Account for Private Deals in Setting Royalties for Online Streaming, CRB Asked
A ruling on the rates streaming music services will pay for music licensing is expected in December, after closing arguments in the case (14-CRB-0001-WR (2016-2020)) were held before the Copyright Royalty Board Tuesday. The hearing included long stretches of closed session, where the room was shut to outside parties because confidential information was under discussion, according to CRB staff.
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During the open portions of the hearing, iHeartRadio, NAB, Pandora and Sirius argued that in setting the royalty rates for post-1972 sound recordings, CRB should consider the rates set by services like Pandora in private agreements with record labels. SoundExchange, which represents artists and record labels, said the CRB shouldn't consider such deals when setting the rate, pushing for a higher rate. The CRB is tasked with setting a rate that approximates what the free market would arrive at if there were no licensing requirement, said Munger Tolles attorney Glenn Pomerantz, who represents SoundExchange. Because the deals with record labels reached by Pandora and iHeartRadio were made in the “regulatory shadow” of that licensing requirement, they're “tainted” and shouldn't be considered by CRB, Pomerantz said. Noncommercial broadcasters such as NPR, the National Religious Broadcasters and Intercollegiate Broadcasting System also addressed the CRB Tuesday.
SoundExchange wants to increase the current commercial royalty rate from .0023 cent per performance to .0025 cent in 2016 and to .0029 cent in 2020, Pomerantz said. NAB and iHeartRadio proposed a rate of .0005 cent. SoundExchange also proposed that those rates be combined with a “greater of” policy that would require commercial streaming services to pay whatever is higher between the royalty rate or 55 percent of their streaming revenue. Pandora wants a .0010-cent rate and also proposed a “greater of” policy for 25 percent of revenue. CRB Judge David Strickler asked questions about how that revenue would be determined -- Pomerantz said the definition of revenue would be “broad.” Such a policy would be a “dramatic” change for "no discernible reason” and lead to disputes, said attorney Martin Cunniff representing Sirius XM, calling the proposal “a solution in search of a problem.”
Strickler asked multiple questions of nearly every speaker Tuesday, while fellow CRB Judge Jesse Feder and Chief Copyright Royalty Judge Suzanne Barnett were more reserved. Several hearing attendees Tuesday described Strickler's questions as being technical and substantive rather than attacking any of the parties' arguments. Though most of his questions focused on the intricacies of how rate proposals and deals were negotiated, attendees told us that they couldn't get a sense of his feeling toward any specific proposal.
The CRB can determine rates using the information provided by the private agreements in the market made by iHeartRadio and Pandora, said iHeartMedia attorney Mark Hansen, of Kellogg Huber. Those deals involve 15,000 entities, the “definition” of a robust market sample, Hansen said. Strickler asked if that number was only a “sliver” of the industry, but Hansen insisted it constituted a “thick market.” Pomerantz said that because the Pandora and iHeartRadio deals involve “steering” listeners to the songs owned by those labels, they're disingenuous and shouldn't be considered by the CRB. Pandora argued that such steering deals are part of the way a free market operates.
Broadcasters simulcasting online, streaming radio services like Pandora and on-demand music services are all converging in their offerings to users, said SoundExchange, saying all such services should receive similar royalty rates. The line between interactive, on-demand services like Rhapsody and noninteractive services like Pandora is artificial and should be ignored by the CRB, Pomerantz said. NAB said simulcast is “different in ways that matter,” and many radio broadcasters already don't simulcast because of prohibitive licensing rates. Strickler asked if a lack of listener interest in online terrestrial radio is the real cause of the dearth of simulcast, but Wiley Rein attorney Bruce Joseph, representing NAB, said royalties are the problem.
CRB's decision is unlikely to be the end of the proceeding, said Intercollegiate Broadcasting System CEO Frederick Kass in an interview. The decision is likely to be caught up in litigation from one side or another, he said. “This is going to determine how whole sections of the communication industry are going to develop.”