or at least no significant changes from the rates and terms to which they have been subject - thus have reason to remain optimistic.