[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Rules and Regulations]
[Pages 13026-13058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4995]
[[Page 13025]]
Vol. 76
Wednesday,
No. 46
March 9, 2011
Part II
Library of Congress
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Copyright Royalty Board
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37 CFR Part 380
Digital Performance Right in Sound Recordings and Ephemeral
Recordings; Final Rule
Federal Register / Vol. 76 , No. 46 / Wednesday, March 9, 2011 /
Rules and Regulations
[[Page 13026]]
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LIBRARY OF CONGRESS
Copyright Royalty Board
37 CFR Part 380
[Docket No. 2009-1 CRB Webcasting III]
Digital Performance Right in Sound Recordings and Ephemeral
Recordings
AGENCY: Copyright Royalty Board, Library of Congress.
ACTION: Final rule and order.
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SUMMARY: The Copyright Royalty Judges are announcing their final
determination of the rates and terms for two statutory licenses,
permitting certain digital performances of sound recordings and the
making of ephemeral recordings, for the period beginning January 1,
2011, and ending on December 31, 2015.
DATES: Effective Date: March 9, 2011.
Applicability Dates: These rates and terms are applicable to the
period January 1, 2011, through December 31, 2015.
FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658. E-mail:
[email protected].
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Subject of the Proceeding
This is a rate determination proceeding convened under 17 U.S.C.
803(b) et seq. and 37 CFR part 351 et seq., in accord with the
Copyright Royalty Judges' Notice announcing commencement of proceeding,
with a request for Petitions to Participate in a proceeding to
determine the rates and terms for the digital public performance of
sound recordings by means of an eligible nonsubscription transmission
or a transmission made by a new subscription service under section 114
of the Copyright Act, as amended by the Digital Millennium Copyright
Act (``DMCA''), and for the making of ephemeral copies in furtherance
of these digital public performances under section 112, as created by
the DMCA, published at 74 FR 318 (January 5, 2009). The rates and terms
set in this proceeding apply to the period of January 1, 2011 through
December 31, 2015. 17 U.S.C. 804(b)(3)(A).
B. Statutory Background
A lengthy review of the history of the sound recordings compulsory
license is contained in the Final Determination for Rates and Terms in
Docket No. 2005-1 CRB DTRA, 72 FR 24084 (May 1, 2007) (``Webcaster
II'').\1\ This history was summarized by the United States Court of
Appeals for the District of Columbia Circuit in Intercollegiate
Broadcast System, Inc. v. Copyright Royalty Board, 574 F.3d 748, 753-54
(DC Cir. 2009), as follows:
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\1\ The two prior webcasting proceedings often have been
referred to informally as ``Webcaster I'' and ``Webcaster II,''
respectively, as opposed to the formal caption ``DTRA'' (which
stands for ``Digital Transmissions Rate Adjustment''). In the
current proceeding, we use the caption ``Webcasting III'' and intend
to caption future webcasting proceedings using the term
``Webcasting'' followed by the appropriate Roman numeral.
[Since the nineteenth century, the Copyright Act protected the
performance right of ``musical works'' (the notes and lyrics of a
song), but not the ``sound recording.'' Writers were protected but
not performers.]
In 1995, Congress passed the Digital Performance Right in Sound
Recordings Act. Pub. L. No. 104-39, granting the owners of sound
recordings an exclusive right in performance ``by means of a digital
transmission.'' 17 U.S.C. Sec. 106(6); see Beethoven.com LLC v.
Librarian of Cong., 394 F.3d 939, 942 (D.C. Cir. 2005). The Digital
Millennium Copyright Act of 1998, Pub. L. No. 105-304, ``created a
statutory license in performances by webcast,'' to serve Internet
broadcasters and to provide a means of paying copyright owners.
Beethoven.com, 394 F.3d at 942; see 17 U.S.C. Sec. 114(d)(2),
(f)(2). To govern the broadcast of sound recordings, Congress also
created a licensing scheme for so-called ``ephemeral'' recordings,
``the temporary copies necessary to facilitate the transmission of
sound recordings during internet broadcasting.'' Beethoven.com, 394
F.3d at 942-43; see 17 U.S.C. Sec. 112(e)(4).
Congress has delegated authority to set rates for these rights
and licenses under several statutory schemes. The most recent,
passed in 2005 [sic], directed the Librarian of Congress to appoint
three Copyright Royalty Judges who serve staggered, six-year terms.
See 17 U.S.C. Sec. 801, et seq. These Judges conduct complex,
adversarial proceedings, described in 17 U.S.C. Sec. 803 and 37 CFR
Sec. 351, et seq., and ultimately set ``reasonable rates and
terms'' for royalty payments from digital performances. 17 U.S.C.
Sec. 114(f). * * * Rates should ``most clearly represent the rates
and terms that would have been negotiated in the marketplace between
a willing buyer and a willing seller.'' Id. [17 U.S.C. Sec.
114(f)(2)(B)] ``In determining such rates and terms,'' the Judges
must ``base [their] decision on economic, competitive and
programming information presented by the parties.'' Id.
Specifically, they must consider whether ``the service may
substitute for or may promote the sales of phonorecords'' or
otherwise affect the ``copyright owner's other streams of revenue.''
Id. Sec. 114(f)(2)(B)(i). The Judges must also consider ``the
relative roles of the copyright owner and the transmitting entity''
with respect to ``relative creative contribution, technological
contribution, capital investment, cost, and risk.'' Id. Sec. 114
(f)(2)(B)(ii). Finally, ``[i]n establishing such rates and terms,''
the Judges ``may consider the rates and terms for comparable types
of digital audio transmission services and comparable circumstances
under voluntary license agreements described in subparagraph (A).''
Id. Sec. 114(f)(2)(B).
Intercollegiate Broadcast System, Inc. v. Copyright Royalty Board, 574
F.3d 748, 753-54 (DC Cir. 2009).
Forty petitions to participate were filed in response to the
January 5, 2009, notice of commencement of the proceeding. The great
majority of the petitioners were webcasters. During the subsequent
period of voluntary negotiations, settlements were reached among many
of the parties. In addition to the negotiation phase required in this
proceeding, 17 U.S.C. 803(b)(3), Congress enacted the Webcaster
Settlement Acts of 2008 and 2009, which expanded the opportunities to
resolve the issues in this proceeding, as well as the issues in
Webcaster II. This legislation further impacted Webcasting III by
permitting the settling parties to determine if the settlements could
be considered as evidence before the Copyright Royalty Judges
(``Judges'').\2\ Eight settlements were resolved under the Webcaster
Settlement Acts. 74 FR 9293 (March 3, 2009) (three agreements); 74 FR
34796 (July 17, 2009) (one agreement); 74 FR 40614 (August 12, 2009)
(four agreements). The rates and terms under these settlements were the
basis of approximately 95 percent of webcasting royalties paid to
SoundExchange in 2008 and 2009. SX PFF at ]] 50, 51.\3\ Evidence was
presented in this proceeding by SoundExchange, Inc. (``SX''),
representing the owners, and three webcasters, College Broadcasters,
Inc. (``CBI''), Live365, Inc. (``Live365''), and Intercollegiate
Broadcasting System,
[[Page 13027]]
Inc. (``IBS'').\4\ CBI only presented evidence to support adoption of
its settlement with SoundExchange for noncommercial educational
webcasters. SoundExchange and Live365 presented evidence related to
commercial webcasters. The webcasting royalties paid by Live365 to
SoundExchange for 2008 and 2009 were less than 3 percent of total
webcasting royalties paid to SoundExchange. SX PFF at ] 53.
SoundExchange presented evidence related to noncommercial webcasters,
and IBS presented evidence for small noncommercial webcasters. Written
statements, discovery and testimony for both direct case and rebuttal
case were filed on these issues.
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\2\ In the pleadings filed and during the testimony, Live365
attempted to introduce evidence about agreements that contained
provisions that they were not to be considered as precedential under
the Webcaster Settlement Acts. Following the clear language of the
statute that these agreements were not ``admissible as evidence or
otherwise taken into account,'' 17 U.S.C. 114(f)(5)(C), these
attempts were rejected. See, e.g., 4/19/10 Tr. at 210:9-10
(sustaining objection to Live365's motion to enter into evidence the
``Pure Play Agreement'').
\3\ References to the proposed findings of fact and conclusions
of law shall be cited as ``PFF'' or ``PCL,'' respectively, and reply
findings and conclusions of law shall be cited as ``RFF'' or
``RCL,'' respectively, preceded by the name of the party that
submitted same and followed by the paragraph number. Similarly,
references to the written direct testimony shall be cited as ``WDT''
preceded by the last name of the witness and followed by the page
number. Likewise, references to the written rebuttal testimony shall
be cited as ``WRT'' preceded by the last name of the witness
followed by the page number. References to the transcript shall be
cited as ``Tr.'' preceded by the date and followed by the page
number and the name of the witness.
\4\ After filing Written Direct Statements, RealNetworks, Inc.
withdrew from the proceedings, and Royalty Logic, LLC, did not
participate further.
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On December 14, 2010, the Judges issued their Initial Determination
of Rates and Terms. Pursuant to 17 U.S.C. 803(c)(2)(B) and 37 CFR
353.4, motions for rehearing were due to be filed no later than
December 29, 2010. No motions were received.
II. Commercial Webcasters
A. Commercial Webcasters Encompassed by the National Association of
Broadcasters-SoundExchange Agreement
On June 1, 2009, the National Association of Broadcasters (``NAB'')
and SoundExchange filed a settlement of all issues between them in the
proceeding, including the proposed rates and terms. This was one of the
Webcaster Settlement Act agreements, published by the Copyright Office
in the Federal Register, and was filed in this proceeding, pursuant to
17 U.S.C. 801(b)(7)(A), to be adopted as rates and terms for some
services of commercial broadcasters for the period 2011 through 2015.
It applies to statutory webcasting activities of commercial terrestrial
broadcasters, including digital simulcasts of analog broadcasts and
separate digital programming. The settlement includes per performance
royalty rates, a minimum fee and reporting requirements that are more
comprehensive than those in the current regulations. Section
801(b)(7)(A) allows for the adoption of rates and terms negotiated by
``some or all of the participants in a proceeding at any time during
the proceeding'' provided they are submitted to the Copyright Royalty
Judges for approval. This section provides that in such event:
(i) The Copyright Royalty Judges shall provide to those that
would be bound by the terms, rates, or other determination set by
any agreement in a proceeding to determine royalty rates an
opportunity to comment on the agreement and shall provide to
participants in the proceeding under section 803(b)(2) that would be
bound by the terms, rates, or other determination set by the
agreement an opportunity to comment on the agreement and object to
its adoption as a basis for statutory terms and rates; and
(ii) The Copyright Royalty Judges may decline to adopt the
agreement as a basis for statutory terms and rates for participants
that are not parties to the agreement, if any participant described
in clause (i) objects to the agreement and the Copyright Royalty
Judges conclude, based on the record before them if one exists, that
the agreement does not provide a reasonable basis for setting
statutory terms or rates.
17 U.S.C. 801(b)(7)(A).
The Judges published the settlement (with minor modifications) in
the Federal Register on April 1, 2010, and provided an opportunity to
comment and object by April 22, 2010. 75 FR 16377 (April 1, 2010). No
comments or objections were submitted, so the provisions of 17 U.S.C.
801(b)(7)(A)(ii) do not apply. Absent objection from a party that would
be bound by the proposed rates and terms and that would be willing to
participate in further proceedings, the Copyright Royalty Judges adopt
the rates and terms in the settlement for certain digital transmissions
of commercial broadcasters for the period of 2011-2015. 17 U.S.C.
801(b)(7)(A). Cf. Review of the Copyright Royalty Judges Determination,
Docket No. 2009-1, 74 FR 4537, 4540 (January 26, 2009) (review of
settlement adoption).
B. All Other Commercial Webcasters
1. Stipulation Concerning the Section 112 Minimum Fee and Royalty Rate
and Stipulation Concerning the Section 114 Minimum Fee
In between the direct and rebuttal phases, SoundExchange and
Live365 presented two settlements of issues for all remaining
commercial webcasters not encompassed by the NAB-SoundExchange
agreement: (1) The minimum fee and royalty rates for the section 112
license and (2) the minimum fee for the section 114 license. These two
settlements were included in one stipulation. The terms of the
settlement are the same as the agreement reached and included as a
final rule in Webcaster II, following remand. See Digital Performance
Right in Sound Recordings and Ephemeral Recordings (Final rule), 75 FR
6097 (February 8, 2010). The minimum fee for commercial webcasters is
an annual, nonrefundable fee of $500 for each individual channel and
each individual station (including any side channel), subject to an
annual cap of $50,000. The royalty rate for the section 112 license is
bundled with the fee for the section 114 license. There is one
additional term in the stipulation that was not included in Webcaster
II. The royalty rate for the section 112 license is attributed to be 5%
of the bundled royalties. There was no objection to the stipulation.
There was evidence presented to support the minimum fee for commercial
webcasters and the bundled royalty rates. SX PFF at ]] 459-468, 472. No
evidence disputed it. These provisions are supported by the parties and
the evidence. The Judges accept and adopt these two stipulations as
settling these issues.
2. Rate Proposals for the Section 114 License for Commercial Webcasters
The contending parties propose vastly different rate amounts for
the use of the section 114 license for commercial webcasters. In its
second revised rate proposal, SoundExchange argues in favor of a
performance rate beginning at $.0021 per performance in 2011 and
increasing annually by .0002 to a level of $.0029 by 2015. SX PFF at ]
118.
Live365 also proposes a per performance fee structure. By contrast,
under the Live365 proposal, commercial webcasters would pay $.0009 per
performance throughout the period 2011-2015. Rate Proposal For Live365,
Inc., Appendix A, Proposed Regulations at Sec. 380.3(a)(1).\5\
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\5\ In addition, Live365 seeks a 20% discount applicable to this
commercial webcasting per performance rate for certain ``qualified
webcast aggregation services.'' This proposal is discussed infra at
Section II.B.5.
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Notwithstanding the gulf between the SoundExchange and Live365
proposed royalty amounts, there is no difference between the parties
with respect to the basic structure of their proposed compensation
schemes. Both SoundExchange and Live365 propose that per performance
rates (typically stated as a fraction of a penny) be applicable in the
case of the section 114 license. Furthermore, the per performance usage
structure was adopted in Webcaster II. Webcaster II, 72 FR 24090 (May
1, 2007). It remains the best structure for the reasons stated therein.
Id. at 24089-90. Therefore, the only issues we are left to decide are
the applicable amount of the webcaster royalty rate and whether any
discount to that rate should be made on those occasions when certain
types of webcasters are aggregated.
The starting point for our determination is the applicable amount
of the section 114 performance rate.
[[Page 13028]]
3. The Parties' Disparate Approaches To Rate Setting for the Section
114 License for Commercial Webcasters
Both Live365 and SoundExchange agree that the willing buyer/willing
seller standard should be applied by the Copyright Royalty Judges in
determining the rates for the section 114 license. Both recognize that
those rates should reflect the rates that would prevail in a
hypothetical marketplace that was not constrained by a compulsory
license.
However, in contrast to the positions of the copyright owners and
commercial services in Webcaster II, in the instant case SoundExchange
and Live365 do not agree that the best approach to determining rates is
to look to comparable marketplace agreements as ``benchmarks''
indicative of the prices to which willing buyers and willing sellers
would agree in the hypothetical marketplace. On the one hand, Live365
primarily seeks to support its rate proposal by means of a modeling
analysis that aims to determine the amount of any residue that may
remain for compensating the sound recording input a commercial
webcaster uses, after reducing webcaster revenues by an amount equal to
the cost of all other inputs utilized by the webcaster in providing its
service and also by an assumed amount of webcaster profits. By
contrast, SoundExchange puts forward a benchmark approach in support of
its rate proposal, similar to the primary argument it made in Webcaster
II and an approach adopted by the Judges therein.
a. The Live365 Approach
Live365 relies primarily on a modeling analysis provided by Dr.
Mark Fratrik that seeks to identify the rate that commercial webcasters
``would have been willing to pay in a negotiated settlement between a
willing buyer and a willing seller.'' Fratrik Corrected and Amended WDT
at 5. We find that Dr. Fratrik presumes behavioral constraints not
found in the statutory standard and, that even if we were to ignore the
distortions created by such added constraints, his analysis suffers
from so many other unwarranted explicit assumptions and data defects as
to make his analysis untenable.
i. Dr. Fratrik's Model and the Hypothetical Market
The terms ``willing buyer'' and ``willing seller'' in the statutory
standard simply refer to buyers and sellers who are unconstrained in
their marketplace dealings. In other words, the buyers and sellers
operate in a free market unconstrained by government regulation or
interference. (See, for example, Noncommercial Educational Broadcasting
Compulsory License (Final rule and order), 63 FR 49823, 49834
(September 18, 1998). (``[I]t is difficult to understand how a license
negotiated under the constraints of a compulsory license, where the
licensor has no choice to license, could truly reflect `fair market
value.' ''). Moreover, neither the buyers nor the sellers exercise such
monopoly power as to establish them as price-makers and, thus, make
negotiations between the parties superfluous. Webcaster II, 72 FR 24091
(May 1, 2007). (``In other words, neither sellers nor buyers can be
said to be `willing' partners to an agreement if they are coerced to
agree to a price through the exercise of overwhelming market power.'')
Dr. Fratrik and Live365 either misperceive the plain meaning of the
terms of the statute or deliberately seek to expand the meaning of a
``willing buyer'' as articulated in the willing buyer-willing seller
standard that governs this proceeding. For them, a ``willing buyer'' is
viewed through the lens of an additional policy consideration nowhere
articulated in the statute--i.e., that a buyer can only be considered
``willing'' if that buyer is able to obtain the sound recording input
at a price that allows the buyer to earn at least a 20 percent
operating profit margin from the use of that input. Thus, in Dr.
Fratrik's analysis, a ``representative'' single buyer is deemed to be
constrained in its behavior from participating in the input market for
sound recordings unless its operating profit margin expectations in the
output market for webcasting services are guaranteed at a level
consistent with an industry-wide average profit margin for a
purportedly comparable industry such as terrestrial radio. Fratrik
Corrected and Amended WDT at 21-22.
Nothing in the statute supports reading such a behavioral
constraint into the hypothetical marketplace to be derived by the
Judges in this proceeding. Indeed, a similar argument that economic
viability based on the sufficiency of revenue streams to cover costs
determines any individual buyer's ``willingness'' to pay for an input
raised by Live365 in Webcaster I, was rejected in that proceeding.
Determination of Reasonable Rates and Terms for the Digital Performance
of Sound Recordings and Ephemeral Recordings (Final rule and order)
(``Webcaster I''), 67 FR 45240, 45254 (July 8, 2002) (``Thus, the Panel
had no obligation to consider the financial health of any particular
service when it proposed the rates.'').
Dr. Fratrik's notion of a representative entity adds an operating
condition that distinguishes his conceptual formulation from that of a
statistically average firm in an industry. His representative firm must
reach one specified minimum profit margin and, therefore, can only be
satisfied with a royalty rate sufficient to allow it to reach that
profit margin. Any lower assumed profit margin would, ceterus paribus,
necessarily result in a lower recommended royalty rate. Thus, Dr.
Fratrik effectively assumes that his representative firm will never
have a reason to operate at less than a particular operating profit
margin (i.e., 20%).
But there is no a priori reason to believe that a representative
webcaster would not accept a lesser profit margin, so long as it earns
a profit and/or finds no risk-adjusted rate of return that could be
earned by an alternative investment. Indeed, basic microeconomic
analysis recognizes that, in the short-run, it is in the interest of a
firm to continue to produce even at an operating loss, so long as its
variable costs are covered and some contribution can be made toward
fixed costs--otherwise, the loss incurred by the firm will be even
greater (i.e., full fixed costs if no production takes place).\6\ In
short, Dr. Fratrik's assumption of a 20% profit margin totally ignores
the possibility of webcasters with a whole range of potential
acceptable operating profit margins--whether lesser or greater--that
would be dependent on such things as varying capital investment costs
among webcasters, changing market conditions in output markets, and the
applicable time horizon.\7\
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\6\ See, for example, Varian, Hal, Intermediate Microeconomics:
A Modern Approach, (W.W. Norton & Company, 2009) at 350, 401.
Mansfield, Edwin and Yohe, Gary Wynn, Microeconomics: Theory and
Applications, (W.W. Norton & Company, 2004) at 296, 407; see also 7/
28/10 Tr. at 54:2-14 (Salinger).
\7\ In the long-run, all short-run fixed costs become variable.
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Still another difficulty with Dr. Fratrik's conceptual framework is
that his single ``representative'' buyer is treated as tantamount to an
industry. But no single firm is typically the equivalent of an industry
on the demand side of the market, although there is the obvious
exception where a single monopsonistic buyer constitutes the entire
demand side of the market for a particular input. While Dr. Fratrik
does not make the claim that his representative commercial webcaster is
a monopsonist, his analysis effectively produces that result.
[[Page 13029]]
For example, Dr. Fratrik explains that he chose to wed a 20%
operating profit margin assumption to his cost and revenue estimates to
``derive a resulting value for the copyrighted work.'' Fratrik
Corrected and Amended WDT at 15, 23. In other words, Dr. Fratrik and
Live365 effectively claim that no buyer would ever be a ``willing
buyer'' unless the price of only the one input here analyzed (i.e., the
royalty rate for sound recordings) is low enough to provide all buyers
with sufficient revenue after the royalty payment to cover all other
input costs and yield an operating profit margin of 20%. It is a claim
that, rather than resulting from any careful analysis of the market
demand and supply schedules, blithely ignores such analysis in favor of
a single price point wholly determined by a single actor on the demand
side of the market without any reference to the supply side of the
market.\8\
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\8\ Dr. Fratrik implies that because the record companies
supplying the sound recordings will incur something near zero
incremental costs, the supply side of the market may be largely
ignored. 4/27/10 Tr. at 1131:12-1133:19 (Fratrik). But Dr. Fratrik
offers no empirical support for his assertion as to actual
incremental costs. We have clearly rejected a similar contention put
forward in Webcaster II on both empirical and theoretical grounds.
Webcaster II, 72 FR 24094 (May 1, 2007).
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In other words, Dr. Fratrik's single ``representative'' buyer's
business model is to be treated as if it is the only webcasting
production model in the whole webcasting industry. Instead of a market
demand curve, Dr. Fratrik puts forward the implicit assumption that the
amount of sound recording performances demanded must be whatever his
representative firm deems best for its particular technological and
organizational structure. But no one firm's demand curve is equivalent
to the market's demand curve, unless that firm is a monopsonist.
Rather, as we have noted in Webcaster II and the CARP noted in
Webcaster I before us, in the hypothetical marketplace we attempt to
replicate, there would be significant variations, among both buyers and
sellers, in terms of sophistication, economic resources, business
exigencies, and myriad other factors. Webcaster II, 72 FR 24087 (May 1,
2007); In the Matter of Rate Setting for the Digital Performance of
Sound Recordings and Ephemeral Recordings, Report of the Copyright
Arbitration Panel to the Librarian of Congress, Docket No. 2000-9 CARP
DTRA 1&2 (``Webcaster I CARP Report'') at 24.
Finally, even assuming the absence of the additional errors
catalogued below, Dr. Fratrik's analysis, which focuses on past
operating income statements to determine a royalty rate for all
commercial webcasters in the future, fails to establish any behavioral
information that would help to delineate the hypothetical marketplace
we must replicate. Instead, Dr. Fratrik's analysis is largely
mechanical and leads to an unsupported conclusion that past revenues
and non-royalty costs, coupled with a webcaster operating profit margin
not demonstrated to be related to past operating revenue and cost
considerations (see infra at Section II.B.3.a.ii.), will repeatedly
recur at the same levels in each year over the five-year period of the
license going forward. Having tightly constrained the possibilities of
market behavior in this manner, Dr. Fratrik's model then automatically
produces an unchanging residue and, hence, an unchanging royalty rate
for the whole period.\9\ This is a dubious result that flows from the
unwarranted assumption of what amounts to a behavioral straitjacket.
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\9\ In addition to the flat royalty rate growth recommended by
Dr. Fratrik over the 2011-2015 term, his recommended royalty rate of
$0.0009 per performance would return the statutory rate to near its
2006 statutory level.
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Moreover, even if Dr. Fratrik's problematic behavioral constraints
and implicit assumptions somehow could be ignored, his analysis suffers
from so many other unwarranted explicit assumptions and data defects as
to make it untenable.
ii. The Specific Elements of Dr. Fratrik's Model
Dr. Fratrik's assumptions regarding webcasting industry costs,
revenues and profit margins are seriously flawed when viewed
individually. Moreover, these flaws are compounded by merging revenue,
costs and profit margin information gathered from disparate data
sources into a single ``economic model.'' \10\
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\10\ Dr. Fratrik uses the term ``economic model'' to broadly
describe his analysis. It is more closely akin to a type of pro
forma income statement that attempts to demonstrate the expected
effect of varying royalty rates on a firm's financial viability. In
other words, it is an accounting model that, relying on historical
cost and revenue data for all but royalty costs, endeavors to
demonstrate the anticipated results of alternative royalty rates on
projected net revenues.
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Dr. Fratrik begins by assuming that ``Live365's cost structure will
serve as a good conservative proxy for the industry as it is a mature
operator.'' Fratrik Corrected and Amended WDT at 16 (emphasis added).
This assumption is not supported by the record of evidence in this
proceeding which points to a wide variety of existing webcasting
services and business models. SX PFF at ] 323. It defies credulity to
claim, as does Live365, that all these disparate business models may be
experiencing essentially the same unit costs. Indeed, Dr. Fratrik makes
this assertion while recognizing that, unlike for many other
participants in the market, at least two separate lines of business can
be distinguished for Live365 (broadcasting services and webcasting)
and, further, that Live365 acts as an aggregator with respect to
webcasting. Dr. Fratrik offers no example of a comparable analogous
participant in the industry who is structured in this manner.
Furthermore, when he attempts to adjust Live365's costs to reflect only
webcasting operations, he fails to adequately do so and he ignores the
synergistic nature of Live365's various lines of business. SX PFF at ]]
355, 357, 358. Finally, even though he argues for an additional
aggregator discount to be applied to Live365's webcasting royalty rates
based on monitoring and reporting savings purportedly provided to the
collective (i.e., SoundExchange), he nowhere appears to adjust
Live365's webcasting cost estimates to account for any resulting
differences in costs that Live365 may incur as compared to other
webcasters who are not aggregators. He makes no such adjustment despite
the fact that it is the typical webcaster's unit costs he is seeking to
model rather than the typical aggregator's unit costs. While any
additional reporting and monitoring costs incurred by aggregators \11\
may be offset by fees charged to the aggregated webcasters or by the
reduced costs of programming that Live365 would otherwise have to
undertake in order to make comparable channel offerings as a multi-
channel broadcaster, such salient differences between the typical
webcaster's unit costs and the typical aggregator's unit costs are not
addressed by Dr. Fratrik's analysis. For all these reasons, the unit
cost estimation for webcasting which Dr. Fratrik offers is seriously
flawed.
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\11\ For example, Dr. Fratrik notes that, in connection with its
aggregation services, ``Live365 has spent a considerable amount of
time and investment establishing its software systems to accurately
measure and document listening for each copyrighted work that is
streamed.'' Fratrik Corrected and Amended WDT at 38 n.62.
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On the revenue side of his analysis, Dr. Fratrik assumes that: (1)
Webcaster revenue comes from advertising revenue and subscription
revenue; (2) ``publicly available industry reports from AccuStream and
ZenithOptimedia serve as the lower and upper bounds, respectively, on
advertising revenue measurements for the past period;'' and (3)
Live365's subscription revenue per listening hour can be utilized as a
proxy for gauging subscription revenues in the webcasting industry.
Fratrik Corrected and Amended WDT at 16-17, 24-25.
[[Page 13030]]
Live365's rate proposal in this proceeding (i.e., $.0009 per
performance throughout the period 2011-2015), however, is apparently
based only on Dr. Fratrik's analysis of revenues using the
ZenithOptimedia data. Indeed, use of the Accustream revenue data
alternative produces the anomalous result that copyright owners would
have to pay webcasters each time the owners' sound recordings were
performed, no matter how low a profit margin Dr. Fratrik assumed for
webcasters in his analysis. Fratrik Corrected and Amended WDT at 26,
Table 4; 4/27/10 Tr. at 1157:1-1158:6 (Fratrik).
Undaunted by this anomalous result, Dr. Fratrik simply repeats his
analysis, substituting, in part, the ZenithOptimedia advertising
revenue data for the Accustream advertising revenue data and, in
concert with a 20% assumed profit margin, obtains the $.0009 per
performance royalty rate that has been proposed by Live365 to be
applied without change throughout the period 2011-2015. Yet Dr.
Fratrik's alternative ZenithOptimedia-based analysis does not
completely divorce itself from the Accustream data; instead, because
ZenithOptimedia did not provide the Aggregate Tuning Hours (``ATH'')
numbers associated with its total advertising revenue estimate, Dr.
Fratrik fell back on the Accustream data for a total ATH number and
calculated advertising revenue per ATH by dividing the ZenithOptimedia
revenue data by the Accustream ATH data. In short, Dr. Fratrik combines
advertising revenue data based on two separate data sources without
making a determination that the data was capable of being combined in
this manner.
Moreover, even Dr. Fratrik admitted that the ZenithOptimedia and
Accustream advertising revenue estimates are ``challenging'' or
difficult to produce because a vast number of webcasters do not report
their revenues publicly. 4/27/10 Tr. at 1220:1-20 (Fratrik). Thus,
these databases have clear limitations and the uncritical manner in
which Dr. Fratrik mixes and matches data from these two separate
advertising revenue databases and then further combines subscription
revenue data from a third separate source (i.e., the Live365
subscription revenue data) plainly suggests a less than rigorous
approach to his analysis.
Finally, with respect to revenues, Dr. Fratrik's analysis reports,
but neither takes into account nor provides an adequate explanation
for, the growth in the ZenithOptimedia advertising revenues forecast
from his 2008 base through 2011 (i.e., growth from $200 million to $291
million). Fratrik Corrected and Amended WDT, Ex. 8 at 187. It may be
argued that growth in the level of revenues does not necessarily
translate into growth in unit revenues. However, we find that it is
difficult to accept Dr. Fratrik's unsupported assertion that he expects
little improvement in such revenues on a unit basis (see Fratrik
Corrected and Amended WDT at 5). Dr. Fratrik fails to provide any
adequate empirical support for the implied assumption necessary to
reach this conclusion--an assumption that the growth in performances
will take place at precisely the pace necessary to assure that the
anticipated growth in revenues over the relevant period will not alter
the unit revenue ratio. Moreover, without such an implied assumption,
it is difficult to avoid the conclusion that Dr. Fratrik's constant
royalty rate should have been adjusted each year based on the
implications of growing revenues for his own model. Yet, he offers no
such adjusted royalty rate. At the very least, these changing
advertising revenue totals call into question the reliability of the
unchanging royalty rate derived by Dr. Fratrik from the lowest of the
revenue totals available from the same data source (i.e., $200 million
instead of $291 million).
Dr. Fratrik's assumption of a 20% operating margin for webcasters
in his analysis is not solidly supported. That operating profit margin
is not put forward as either a historical profit margin or a forecasted
profit margin for webcasters, but rather as a profit margin derived
from the over-the-air broadcasting industry. SX PFF at ]] 328, 330. The
record of evidence in this proceeding does not support the notion that
profit margins for webcasters are likely to be similar to the more
capital intensive terrestrial radio industry. SX PFF at ]] 332-5.
Furthermore, we find that Dr. Fratrik failed to establish a solid basis
for concluding that the minimum operating profit margin for his
representative webcaster was comparable to the average firm experience
from firms that operate on a different platform (over-the-air radio).
Live365 argues in its proposed reply findings at ] 327 that Dr.
Fratrik's 20% profit margin assumption is further corroborated by the
recording industry's own expert testimony in Webcaster I (offered by
Dr. Thomas Nagle, Chairman, Strategic Pricing Group, Inc.) which
purportedly ``recommended that webcasters should be able to achieve
margins between 13.2% and 21.8%.'' However, although the Nagle exhibit
referred to by Live365 was appended to Dr. Salinger's written rebuttal
testimony, the exhibit was only mentioned briefly in a footnote to the
Salinger testimony and then only to make a different argument. Dr.
Salinger, in fact, made no specific reference to any of the varying
operating profit-margin figures utilized in that 2001 Recording
Industry Association of America (``RIAA'') study. In other words, it
can hardly be said that the figures in question were offered as
``corroborative'' evidence to support Dr. Fratrik's assumptions.
Moreover, the point of this 2001 study appears to have been to
recommend a royalty rate based on the operating profit margins
necessary to generate an assumed range of rates of return on investment
for webcasters. In fact, the Nagle study utilized an operating profit
margin in the range of 8.43% to 17.05% in order to ``arrive at the
appropriate range for the statutory license royalty fee.'' See Salinger
WRT, Exhibit 3 at 16 and Appendix 3 at 1. Dr. Fratrik's 20% assumption
for webcaster operating profit margins lies substantially outside this
range. Moreover, the CARP rejected Dr. Nagle's analysis as
corroborating evidence in Webcaster I. [``Dr. Nagle's analysis
necessarily relies upon a myriad of highly questionable assumptions
that appear inconsistent with foreseeable market conditions.'']
Webcaster I CARP Report at 73; [``We conclude that Dr. Nagle's analysis
does not support any particular rate level.''] Id. at 74. We find it
provides no corroborative support for Dr. Fratrik's assumed 20%
webcaster operating profit margin in this proceeding.
Thus, we find that Dr. Fratrik's ``model'' is based upon a series
of assumptions and analogies that, taken individually, add such a
degree of uncertainty or inexactitude to the resulting model as to make
it unsatisfactory for the purpose of portraying the likely outcome of
negotiations between willing buyers and willing sellers in the market
for sound recording inputs that are used in webcasting services.
Indeed, Dr. Fratrik's model does not even adequately address some of
the modest considerations for a modeling approach laid out by Live365's
rebuttal expert, Dr. Salinger. SX PFF at ] 307. Questionable
assumptions, reservations about the methodological appropriateness of
mixing disparate data sources, and concerns over the resulting
reliability of the data used in the Fratrik model lead us to find that
this theoretical construct suffers serious deficiencies that do not
lend themselves to remediation.
[[Page 13031]]
iii. Other Factors Put forward for Consideration
Live365 offers several other arguments to buttress its request for
a royalty rate that would effectively return the statutory rates to
near their 2006 statutory level.
First, Dr. Fratrik maintains that ``[a]s industry projections for
more robust growth in the Internet radio advertising market have
clearly not materialized over the past few years,'' his valuation model
must give rise to the conclusion that a ``reduction in royalty rates
from the prescribed rates covering 2006-2010'' is warranted. Fratrik
Corrected and Amended WDT at 31. In so doing, he incorrectly attributes
the annual increase in rates established in Webcaster II to projections
of growth primarily provided by Dr. Erik Brynjolffson and Mr. James
Griffin in that proceeding. Fratrik Corrected and Amended WDT at 12-14.
Similarly, Live365 argues that ``[g]iven that the lofty expectations
from the Webcasting II proceeding have not been fulfilled, it follows
that the rates for the next five years should be set lower than the
rates determined by the CRB [Judges] in Webcasting II.'' See Live365
PFF at ] 38. But, quite to the contrary, the Judges' determination in
Webcaster II did not rely on those particular predictions in setting
rates. Indeed, the Judges expressly rejected Dr. Brynjolfsson's
modeling attempt and specifically cited the flaws in his effort ``to
project future growth rates'' as a basis for not relying on them.
Webcaster II, 72 FR 24093. Moreover, the evidence in the record on
industry growth over the 2006-2010 period which shows increased
advertising revenues, increased performances, and increased listening
does not support a rate reduction. It more likely would support at
least some modest rate increase. See SX PFF at ]] 390-395, 398-401.
While some Live365 data may show a flattening or decline for a
particular pair of years, the overall trend of that same data does not
show a decrease. For example, data presented by Live365 shows a year-
to-year decline in listenership from 2006 to 2007, but this is followed
by substantial increases in 2008 and 2009 and maintenance of 2009
levels in 2010. Overall, the trend in such listenership recorded since
2000 has been decidedly upward, even though the growth has occurred
unevenly from year to year. See Smallens Corrected WRT at 7, Table 1.
Second, Live365 also contends that a downward adjustment of the
current royalty rate is appropriate based on (1) The promotional value
of statutory webcasting relative to its non-substitutional effect on
other sales of music, including the promotional value to copyright
owners stemming from the wide array of music and artists played on
statutory webcasting services; (2) the relative creative contributions,
technical contributions, investments, costs and risks made or borne by
commercial webcasters compared to copyright owners; and (3) the
relative disparate impact of certain competitive factors on webcasters
as compared to copyright owners. After careful consideration, we find
that the evidence submitted by Live365 on each of these claims is weak
at best and, most certainly, too weak to establish the basis for a
decrease in webcaster royalty rates. SX PFF at ]] 415, 419-21, 426,
431, 446-9; SX RFF at ]] 176, 179-180. Then too, Live365 does not
present an acceptable empirical basis for quantifying the individual
asserted effects of these various factors and/or for deriving a method
for translating such magnitudes into a rate adjustment. Moreover, to
the extent that Live365 claims that the Fratrik valuation model makes
such a quantifiable translation, we need not further address these
issues separate from our examination of that model which we have found
seriously flawed and an inadequate representation of the market.
b. The SoundExchange Benchmark Approach
i. The Interactive Webcasting Market Benchmark
As in Webcaster II, SoundExchange maintains that one set of
benchmark agreements with clear relevance for this proceeding as shown
by an analysis prepared by its expert economist, Dr. Michael Pelcovits,
consists of those agreements found in the market for interactive
webcasting covering the digital performance of sound recordings. That
is because the interactive webcasting market has characteristics
reasonably similar to non-interactive webcasting, particularly after
Dr. Pelcovits' final adjustment for the difference in interactivity.
Both markets have similar buyers and sellers and a similar set of
rights to be licensed (a blanket license in sound recordings). Both
markets are input markets and demand for these inputs is driven by or
derived from the ultimate consumer markets in which these inputs are
put to use. In these ultimate consumer markets, music is delivered to
consumers in a similar fashion, except that in the interactive case the
choice of music that is delivered is usually influenced by the ultimate
consumer, while in the non-interactive case the consumer usually plays
a more passive role. This difference is accounted for in the Pelcovits
analysis. In order to make the benchmark interactive market more
comparable to the non-interactive market, Dr. Pelcovits adjusts the
benchmark by the added value associated with the interactivity
characteristic. Pelcovits Amended and Corrected WDT at 23. This results
in a rate of $0.0036 per play for a statutory non-interactive webcaster
as a possible outcome in the target market. Pelcovits Amended and
Corrected WDT at 4, 33.
The Judges find the interactive webcasting benchmark to be of the
comparable type that the Copyright Act invites us to consider. 17
U.S.C. 114(f)(2)(B). (``In establishing such rates and terms, the
Copyright Royalty Judges may consider the rates and terms for
comparable types of digital audio transmission services and comparable
circumstances under voluntary license agreements negotiated under
subparagraph (A).'') Nevertheless, as we indicated in Webcaster II,
this particular Pelcovits benchmark analysis is not without warts.
Webcaster II, 72 FR 24094 (May 1, 2007).
In Webcaster II we recognized the potential implications of a
benchmark analysis that focuses on only subscription services as does
the interactive benchmark presented by Dr. Pelcovits. That is, ad-
supported non-interactive services might pay less than subscription-
based interactive services to use the same music if their advertising
revenues failed to evolve to the point where ad-supported non-
interactive services were just as lucrative as subscription-based
interactive services on a per-listener hour basis. In that proceeding
the Judges indicated that to the extent that ad-supported revenues did
not come to match subscription revenues on a per-listener hour basis
during the 2006-2010 term and, absent clear information on the
substitutability of the subscription and non-subscription options among
consumers, any resulting shortfall related to ad-supported webcasting
revenues would likely be adequately mitigated by a phase-in of the per
performance rates to the level indicated by the benchmark analysis,
such that the benchmark recommended rate for 2006 would not become
effective until the last year of the term. Webcaster II, 72 FR 24094
(May 1, 2007).
Here, unlike the absence of data supporting this critique which we
noted in Webcaster II, Dr. Salinger provides some empirical data to
support the position that a benchmark which
[[Page 13032]]
reflects a weighted average of revenues obtained from subscribers and
non-subscribers may result in a lower estimated royalty rate than Dr.
Pelcovits' benchmark which focuses on only subscription rates. Salinger
WRT at 10-11. Therefore, we are not persuaded that Dr. Pelcovits'
benchmark estimates are sufficiently reflective of the hypothetical
target market as to support the immediate implementation of a royalty
rate equivalent to the $0.0036 outcome estimated by Dr. Pelcovits. Some
further downward adjustment to his recommendation to adequately address
the subscription/non-subscription revenue level differences may well be
in order, although the magnitude of such an adjustment is not clear.
While Dr. Salinger shows that there is likely some ``upward bias''
introduced into the Pelcovits analysis through its focus on only
subscription-based services in the benchmark market, the amount of such
upward bias is not persuasively determined. Non-interactive webcasters
in the market like Live365 often provide both subscription and non-
subscription offerings. 7/28/10 Tr. at 40:10-15 (Salinger). Therefore,
subscription-based revenues clearly must be considered. Moreover, the
data used by Dr. Salinger to support his criticism, as Dr. Salinger
admits, is not without its shortcomings. 7/28/10 Tr. at 98:2-104:6
(Salinger). Similarly, Dr. Fratrik admitted that the ZenithOptimedia
and Accustream advertising revenue estimates are ``challenging'' or
difficult to produce because a vast number of webcasters do not report
their revenues publicly. 4/27/10 Tr. at 1220:1-20 (Fratrik). There is
also the difficulty of segmenting intermingled revenues from webcasting
business models that may often directly and/or indirectly depend on
both subscription and nonsubscription lines of business, as well as
potentially on other sources of revenue. 7/28/10 Tr. at 40:10-15, 92:1-
19 (Salinger); Ordover WRT at 10-11. Nevertheless, Dr. Salinger's
critique is sufficiently supported to raise legitimate concerns about
the potential for upward bias in the Pelcovits estimates. It is only
the magnitude of the potential upward bias that is not clearly
quantified. What is clear from the record of evidence in this
proceeding is that $0.0036 can be no more than the upper bounds of the
range of possible rates reasonably applicable to the target market and
that the most likely prevailing rate in that market is currently lower
than $0.0036.
Dr. Salinger also criticizes the Pelcovits interactive webcasting
benchmark analysis for: (1) Relying only on contracts with the four
major record companies to the exclusion of the independent record
labels; (2) ignoring the downward trend in the effective play rates
paid by interactive services by utilizing the average rate in his
calculations; and (3) inappropriately constructing the hedonic
regression model that is used as one alternative measure of
interactivity in the analysis. Salinger WRT at 15-21.
The first of these criticisms fails for lack of persuasive evidence
in the record that the use of independent record contracts would have
made a material difference. SX RFF at ]] 101-103.
Although the second and third criticisms have some merit, the
Judges find that these criticisms indicate that the Pelcovits
interactive webcasting benchmark may overstate the likely prevailing
market rate in the target market without necessarily rendering the
Pelcovits analysis fatally flawed. With respect to the second
criticism, Dr. Salinger acknowledged that this concern could be
addressed by multiplying the recommended rate by 0.8737.\12\ SX PFF at
] 209. Such an adjustment, of course, would reduce the recommended
rate. SoundExchange offers no evidence that such an adjustment is
unwarranted and even appears to endorse such an approach by performing
this exact calculation with respect to the $0.0036 rate and reducing it
to $0.0031. See SX PFF at ] 210. But SoundExchange's calculation was
applied to the highest possible outcome Dr. Pelcovits lists for his
benchmark analysis (i.e., $0.0036), when in fact, Dr. Pelcovits
indicates that his rate after substitution adjustment would result in a
``range of recommended rates'' with a ``simple average of $0.0033.''
Thus, it appears that this $0.0033 average also requires adjustment to
meet Dr. Salinger's criticism (e.g., to approximately $0.0029). This is
not a trivial consideration in light of the fact that in Webcaster II,
it was Dr. Pelcovits' recommended rates after the substitution
adjustment that formed the basis for SoundExchange's rate proposal and
that formed the basis for the determination by the Judges of a royalty
rate to be achieved by the end of the term in 2010 (i.e., a per play
rate of $0.19). See Webcaster II, 72 FR 24096 (May 1, 2007). In any
event, the validity of this criticism of the Pelcovits approach
regarding the effective per play rate clearly erodes the weight to be
accorded to the $0.0036 figure.
---------------------------------------------------------------------------
\12\ The 0.8737 multiplier represents the value of a ratio where
the numerator consists of the effective per play rate for 2009
(i.e., 0.01917) and the denominator consists of the average
effective play rate over the three years in question (i.e.,
0.02194).
---------------------------------------------------------------------------
Dr. Salinger also criticizes the Pelcovits hedonic regression
analysis that formed the basis for one of the alternative measures of
interactivity in the interactive webcasting benchmark approach. Dr.
Salinger expressed concerns about the use of certain fixed effects
variables (alternatively described as dummy variables) in the
specification of the regression model and about the broad confidence
interval surrounding the estimated interactivity coefficient in the
hedonic regression. Salinger WRT at 20; 21 n.31 and Exhibit 6; 7/28/10
Tr. at 66:4-69:22 (Salinger). These criticisms have some merit,
especially in light of Dr. Pelcovits' admitted lack of familiarity with
some of the relevant economic literature, including recent literature
cautioning against the indiscriminant use of dummy variables in certain
hedonic estimations. 4/20/10 Tr. at 373:18-376:15 (Pelcovits).
SoundExchange, in response to this criticism, claims that any problem
associated with the hedonic regression is negated by Dr. Pelcovits' use
of other methods that result in rates almost identical to the $0.0036
average. See, for example, SX RFF at ] 107. However, this does not
wholly obviate the impact of any resulting overstatement. The rate
associated with the hedonic regression is the highest of the three
values that are used to calculate the $0.0036 average. Removing the
rate associated with the hedonic regression from the average would, in
this case, reduce the average. Thus, this criticism of the Pelcovits
approach additionally erodes the weight that the Judges accord to the
$0.0036 figure.
In short, the potential for upward bias or actual demonstrated
upward bias in the Pelcovits estimates persuade us that $0.0036 can be
no more than the upper bounds of the range of possible rates reasonably
applicable to the target market and that the most likely prevailing
rate at the present time in that market is significantly lower than
$0.0036.
ii. The National Association of Broadcasters and SiriusXM Agreements
In addition to the interactive webcasting benchmark, Dr. Pelcovits
offers a second benchmark based on the average of rates established for
the 2011-2015 term in precedential Webcaster Settlement Act Agreements
(``WSA agreements'') between SoundExchange and the National Association
of Broadcasters and between SoundExchange and SiriusXM (``SiriusXM
agreement'' or ``Commercial
[[Page 13033]]
Webcasters agreement''). Pelcovits Amended and Corrected WDT at 22.
While these precedential WSA agreements certainly pertain to rates
to be paid by non-interactive webcasters in the commercial webcasting
market at issue in this proceeding, the buyers' and sellers'
circumstances are not comparable to those that would prevail in the
absence of the Webcaster Settlement Act. Rather than a single seller,
the sellers in the hypothetical market we are to consider consist of
multiple record companies. Webcaster II, 72 FR 24087, 24091 (May 1,
2007); Webcaster I, 67 FR 45244 (July 8, 2002). Thus, in Webcaster II
we found that the fact that there were multiple buyers and multiple
sellers in the benchmark market as well as in the target market
supported a benchmark analysis. Webcaster II, 72 FR 24093 (May 1,
2007). While the applicable law does not require a perfectly
competitive benchmark market, the market must be at least
``competitive'' in the sense that buyers and sellers have comparable
resources and market power. Webcaster II, 72 FR 24093 (May 1, 2007);
Webcaster I, 67 FR 45245 (July 8, 2002). This would be generally
consistent with free market principles. Yet, the buyers' and sellers'
circumstances underlying the WSA agreements were not comparable to
market conditions that would prevail in the absence of the WSA. That
legislation permitted a single seller representative to enter into
negotiations with buyers in the market with respect to rates that would
be permitted to supplant the statutory rates previously established in
the 2006-2010 period, as well as with respect to rates applicable to
the 2011-2015 period. Even Dr. Pelcovits admits that ``[e]ach of these
contracts, of course, was negotiated in the shadow of the regulatory
scheme and against the background of statutory rates previously set by
this Court. To that extent, they may or may not represent the same
outcome that would result in a pure market negotiation with no
regulatory overtones.'' Pelcovits Amended and Corrected WDT at 15.
Therefore, we find that these precedential WSA agreements, which may be
fairly characterized as single-seller agreements reached under atypical
marketplace conditions, cannot satisfy the comparability requirements
for an appropriate benchmark.
However, we further find that, because the NAB-SoundExchange and
SiriusXM-SoundExchange agreements clearly govern the rates for a
substantial number of commercial webcasters over the relevant 2011-2015
period (Pelcovits Amended and Corrected WDT at 15) and the commercial
webcasters covered by these agreements are competitors with the other
commercial webcasters who comprise the remainder of the non-interactive
webcasting services (Salinger WRT at 24; Smallens Corrected WRT at 21),
these agreements are a useful gauge of the weight to be assigned to the
rates suggested by the interactive webcasting benchmark discussed supra
at Section II.B.3.b.i. Moreover, nothing in the Webcaster Settlement
Act constrains us from using these agreements for that purpose. See 17
U.S.C. 114(f)(5)(C).
The NAB-SoundExchange and SiriusXM agreements provide for royalty
rates on a per performance basis. For the five-year period beginning
2011, the NAB-SoundExchange agreement sets the following rates: $0.0017
for 2011, $0.0020 for 2012, $0.0022 for 2013, $0.0023 for 2014 and
$0.0025 for 2015. For the same period, the SiriusXM agreement sets the
following rates: $0.0018 for 2011, $0.0020 for 2012, $0.0021 for 2013,
$0.0022 for 2014 and $0.0024 for 2015. Pelcovits Amended and Corrected
WDT at 15. Two characteristics of these rates are noteworthy. First,
the 2011 rate is slightly less than the current 2010 statutory rate of
$0.0019 and the rates in the precedential WSA agreements covering the
years 2009 and 2010 were somewhat lower than the corresponding
statutory rate for those years. Pelcovits Amended and Corrected WDT at
15. Second, the rates in the NAB-SoundExchange and SiriusXM agreements
over their entire term are substantially lower than the range of annual
rate possibilities suggested for implementation pursuant to the
proposed interactive benchmark ($0.0036) or the interactive benchmark
after Dr. Pelcovits' substitution adjustment ($0.0033) or the
interactive benchmark adjusted to give a more likely reading of the
impact of downward trend in the effective play rates paid by
interactive services ($0.0031).
Thus, we find that these negotiated rates indicate that the
interactive benchmark may likely overstate the prevailing market rate
in the target market even when subjected to Dr. Pelcovits' substitution
adjustment or Dr. Salinger's adjustment to mitigate the impact of
downward trend in the effective play rates paid by interactive
services. As a consequence, we further find that the interactive
benchmark, even when subjected to these alternative adjustments,
provides for rates near the upper bounds of the range of possible rates
reasonably applicable to the target market, when the most likely
prevailing rate in that market appears to be lower than the interactive
benchmark rates. In other words, the NAB-SoundExchange and SiriusXM
agreements lend weight to the need for a further downward adjustment in
the benchmark rate to reflect a prevailing rate in the target market
closer to the current statutory rate.
Dr. Fratrik contends that the royalty rates in the NAB-
SoundExchange agreement must overvalue the input in question, because
the NAB received a particularly valuable concession with respect to the
waiver of performance complement rules as part of the rate agreement.
See Fratrik Corrected and Amended WDT at 43-44. [``Consequently, these
terrestrial broadcasters, already with the programming established to
webcast, should be willing to pay more than other webcasters in order
to relieve themselves of these provisions.'' (emphasis added)]. This
claim of a one-sided benefit to broadcasters is not adequately
supported in the record. The testimony of Dr. Pelcovits, Dr. Ordover
and Mr. McCrady indicates that the waivers had value to both the NAB
and to the record companies. Pelcovits Amended and Corrected WDT at 20
n.21; Ordover WRT at 5, 18; McCrady WDT at 5-6. There is no clear
evidence in the record to support either the notion that the limited
performance complement waiver in the NAB-SoundExchange agreement was a
largely one-sided benefit accruing only to the broadcasters or that
broadcasters did, in fact, pay more than other webcasters to obtain
these provisions.
Dr. Fratrik also contends that terrestrial broadcasters were
willing to pay more because they have fewer other costs to cover than
pure webcasters. But Dr. Fratrik offers less than persuasive evidence
of major cost differences between pure webcasters and broadcasters who
engage in webcasting generally or between pure webcasters and the more
limiting case of those broadcasters who exclusively simulcast. Dr.
Fratrik appears to center his analysis on the latter case. Of course,
focusing on this latter comparison simplifies from the reality of the
market by assuming that all the webcasting performed by broadcasters
consists of simulcasting when, in fact, the NAB-SoundExchange agreement
provides for other types of webcasting (e.g., through side channels).
See SX Ex. 102-DP at Article 1.1(d), 4.2. In addition to that
analytical shortcoming, Dr. Fratrik's analysis suffers from other
unsupported conclusions. Dr. Fratrik's cost-based contention appears to
largely rest on the notion that simulcasters, unlike other
[[Page 13034]]
commercial webcasters, have no additional programming costs as those
costs have already been paid in connection with their over-the-air
operations. See Fratrik Corrected and Amended WDT at 41. But no
specific empirical data in the record unambiguously supports this
asserted relative difference. For example, Dr. Fratrik's conclusion
ignores the wide range of business models utilized by commercial
webcasters, including that of Live365, a webcaster that is apparently
paid to put on programming designed by its clients as opposed to
incurring a cost for originating such programming itself. Floater
Corrected WDT at 4-8; 4/27/10 Tr. at 1274:5-16; 1301:1-4 (Fratrik).
Several other theories are offered by the contending parties to
suggest that the precedential WSA agreements are either higher or lower
than the likely prevailing rate in the target market.
For example, the possibility is raised that since the rates in the
NAB-SoundExchange agreement were negotiated collectively on behalf of
the record companies by SoundExchange, the rates might reflect some
additional bargaining power exercised by SoundExchange as a single
seller, relative to the bargaining power that would have otherwise been
exercised by the individual record companies, leading to higher than
free market-determined royalty rates. See Ordover WRT at 22, Salinger
WRT at 27. While, at first blush, this contention appears to be
consistent with economic theory, the facts surrounding the
SoundExchange-NAB negotiation and the rates resulting from the
negotiation cast serious doubt on the operation of normal economic
theory in this case.
These negotiations took place in the context of the WSA legislation
specifically providing for SoundExchange to engage in such negotiations
as a collective in order to reach agreements that would exempt
webcasters from the 2006-2010 statutory rates, as well as allow for
2011-2015 negotiated rates in lieu of any statutory rates that might be
determined by the Judges for that term of the applicable license
pursuant to a statutory proceeding. 17 U.S.C. 114(f)(5)(A). That is,
the rates were to be negotiated in response to a specifically
legislated, post-determination, second-chance opportunity afforded the
parties to voluntarily reshape applicable webcasting rates. Thus, the
rates could be said to have been negotiated both in the shadow of a
specific regulatory scheme, as well as against the background of
previously set statutory rates, which influenced the outcomes available
to the parties and, in particular, constrained the exercise of monopoly
power. Failing to reach an agreement for the 2011-2015 period, the
buyers could still avail themselves of the statutory rate-setting
procedure. That is, the buyers retained their rights to reject a
settlement with SoundExchange and resort to the statutory rate-setting
procedure for the 2011-2015 term of the license. Pelcovits Amended and
Corrected WDT at 17; Ordover WRT at 23; Salinger WRT at 27. In other
words, the buyers in this case maintained some leverage that otherwise
would be absent if they faced a monopolist seller without any such
recourse.
Additionally, here, the NAB, which negotiated on behalf of
broadcasters, effectively served as a single buyer and, thus, may be
said to have exercised countervailing market power relative to
SoundExchange. Ordover WRT at 23. At the same time, the SoundExchange-
SiriusXM agreement certainly offers the example of a non-NAB webcasting
buyer for whom negotiations produced rates very similar to the NAB-
SoundExchange agreement, indicating that the NAB-SoundExchange
agreement, on its face, did not result in the price discrimination
sometimes associated with monopoly power.
In short, the NAB-SoundExchange negotiated royalty rates do not
appear to have been pushed above what might prevail in a multi-seller
market as a result of SoundExchange's legislatively permitted role as a
single seller in these negotiations because, under the circumstances,
it was unlikely to have the ability to exercise the equivalent of the
unchecked bargaining power of an unregulated monopolist.
On the other hand, Dr. Ordover's attempt to cast the NAB-
SoundExchange agreement as producing royalty rates below what might
prevail in a free market is also not supported by the record of
evidence in this proceeding. Dr. Ordover suggests that, if certain
circumstances can be assumed to be present, the NAB-SoundExchange
agreement may represent a situation where SoundExchange, acting as a
single seller, nevertheless would agree to lower royalty rates as
compared to those that would occur in a free market in which individual
record companies function as sellers. But Dr. Ordover's analysis is
predicated on, among other assumptions, the key notion that the
repertoire of all four major labels is necessary for simulcasters to
operate a viable streaming service. That is, the sound recordings of
record companies must be perceived as complementary inputs rather than
as substitutes. Here, there is no evidence in the record which
establishes that to be the case for any of the particular broadcasters
who have opted into the NAB-SoundExchange agreement, let alone that it
is the case generally for all broadcasters.\13\ For example, Dr.
Ordover offers no evidence that these sound recording inputs are
complements based on standard measures such as the cross-elasticity of
demand. Moreover, the proffered notion that the NAB-SoundExchange
agreement for broadcasters represents lower than average webcasting
royalty rates based on some assumed unique requirement associated with
simulcasting, is not borne out by the agreement itself which provides
for no distinction between the royalty rate applicable to simulcasting
and the royalty rate applicable to broadcasters who engage in other
types of webcasting (e.g., side channels). See SX Ex. 102-DP at Article
1.1(d), 4.2. Nor is there a substantial difference between the royalty
rates applicable to simulcasting in the NAB-SoundExchange agreement and
the royalty rates applicable to commercial webcasting in the SiriusXM-
SoundExchange agreement. In short, while Dr. Ordover's proposed
explanation may be a plausible theory under certain circumstances, here
it suffers from a lack of sufficient empirical support to demonstrate
the presence of those circumstances.
---------------------------------------------------------------------------
\13\ In Webcaster II, a similar assumption that a viable
streaming service requires the repertoire of all four major labels
was rejected by the Judges. See Webcaster II, 72 FR 24091 (May 1,
2007).
---------------------------------------------------------------------------
Finally, Dr. Salinger claims that the rates in both the NAB-
SoundExchange and SiriusXM agreements are higher than average
webcasting royalty rates in the period 2011-2015 based on a theory that
the NAB and SiriusXM structured their agreements with SoundExchange to
provide for lower-than-statutory-rates for the years 2009-2010, but
above-market rates for the 2011-2015 period, in anticipation that such
a restructuring would adversely affect their rivals' costs in the
latter period.
Yet, this is also a theory without sufficient facts to support it
in the instant case. There is no evidence in the record to suggest any
coordination between the NAB and SiriusXM to reach their separate
agreements with SoundExchange. Indeed, as NAB broadcasters and SiriusXM
are competitors not only with respect to webcasting but also for
listeners more generally, it would appear such coordination is
unlikely. In addition, for the strategy of raising rivals' costs to
work, SoundExchange would have to agree to go along with the NAB and
[[Page 13035]]
SiriusXM. 7/28/10 Tr. at 132:1-10 (Salinger). There is no evidence in
the record to support this additional coordination. A further condition
necessary to the success of the strategy is that the NAB and SiriusXM
would have to feel assured that a rate setting proceeding would not
result in a lower rate than those in their agreements with
SoundExchange. There is no evidence in the record to suggest that any
protection against a lower statutory rate was embodied in their
agreements with SoundExchange. SX PFF at ] 270.
Dr. Salinger suggests that one of the possible benefits to
SoundExchange from cooperating with a NAB-SiriusXM raising rivals'
costs strategy is that copyright owners may ``get a rate that's so high
but then they get to practice price discrimination by negotiating
lower.'' 7/28/10 Tr. at 133:18-22 (Salinger). However, as Dr. Fratrik
acknowledged, in order to price discriminate the seller must ``be able
to segment out customers.'' 4/27/10 Tr. at 1249:8-13 (Fratrik). No such
market segmentation is supported by the record of evidence in this
proceeding. On the contrary, simulcasting and other commercial
webcasting compete for the same ultimate consumers who may easily
substitute one service for the other as their listening choice. SX PFF
at ]] 277, 278. In Webcaster II, similarly noting that the balance of
the evidence in the record did not persuade us that these simulcasters
operate in a submarket separate from and noncompetitive with other
commercial webcasters, we declined to set a differentiated rate for
commercial broadcasters. By contrast, where we did find sufficient
evidence in the record that supported a finding that certain
noncommercial webcasters constituted a distinct segment of the market,
we did set a differentiated rate. Webcaster II, 72 FR 24095, 24097 (May
1, 2007). In Webcaster II we noted that ``[a] segmented marketplace may
have multiple equilibrium prices because it has multiple demand curves
for the same commodity relative to a single supply curve'' and further,
that ``[t]he multiple demand curves represent distinct classes of
buyers and each demand curve exhibits a different price elasticity of
demand.'' Webcaster II, 72 FR 24097. Price discrimination is a feature
of such markets. Id. Dr. Salinger offers no persuasive empirical
evidence of price discrimination related to different price
elasticities of demand associated with distinct classes of buyers in
the market.
Dr. Salinger's analysis also fails to address other important
features of the ``raising rivals' costs'' construct. For example, he
does not empirically examine whether it would make economic sense for
NAB and SiriusXM in terms of profitability, to effectively shift up
their respective average cost curves at the original output's average
cost. In other words, by agreeing to a higher price for the sound
recording input, NAB and SiriusXM may sacrifice some of their
profitability, depending on the demand for their output. Dr. Salinger
does not empirically address the extent to which that may or may not
occur. Nor does he examine how the results of such a profitability
analysis might support or undermine the incentives behind the ``raising
rivals' costs'' strategy that he opines was operative in motivating NAB
and SiriusXM negotiating behavior. For all these reasons, we do not
find Dr. Salinger's ``raising rivals' costs'' theory persuasive.
However, it cannot be disputed that the 2009 and 2010 rates
negotiated in these settlements were lower than the statutory rates
otherwise applicable to commercial webcasters. Dr. Pelcovits offers
another possible adjustment to mitigate the effects of the lower 2009-
2010 rates enjoyed by the NAB and SiriusXM as compared to those
commercial webcasters that remained subject to the statutory rate. The
rates resulting from Dr. Pelcovits' calculation ``would give webcasters
that are not part of the WSA settlements the same effective rate over
the eight-year period [2009-2015] as the NAB and SiriusXM, assuming
they all experience the same level of growth in performances.''
Pelcovits Amended and Corrected WDT at Appendix II. This calculation
results in rates equal to the current statutory rate for the first year
of the 2011-2015 term and only somewhat higher thereafter. For the
five-year period beginning 2011, these adjusted NAB/SiriusXM agreement
rates are as follows: $0.0019 for 2011, $0.0020 for 2012, $0.0020 for
2013, $0.0020 for 2014 and $0.0021 for 2015. Pelcovits Amended and
Corrected WDT at Appendix II.
After a careful consideration of the evidence presented on the
various suggested sources of potential overvaluation and undervaluation
of the market rates by the NAB-SoundExchange and SiriusXM agreements,
we find that the rates in these agreements do not appear to seriously
overvalue or undervalue input prices likely to prevail in the market.
Therefore, because the NAB-SoundExchange and SiriusXM agreements
clearly govern the rates for a substantial number of commercial
webcasters over the relevant 2011-2015 period and the commercial
webcasters covered by these agreements are competitors with the other
commercial webcasters who comprise the remainder of the non-interactive
webcasting services, we find these agreements are a useful gauge of the
weight to be assigned to the rates suggested by the interactive
webcasting benchmark. See supra at Section II.B.3.b.ii.
Inasmuch as there are only small differences between the 2011, 2012
and 2013 rates in the NAB and SiriusXM agreements and the 2010
statutory rate, we decline to assign a weight to the interactive
webcasting benchmark that results in a rate at great variance with the
current statutory rate. In other words, the rates in these negotiated
agreements serve as a caution to us not to depart radically from past
rates where we cannot be confident, based on the quality of the
benchmark evidence in the record, that the magnitude of such a
departure is fully supported in the target market. Here, the NAB and
SirusXM agreements serve as a means of roughly correcting the
interactive benchmark for any overvaluation not captured by the
variables directly considered in the analysis. As a consequence, we
find that the current statutory rate ($0.0019) sets the lower bounds
for a range of rates reasonably applicable to the target market and
that the most likely prevailing rate in that market is closer to this
lower boundary than to the upper boundary identified hereinabove.
4. The Section 114 Commercial Webcaster Rates Determined by the Judges
As previously indicated, supra at Section II.B.3.b.i., the Judges
find the interactive webcasting benchmark to be of the comparable type
that the Copyright Act invites us to consider. It is a benchmark with
characteristics reasonably similar to non-interactive webcasting,
particularly after some adjustment to account for the differences
attributable to interactivity. Id. However, we cannot find sufficient
evidence in the record to support an increase that fully implements the
rates proposed on the basis of the interactive benchmark. Rather, we
find that a rate of $0.0036, derived from the interactive market and
adjusted for interactivity differences, can be no more than the upper
bounds of a range of possible rates reasonably applicable to the target
market. That is because: (1) There is likely some ``upward bias''
introduced into the interactive benchmark analysis through its focus on
only subscription-based services in the benchmark market (see supra at
Section II.B.3.b.i.) and (2) there is some merit to Dr. Salinger's
[[Page 13036]]
identification of some additional sources of upward bias in the
Pelcovits interactive benchmark analysis. Id.
Two measures available to test the magnitude of such upward bias
are the NAB-SoundExchange and SiriusXM-SoundExchange agreements. That
is, we find that these agreements are a useful gauge of the weights to
be assigned to the rates suggested by the interactive webcasting
benchmark, because the NAB-SoundExchange and SiriusXM-SoundExchange
agreements clearly govern the rates for a substantial number of
commercial webcasters over the relevant 2011-2015 period and the
commercial webcasters covered by these agreements are competitors with
the other commercial webcasters who comprise the remainder of the non-
interactive webcasting services (see supra at Section II.B.3.b.ii.).
These negotiated rates indicate that the interactive benchmark may
likely overstate the prevailing market rate in the target market even
when subjected to Dr. Pelcovits' substitution adjustment or Dr.
Salinger's adjustment to mitigate the impact of downward trend in the
effective play rates paid by interactive services. Id. Indeed, the NAB-
SoundExchange and SiriusXM agreements lend weight to the need for a
further downward adjustment in the benchmark rate to reflect a
prevailing rate in the target market closer to the current statutory
rate. Id. In this way, the NAB-SoundExchange and SirusXM agreements
serve as a means of roughly correcting the interactive benchmark for
any overvaluation not captured by the variables directly considered in
the analysis. Therefore, inasmuch as there appears to be only a small
difference between the 2011 rate in the NAB-SoundExchange and SiriusXM
agreements and the 2010 statutory rate, we find that the current
statutory rate ($0.0019) sets the lower bounds for a range of rates
reasonably applicable to the target market and that the most likely
prevailing rate in that market is closer to this lower boundary than to
the interactive benchmark rates recommended by Dr. Pelcovits.
In other words, while we accept the interactive benchmark as
suggesting an increase in royalty rates for non-interactive webcasting
over or by the end of the period 2011-2015, we find that the weight of
the evidence does not allow us to accept the full amount of the
increases suggested by either the unadjusted or the various adjusted
versions of the interactive benchmark. Rather having identified the
$0.0036 rate as the upper boundary for a zone of reasonableness for
potential marketplace benchmarks and the $0.0019 rate as the lower
boundary for a zone of reasonableness for potential marketplace
benchmarks, we find that the most likely prevailing rate in the target
market is closer to the lower boundary than to the upper boundary of
this zone of reasonableness (see supra at Section II.B.3.b.ii.).
However, the most likely prevailing rate at the present time is
also likely to shift upward over the 2011-2015 term. We recognize that
the interactive benchmark derived in this proceeding after adjusting
for interactivity and accounting for substitution (i.e., $0.0033)
itself indicates an increase when compared to a similarly adjusted
interactive benchmark derived in Webcaster II (i.e., $0.0019). See
supra at Section II.B.3.b.i.; Webcaster II, 72 FR 24094, 24096.
Similarly, the NAB-SoundExchange and SiriusXM-SoundExchange agreements
exhibit an increase in rates over the 2011-2015 term for competing
webcasters. See supra at Section II.B.3.b.ii. Moreover, we also find
that the evidence in the record on industry growth in increased
advertising revenues, increased performances, and increased listening
likely support at least a modest increase over the 2011-2015 term. See
supra at Section II.B.3.a.iii. However, we recognize that while the
trend in industry growth, as captured by some measures such as
listenership, has been decidedly upward, that growth has occurred
unevenly from year to year, with two-year plateaus succeeded by large
jumps in growth. Id.
Our findings suggest three criteria for an appropriate rate based
on the marketplace evidence we have been presented. These criteria are:
(1) A rate structure that reflects our finding that the most likely
prevailing rate in the target market is closer to the lower boundary
than to the upper boundary of the zone of reasonableness for potential
marketplace benchmarks; (2) a rate structure that accommodates some
modest growth in rates over the term of the license period; and (3) a
rate structure that provides for longer periods of stable rates during
the term of the license period. We find that the following rate
structure for commercial webcasters, based on our downward adjustment
of the interactive benchmark, meets these three criteria: For the five-
year period beginning 2011, the per play rate applicable to each year
of the license for Commercial Webcasters is: $0.0019 for 2011, $0.0021
for 2012, $0.0021 for 2013, $0.0023 for 2014 and $0.0023 for 2015.
The willing buyer/willing seller standard in the Copyright Act
encompasses consideration of economic, competitive and programming
information presented by the parties, including (1) the promotional or
substitution effects of the use of webcasting services by the public on
the sales of phonorecords or other effects of the use of webcasting
that may interfere with or enhance the sound recording copyright
owner's other streams of revenue from its sound recordings; and (2) the
relative contributions made by the copyright owner and the webcasting
service with respect to creativity, technology, capital investment,
cost and risk in bringing the copyrighted work and the service to the
public. Because we adopt an adjusted benchmark approach to determining
the rates, we agree with Webcaster II and Webcaster I that such
considerations would have already been factored into the negotiated
price in the benchmark agreements. 72 FR 24095 (May 1, 2007); 67 FR
45244 (July 8, 2002). Therefore, such considerations have been reviewed
by the Copyright Royalty Judges in our determination of the most
appropriate benchmark from which to set rates. Similar considerations
would have been factored into the negotiated price of the NAB-
SoundExchange and SiriusXM-SoundExchange agreements which we utilized
to roughly gauge the further downward adjustment necessary to assure
that the interactive benchmark rates reasonably reflected likely rates
in the target market.
Nevertheless, we have also further separately reviewed the evidence
bearing on these considerations. We find that no further upward or
downward adjustment is indicated. We have previously noted that the
evidence submitted by Live365 on each of these considerations is too
weak to establish a basis for a decrease in webcaster royalty rates
from the current statutory rate (see supra at Section II.B.3.a.iii.).
Nor does Live365 present an acceptable empirical basis for quantifying
the individual asserted effects of these various factors and/or for
deriving a method for translating such magnitudes into a rate
adjustment. Id. Similarly, to the extent that SoundExchange treats each
of these factors separate from its proffered benchmark analysis, it
also does not present an acceptable empirical basis for quantifying the
individual asserted effects of these various factors and/or for
deriving a method for translating such magnitudes into a rate
adjustment. Moreover, SoundExchange explicitly relies on Dr. Pelcovits'
interactive services benchmark analysis to encompass these
considerations. SX RCL at ] 20. Therefore, our further consideration of
[[Page 13037]]
these factors leads us to find no need for any further adjustment to
the rates determined hereinabove.
5. The Proposed Aggregator Discount to the Section 114 Commercial
Webcaster Rates
Live365 seeks a further 20% discount applicable to the commercial
webcasting per performance rate for certain ``qualified webcast
aggregation services'' who operate a network of at least 100
independently operated ``aggregated webcasters'' that individually
``stream less than 100,000 ATH per month of royalty-bearing
performances.'' Rate Proposal For Live365, Inc., Appendix A, Proposed
Regulations at Sec. 380.2 and Sec. 380.3(a)(2). This ``discount''
proposal may be more properly understood as a proposed term rather than
an additional rate proposal. It is conditional; that is, it is
applicable only to the extent that certain defined conditions are met
(e.g., minimum number of 100 aggregated webcasters and each individual
aggregated webcaster streaming less than 100,000 ATH per month). It
proposes to establish a mechanism whereby a group of commercial
webcasters under certain qualifying conditions may utilize a ``webcast
aggregation service'' to aggregate their monitoring and reporting
functions. Rate Proposal For Live365, Inc., Appendix A, Proposed
Regulations at Sec. 380.2(m). Monitoring and reporting are compliance-
related functions that are currently required of all individual
webcaster licensees.
We find no persuasive evidence in the record to support the
imposition of an aggregator discount that would apply to the statutory
rate for commercial webcasters. Live365 submitted testimony from Dr.
Fratrik and Mr. Floater to support this request. The testimony of the
latter witness does not, in any meaningful way, address the purported
rationale behind this request--namely, that an administrative benefit
accrues to the collective which, by implication, reduces transactions
costs. Rather Mr. Floater's testimony speaks largely about the asserted
benefits of using an aggregation service that flow to ``individual
webcasters'' who make use of the service and to copyright owners of
having multiple webcaster stations assembled on a single platform. [``*
* * a streaming architecture that can aggregate tens of thousands of
individual webcasters * * * Live365's broadcast tools and services
enable broadcasters to economically and efficiently stream their
programming * * * Live365's aggregation helps broadcasters contain
their costs * * * Live365 allows small webcasters to broadcast content
* * * while generating increased performances, sales, royalties and
promotional benefits for a wide range of artists and copyright
holders.''] Floater Corrected WDT at 11-14. These asserted benefits to
individual webcasters and copyright owners, which are not quantified
sufficiently to ascertain their value, are benefits that are largely
indistinguishable from those that might be asserted by any multi-
channel webcaster. Nor do these benefits address the issues at heart of
the proposal; that is, whether an aggregator like Live365 provides any
administrative benefit that could be shown to reduce transactions
costs, whether any administrative benefit provided by the aggregator
can be measured and translated into a discount applicable to the
commercial webcasting royalty rate, and whether the full amount of the
purported administrative benefit should properly flow to the
aggregator, to the individual webcasters so aggregated, to the
copyright owners or to some combination thereof.\14\ We do not find Mr.
Floater's testimony helpful in resolving any of these issues.
---------------------------------------------------------------------------
\14\ For example, it is obvious that if the full amount of any
purported administrative savings were to flow to the aggregator,
then no benefit accrues to anyone else. In such a formulation, the
aggregator proposal would seem to reduce to a mere stalking horse
for obtaining a less than competitive market rate that advantages
Live365 as compared to other commercial webcasters and simulcasters.
---------------------------------------------------------------------------
Live365 also submitted testimony from Dr. Fratrik to support its
request for an aggregator discount that attempts, in part, to address
the administrative savings issue. Dr. Fratrik opines that aggregators
are entitled to this discount because they ``collect and compile all of
the necessary documentation of the actual copyrighted works that are
streamed and the number of total listening levels for each of these
copyrighted works'' and because ``aggregators make royalty payments to
the appropriate parties.'' Fratrik Corrected and Amended WDT at 38. But
again these functions are part of the same sort of compliance
activities for which any multi-channel webcaster would necessarily be
responsible on behalf of the multiplicity of channels it offered. They
do not appear to be unique to an ``aggregator.'' Indeed, when
questioned about his description of the aggregator discount, Dr.
Fratrik offered no practical distinction between an ``aggregator'' and
any commercial webcaster or simulcaster who offered 100 or more
channels. 4/27/10 Tr. at 1265:9-1266:22; 1267:7-1270:15 (Fratrik). We
find that Dr. Fratrik's claim of administrative cost savings provided
by aggregators describes a benefit that is largely indistinguishable
from those that might be asserted by any multi-channel webcaster.
Therefore, inasmuch as multi-channel webcasters already receive a
benefit under current regulations \15\ (37 CFR 380.3(b)(1)) by way of a
$50,000 cap on the minimum fee for services with 100 or more stations
or channels, the proposed additional discount for indistinguishable
administrative services provided by an ``aggregator'' is unwarrantedly
cumulative. SX PFF at ] 597.
---------------------------------------------------------------------------
\15\ Under the May 14, 2010 Stipulation executed by
SoundExchange and Live365, the $50,000 cap on minimum fees was also
agreed to by the parties for the 2011-2015 term. See supra at
Section II.B.1.
---------------------------------------------------------------------------
Furthermore, Dr. Fratrik admitted that the choice of 100 channels
or stations as the threshold for triggering the proposed aggregator
discount was not supported by any examination of administrative costs
to see what relative administrative cost savings specifically
demarcated the boundaries of the discount's applicability. 4/27/10 Tr.
at 1270:12-1271:3 (Fratrik). In other words, Dr. Fratrik establishes no
cost savings basis in the record for a distinction between the
administrative cost savings that might accrue from aggregating 100
stations as compared to 50 or 300 stations where each such station
meets the additional condition of accounting for streaming of less than
100,000 ATH per month.
At the same time, Dr. Fratrik reaches his estimated 20% discount
rate through the offer of a kind of benchmark analysis that uses
purported aggregator discounts provided to Live365 in its agreements
with the Performance Rights Organizations (``PROs'') pertaining to
musical works royalties. But Dr. Fratrik indicated in his testimony
that the Live365-BMI agreement he utilized to support this benchmark
does not provide a discount to Live365 for aggregating webcasters.
Instead, the agreement apparently provides a discount more directly to
very small webcasters that utilize Live365 for certain administrative
functions related to compliance. 4/27/10 Tr. 1261:18-1262:19 (Fratrik).
That is not comparable to the proposal before us which calls for the
aggregator to receive the full benefits of any discount.
In any case, even if Live365 were to receive the full benefits of
any aggregator discount in the BMI agreement, such PRO agreements do
not constitute a benchmark that inspires sufficient confidence to be
useful. Dr. Fratrik asserts that Live365 provides centralized
administration for the
[[Page 13038]]
benefit of the PROs, including centralized collection, reporting and
compliance. But he offers no evidence to suggest that the types and
level of centralized administrative services provided to the PROs are
comparable to the administrative services to be provided by the
aggregator to SoundExchange. In Webcaster II, we found that another
benchmark offered in that proceeding based on the musical works market
was flawed because the sellers in that market are different and they
are selling different rights. 72 FR 24094 (May 1, 2007). Yet, in the
instant proceeding, Dr. Fratrik fails to show that these different
sellers and different rights give rise to comparably valued
``centralized'' administrative services provided by a third party in
the target sound recordings market. Nor does Dr. Fratrik address the
issue of whether any adjustments to the data from the benchmark musical
works market are required that could make it more comparable to the
target sound recordings market.
In short, we find that Live365 makes no sufficient showing that an
aggregator discount can be justified in general, or adequately measured
in particular, on the basis of the evidence in the record.
To the extent that Live365's proposed aggregator discount is viewed
strictly as a rate proposal rather than a term, Live365 also fails to
delineate a basis for a different royalty rate applicable to a distinct
submarket of the larger commercial webcasting market. Webcasting II
determined that a key factor in differentiating between classes of
webcasters for rate purposes is whether the webcasters operate in a
distinct market segment or submarket that does not directly compete
with the remainder of all webcasters. Webcaster II, 72 FR 24095, 24097
(May 1, 2007); see also supra at Section II.B.3.b.ii. Live365 as the
aggregator does not appear to meet this standard. The record clearly
establishes that Live365 competes directly with other commercial
webcasters. SX PFF at ] 280. And, of course, whether considered as a
proposed rate for a new category of commercial webcasters or, as noted
hereinabove as a proposed term, we are not persuaded by the record of
evidence in this proceeding of a particular market value provided by an
aggregator in terms of reduced transactions costs that can, or should,
be translated into a discount applicable to the commercial webcasting
royalty rate.
In addition, some aspects of the Live365 proposal appear likely to
engender confusion. For example, Live365 proposes definitions for a
``webcast aggregation service,'' ``aggregated webcasters,''
``commercial webcaster,'' and ``licensee.'' Taken together, these
definitions fail to explicitly delineate that Live365 intends the
webcast aggregation service to serve as the licensee in its proposed
arrangement and that the webcasters whose programming is transmitted
are not the licensees. The proposed regulations, by contrast, identify
webcasters specifically as licensees and, therefore, suggest that any
commercial webcaster, whether aggregated or unaggregated, remains
responsible for payment of the applicable statutory license fee. See
Rate Proposal For Live365, Inc., Appendix A, Proposed Regulations at
Sec. 380.2(b), Sec. 380.2(e), Sec. 380.2(h), Sec. 380.2(o); 9/30/10
Tr. at 622:14-22, 669:18-677:12 (Closing Arguments, Oxenford). Such
confusion has practical consequences. Given that the aggregator, as the
licensee, is not obligated to provide a list of webcasters for whom it
purports to pay SoundExchange and the aggregator, as licensee, may not
voluntarily provide such a list to SoundExchange, it may result in more
time-consuming administrative effort for SoundExchange to determine
whether a particular webcaster is subject to or properly complying with
the statutory licenses. This burden was pointed out by Mr. Funn in the
context of SoundExchange's specific experience with Live365. Funn WRT
at 2; 8/2/10 Tr. at 445:13-446:2 (Funn).
For all the above reasons, we decline to adopt Live365's proposal
for a 20% aggregator discount, applicable under certain conditions to
the commercial webcasting royalty rate.
III. Noncommercial Webcasters
Having determined the rates for commercial webcasters, the Judges
now turn to the noncommercial category. As previously mentioned,
certain services argued in Webcaster II that they were distinguishable
from commercial webcasters and, as a result, deserved a lower royalty
rate. We observed:
Based on the available evidence, we find that, up to a point,
certain ``noncommercial'' webcasters may constitute a distinct
segment of the noninteractive webcasting market that in a willing
buyer/willing seller hypothetical marketplace would produce
different, lower rates than we have determined hereinabove for
Commercial Webcasters. A segmented marketplace may have multiple
equilibrium prices because it has multiple demand curves for the
same commodity relative to a single supply curve. An example of a
segmented market is a market for electricity with different prices
for commercial users and residential users. In other words, price
differentiation or price discrimination is a feature of such
markets. The multiple demand curves represent distinct classes of
buyers and each demand curve exhibits a different price elasticity
of demand. By definition, if the commodity in question derives its
demand from its ultimate use, then the marketplace can remain
segmented only if buyers are unable to transfer the commodity easily
among ultimate uses. Put another way, each type of ultimate use must
be different.
Webcaster II, 72 FR 24097 (footnote omitted). We found that the
evidence supported a submarket for noncommercial webcasting, but
included safeguards to assure that the submarket did not converge or
overlap with the submarket for commercial webcasting. A cap of 159,140
ATH per month marked the boundary between noncommercial and commercial
webcasting, and we adopted a $500 per station or channel rate which
included the annual, non-refundable, but recoupable, $500 minimum fee
payable in advance.\16\
---------------------------------------------------------------------------
\16\ The United States Court of Appeals for the District of
Columbia Circuit remanded the $500 minimum fee for lack of evidence.
Intercollegiate Broadcast System, Inc. v. Copyright Royalty Board,
574 F.3d 748, 767 (DC Cir. 2009). After taking evidence, we adopted
a $500 minimum fee. Digital Performance Right in Sound Recordings
and Ephemeral Recordings (Remand order), 75 FR 56873, 56784
(September 17, 2010).
---------------------------------------------------------------------------
In this proceeding, certain participants have once again asked us
for adoption of lower rates for noncommercial webcasting. Greater
refinements to the category are also sought; namely, separate rates for
distinct ``types'' of services (all still under the general rubric of
noncommercial). SoundExchange and CBI have submitted an agreement,
pursuant to 17 U.S.C. 801(b)(7)(A), for rates and terms for a type of
service that they identify as ``noncommercial educational webcasters.''
SX PFF at ] 65; CBI PFF at ] 5. IBS urges us to recognize and set rates
for two types of services: small noncommercial webcasters, defined as
those whose ATH does not exceed 15,914 per month, and very small
noncommercial webcasters, defined as those whose ATH does not exceed
6,365 per month. IBS PFF (Reformatted) at ] 26. We address these
requests beginning with the SoundExchange-CBI agreement.
A. Noncommercial Educational Webcasters
On August 13, 2009, slightly more than eight months into the cycle
of this proceeding, SoundExchange and CBI submitted a joint motion to
adopt a partial settlement ``for certain internet transmissions by
college radio stations and other noncommercial educational
webcasters.'' Joint Motion to Adopt
[[Page 13039]]
Partial Settlement at 1. The settlement was achieved under
authorization granted by the Webcaster Settlement Act of 2009, Public
Law 111-36, discussed supra at Section I.B., and was published by the
Copyright Office in the Federal Register. See 74 FR 40616 (August 12,
2009). By virtue of that publication, the SoundExchange-CBI agreement
is now ``available, as an option, to any * * * noncommercial webcaster
meeting the eligibility conditions of such agreement.'' 17 U.S.C.
114(f)(5)(B). In submitting the agreement to the Judges, SoundExchange
and CBI urged us to likewise publish it in the Federal Register and
adopt it, under 17 U.S.C. 801(b)(7)(A), as the rates and terms
applicable to noncommercial educational webcasters for the period 2011
through 2015.\17\
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\17\ At the hearing to consider the SoundExchange/CBI motion,
there was significant discussion as to whether SoundExchange and CBI
were asking the Judges to adopt the agreement as an option for
noncommercial educational webcasters or whether the agreement would
be binding on all noncommercial educational webcasters. See 5/5/10
Tr. at 5:8-51:11 (Hearing on Joint Motion To Adopt Partial
Settlement). The confusion was created by the last two sentences of
proposed Sec. 380.20(b) to the Judges' rules, 37 CFR, which
provided:
However, if a Noncommercial Educational Webcaster is also
eligible for any other rates and terms for its Eligible
Transmissions during the period January 1, 2011, through December
31, 2015, it may by written notice to the Collective in a form to be
provided by the Collective, elect to be subject to such other rates
and terms rather than the rates and terms specified in this subpart.
If a single educational institution has more than one station making
Eligible Transmissions, each such station may determine individually
whether it elects to be subject to this subpart.
Digital Performance Right in Sound Recordings and Ephemeral
Recordings (Proposed rule), 75 FR 16377, 16383 (April 1, 2010).
After deliberations, counsel for SoundExchange conceded that such
language was confusing and unnecessary, since the purpose of the
motion was to set the rates and terms for all services that met the
definition of a noncommercial educational webcaster, and could be
removed. 5/5/10 Tr. at 46:14-47:16, 50:12-51:11 (Hearing on Joint
Motion To Adopt Partial Settlement). In adopting The SoundExchange/
CBI agreement today, we are accepting SoundExchange's offer and are
not adopting this language.
---------------------------------------------------------------------------
On April 1, 2010, the Judges did publish the SoundExchange/CBI
agreement under the authority of section 801(b)(7)(A). 75 FR 16377.
With respect to rates, the agreement proposes an annual, nonrefundable
minimum fee of $500 for each station or individual channel, including
each of its individual side channels. Id. at 16384 (April 1, 2010). For
those noncommercial educational webcasters whose monthly ATH exceed
159,140, additional fees are paid on a per-performance basis. There is
also an optional $100 proxy fee that may be paid by noncommercial
educational webcasters in lieu of submitting reports of use of sound
recordings. The agreement also contains a number of terms of payment.
Our consideration of the SoundExchange-CBI agreement, as is the
case with the NAB-SoundExchange agreement is governed by 17 U.S.C.
801(b)(7)(A). The Judges received 24 comments, from managers and
representatives of terrestrial radio stations, favoring adoption of the
SoundExchange-CBI agreement. Many of these comments asserted that the
rate structure was compatible with their budget restraints, see, e.g.,
Comment of Bill Keith for WSDP Radio, Plymouth-Canton Community Schools
(``The monetary amount was reasonable and most college or high school
stations can live with the amounts charged for webcasting''), and
several expressed satisfaction with the $100 proxy fee in lieu of
reports of use. See, e.g., Comments of Christopher Thuringer for WRFL,
University of Kentucky; Comments of David Black, General Manager, WSUM-
FM. We received one comment objecting to the settlement from IBS.\18\
We held a hearing on the motion on May 5, 2010.
---------------------------------------------------------------------------
\18\ IBS has asserted several times throughout the course of
this proceeding that it represents more college and high school
radio stations than CBI. See, e.g. 5/5/10 Tr. at 80:16-81:3 (Hearing
on Joint Motion to Adopt Partial Settlement). However, it has never
provided any evidence to demonstrate this is true. In fact, IBS has
never revealed to the Judges how many members it has, let alone
their identities.
---------------------------------------------------------------------------
During the course of the hearing, it became clear that IBS'
arguments centered upon the proposed annual $500 minimum fee for
stations with less than 159,140 ATH. Most significantly, IBS contended
that if the Judges adopted the proposed minimum fee for noncommercial
educational webcasters, it would be precluded from presenting its own
minimum fee proposal and, effectively, its participation in this
proceeding would be ended. 5/5/10 Tr. at 51:22-52:2 (``I think Mr.
DeSanctis' [counsel for SoundExchange] last remarks indicate that this
is an attempt to freeze IBS out of statutory rights to a decision from
the Board on the record.'') (Hearing on Joint Motion to Adopt Partial
Settlement). After conclusion of the hearing, the Judges did not render
a decision on the adoption of the settlement, preferring instead to let
IBS present its case in the main and consider the matter after all
testimony had been presented.
It is now evident that IBS' contention of a ``freeze out'' was
erroneous from the start, for IBS never proposed any rates and terms
for noncommercial educational webcasters. Rather, as noted above, IBS
requested rates and terms only for certain noncommercial webcasters
(defined by it as ``small'' and ``very small''). The Judges pressed
counsel for IBS at closing argument as to whether he still objected to
adoption of the SoundExchange-CBI agreement as the basis for
establishing rates and terms for noncommercial educational webcasters.
After some dissembling, he concluded that he did to the extent that
adoption of the agreement might influence or prejudice his rate
proposal.\19\ We find that his response does not support a proper
objection raised under section 801(b)(7)(A)(ii) which would require us
to consider the reasonableness of the SoundExchange/CBI agreement. Cf.
37 CFR 351.10 (admissible evidence must be relevant); FRE 401. Even if
we were to conclude otherwise, IBS has not presented any credible
testimony that the agreement is unreasonable. Twenty-four noncommercial
broadcasters that purportedly will operate their webcasting services
under the agreement find it to be reasonable and affordable. IBS has
not provided documented testimony to the contrary, despite an
invitation to do so. 5/5/10 Tr. at 81:7-82:10 (Hearing on Joint Motion
to Adopt Partial Settlement). Instead, it has relied upon the bald
assertions of its counsel and its witnesses, arguing that some
unidentified and unspecified number of its members cannot afford the
fees contained in the agreement and will be driven from the webcasting
business.
[[Page 13040]]
Without proper evidence, we could not find the agreement unreasonable,
were we inclined to do so.
---------------------------------------------------------------------------
\19\ [THE JUDGES]: You're not proposing a rate for noncommercial
educational webcasters. Only CBI and SoundExchange are.
MR. MALONE: Right.
[THE JUDGES]: So why are you objecting to the adoption of that
if you have a--two separate categories that you want adopted?
MR. MALONE: Well, the judges can certainly say that--I mean,
there's nothing incompatible with them. The--
[THE JUDGES]: But I'm asking you why are you still objecting to
the adoption of a $500 minimum fee for noncommercial educational
webcasters when you have proposed new fees for two new types of
services and have not proposed a fee for something called a
noncommercial educational webcaster?
MR. MALONE: Well, our--
[THE JUDGES]: Where is your dog in that fight? I don't see it.
MR. MALONE: All right. The dog in that fight is--and, again,
excluding indirect effects that I understand to be the context of
your question.
We have no objection to the terms that are there as long as
they don't apply to our small stations.
[THE JUDGES]: So you're just objecting to it on the theory that
you just hope that what's ever in there doesn't somehow get applied
to your case, even though you're asking for two completely different
services?
MR. MALONE: That's essentially correct, Your Honor.
9/30/10 Tr. at 660:13--661:22 (IBS Closing Argument).
---------------------------------------------------------------------------
Finding neither a proper nor a credible objection to the
SoundExchange-CBI agreement, nor other grounds requiring rejection, we
adopt the agreement (see supra n.17) as the basis for rates and terms
for noncommercial educational webcasters for the period 2011-2015. See
supra Section II.A.
B. All Other Noncommercial Webcasters
1. Rate Proposals for the Section 114 License for Noncommercial
Webcasters
The Judges' adoption of the SoundExchange-CBI agreement under
section 801(b)(7)(A) does not resolve the matter of rates for the
broader category of noncommercial webcasters that we recognized in
Webcaster II. SoundExchange urges adoption of the same rates for
noncommercial webcasters as noncommercial educational webcasters. IBS
agrees, but proposes that we recognize two new types of services: small
and very small noncommercial webcasters. We address these proposals
separately.
For noncommercial webcasters operating under the sections 112 and
114 licenses, SoundExchange proposes a royalty of $500 per station or
channel per year, subject to the 159,140 ATH limit. The base royalty
would be paid in the form of a $500 per station or channel annual
minimum fee, with no cap. If a station or channel exceeds the ATH
limit, then the noncommercial webcaster would pay at the commercial
usage rates for any overage. SX PFF at ]] 489, 471. In support of its
proposal, SoundExchange points to the fact that 363 noncommercial
webcasters paid royalties in 2009 similar to its current proposal, with
305 of those webcasters paying only the $500 minimum fee. Id. at ] 493.
This, in its view, demonstrates noncommercial webcasters' ability and
willingness to pay the requested fees.
SoundExchange also submits that the reasonableness of the $500
minimum fee is confirmed by the testimony of Barrie Kessler, its chief
operating officer. While SoundExchange does not track its
administrative costs on a service-by-service basis, Ms. Kessler
presented a ``reasonableness check'' by estimating its administrative
cost per service and per channel. First, she divided SoundExchange's
total expenses for 2008 by the number of licensees, and then divided
that number by the average number of stations or channels per licensee
(seven). The result was an approximate average administrative cost of
$825 per station or channel. Kessler Corrected WDT at 25.
Finally, SoundExchange offers its agreement with CBI, discussed
above, as support for its rate proposal. The fees are the same, along
with the 159,140 ATH limitation and no cap on the minimum fee. The
agreement, along with the 24 comments received in favor of it, ``is
strong evidence of the rates and terms that noncommercial webcasters
are willing to pay.'' SX PFF at ] 501.
IBS agrees with SoundExchange's proposal for noncommercial
webcasters, but asks the Judges to recognize two additional types of
noncommercial services that it identifies as ``small'' and ``very
small.'' Its arrival at this request has followed a decidedly
convoluted path throughout this proceeding, metamorphosing from the
written direct statements through the closing argument. Section
351.4(a)(3) of the Judges' rules, which governs the content of written
direct statements, provides that in a rate proceeding, ``each party
must state its requested rate.'' IBS did not do this in plain fashion,
instead including its request within the body of testimony of one of
its three witnesses. Frederick J. Kass, Jr., the ``treasurer, director
of operation (chief operating officer), and a director of'' IBS stated
that: ``IBS Members should only pay for their direct use of the
statutory license by the IBS Member. There should be no minimum fee
greater than that which would reasonably approximate the annual direct
use of the statutory license, not to exceed $25.00 annually.'' Kass WDT
at 1, 9. However, Mr. Kass attached as an exhibit to his statement a
joint petition to adopt an agreement negotiated between the RIAA, IBS,
and the Harvard Radio Broadcasting, Co. that was submitted to the
Copyright Office on August 26, 2004.\20\ That agreement provided for a
minimum annual fee of $500 for noncommercial educational webcasters,
except that the fee was $250 for any noncommercial educational
webcaster that affiliated with an educational institution with fewer
than 10,000 enrolled students or where substantially all of the
programming transmitted was classified as news, talk, sports or
business programming. Kass WDT, Exhibit A at 5. Despite the inclusion
of this exhibit, Mr. Kass expressly disavowed endorsement of its rates
in the hearing on his written direct statement. Instead, he asserted
that ``the appropriate rates are what most people were paying in the
marketplace for the direct use of the statutory license,'' without
stating what that fee or amount should be. 4/22/10 Tr. at 779:22-780:2
(Kass). When the Judges questioned Mr. Kass as to exactly what was his
rate proposal, he responded that IBS members should pay only for their
actual use of sound recordings and that the fee should be 50 cents per
continuous listener per year to a station or channel,\21\ not to exceed
$25 per year. Id. at 781:3-792:12 (Kass). He then later characterized
the $25 as a ``flat fee'' and concluded his testimony on this point
that each IBS station should pay an annual $25 flat fee. Id. at 791:17-
792:12 (Kass).
---------------------------------------------------------------------------
\20\ The joint petition was submitted to the Copyright Office as
a settlement of rates and terms for the sections 112 and 114
licenses for the period 2005 and 2006. It was not acted upon by the
Office.
\21\ This fee is very roughly derived from an agreement
negotiated between the RIAA and the Corporation for Public
Broadcasting under the Small Webcaster Settlement Act of 2002, which
was submitted by IBS in the Webcaster II proceeding.
---------------------------------------------------------------------------
After the close of the direct case hearings and before the
submission of written rebuttal cases, IBS filed a ``Restatement of IBS'
Rate Proposal.'' This proposal identified two new types of services: a
``small noncommercial webcaster,'' described as a service with total
performances of digitally recorded music less than 15,914 ATH per month
or the equivalent; and a ``very small noncommercial webcaster,''
described as a service with total performances of less than 6,365 ATH
per month or the equivalent. For small noncommercial webcasters, IBS
proposed a flat annual fee of $50, and for very small noncommercial
webcasters a flat annual fee of $20. No mention was made of the broader
category of noncommercial webcaster. On July 29, 2010, after the
submission of written rebuttal cases, IBS filed an ``Amplification of
IBS' Restated Rate Proposal.'' This filing was far more than an
amplification, because for the first time it proposed an annual minimum
fee of $500 for noncommercial webcasters per station or channel, along
with annual minimum fees of $50 and $20 for small noncommercial
webcasters and very small noncommercial webcasters, respectively. IBS
also expressly endorsed SoundExchange's per performance rate proposal
for the sections 114 and 112 licenses.\22\ And, as an alternative to
this rate structure, IBS proposed paying an annual lump sum of $10,000
to SoundExchange to cover all performances by IBS members that are not
covered by a negotiated agreement.
[[Page 13041]]
IBS added that ``[i]f the amount of IBS members participating exceeds
$10,000.00 there will be a true up within 15 days of the end of the
year.'' Amplification of IBS' Restated Rate Proposal at 3 (July 29,
2010).\23\
---------------------------------------------------------------------------
\22\ IBS does not define ``noncommercial webcaster,'' but the
proposal suggests that it is a webcaster with no more than 159,140
ATH per month per station or channel, but no less than 15,915 ATH.
The endorsement of the SoundExchange per performance proposal would
then apply to the overage of 159,140 ATH. 9/30/10 Tr. at 651:11-
652:21 (IBS Closing Argument).
\23\ IBS does not explain what is meant by IBS members exceeding
$10,000 in participation. However, the pleading does offer a number
of annual statutory performances covered by the $50 annual minimum
fees for small noncommercial webcasters (2,291,616) and very small
noncommercial webcasters (916,646). Presumably, IBS is offering to
pay additional unspecified amounts for those members that exceed
that number of performances in a given year.
---------------------------------------------------------------------------
During the hearings on the written rebuttal cases, SoundExchange
objected to the testimony of Mr. Kass, IBS' only rebuttal witness, on
the grounds that he did not verify his testimony as required by Sec.
350.4(d) of the Judges' rules, and did not appear to know what was in
his testimony.\24\ The Judges granted the motion and his testimony was
not admitted.\25\ IBS sought reconsideration of the decision, which was
denied. Order Denying IBS' Motion For Reconsideration of the Rulings
Excluding Its Rebuttal Case, Docket No. 2009-1 CRB Webcasting III
(August 18, 2010). Even if his testimony had been admitted, it did not
contain support for IBS' new rate proposals, nor could it given that
such testimony would be outside the scope of the rebuttal proceedings.
---------------------------------------------------------------------------
\24\ Section 350.4(d) provides that ``[t]he testimony of each
witness shall be accompanied by an affidavit or a declaration made
pursuant to 28 U.S.C. 1746 supporting the testimony.''
\25\ It was apparent after voir dire of the witness that not
only did he not comply with the verification rule in filing his
written rebuttal statement, but that he was not familiar with
substantial portions of his testimony, which had been drafted by
IBS' counsel. 7/29/10 Tr. at 292:1-296:15 (Kass).
---------------------------------------------------------------------------
IBS changed its proposed rates one final time with the filing of
its proposed findings of fact and conclusions of law. It withdrew its
proposal of a $10,000 annual lump sum payment, and proposed regulatory
language that permitted SoundExchange to accept unspecified collective
payments on behalf of small and very small noncommercial
webcasters.\26\
---------------------------------------------------------------------------
\26\ To further roil the waters, IBS attached to its proposed
findings its Amplification of IBS' Restated Rate Proposal which does
contain the $10,000 lump sum payment language.
---------------------------------------------------------------------------
2. The Section 114 Noncommercial Webcaster Rates Determined by the
Judges
The statutory standards that apply to the Judges' determination of
section 114 rates for commercial webcasters apply with equal force to
our consideration of rates for noncommercial webcasters. IBS requests
that we distinguish between two different types of noncommercial
webcasters--small and very small--within the broader category, thereby
invoking the provision of section 114(f)(2)(B) that requires that rates
(and terms)
shall distinguish among different types of eligible nonsubscription
transmission services then in operation and shall include a minimum
fee for each such type of service, such differences to be based on
criteria including, but not limited to, the quantity and nature of
the use of sound recordings and the degree to which use of the
service may substitute for or may promote the purchase of
phonorecords by consumers.
17 U.S.C. 114(f)(2)(B). IBS asks that we make such a distinction for
small and very small noncommercial webcasters despite the fact that it
has not presented one iota of evidence regarding the relative
quantities of music used by these services,\27\ nor the nature of their
use of sound recordings covered by the license.\28\ Likewise, it has
completely failed to present any evidence that would enable the Judges
to determine the degree to which these proposed services promoted or
substituted for the purchase of phonorecords by consumers. IBS has done
nothing more than create two arbitrary subcategories of noncommercial
webcaster, separated by unsupported amounts of monthly aggregated
tuning hours, in an effort to obtain lower royalty rates for its
members. IBS has failed to satisfy the statutory burden of presenting
evidence to enable the Judges to determine if distinctions within the
noncommercial webcaster category are required or warranted, and there
is nothing in the record of this proceeding that requires the Judges
under section 114(f)(2)(B) to establish separate terms and rates for
types of services other than noncommercial webcasters.
---------------------------------------------------------------------------
\27\ IBS distinguishes between the services based upon the
number of ATH, but ATH is not a measurement of the quantity of use
of sound recordings covered by the section 114 license. It is only a
time measurement of reception of a transmission.
\28\ Counsel for IBS conceded at closing argument that the
record was devoid of evidence on this statutory requirement. 9/30/10
Tr. at 647:12-651:5 (IBS Closing Argument).
---------------------------------------------------------------------------
IBS' failure on this point is endemic to its failure to the even
greater task at hand: The rates that would be negotiated in the
marketplace between a willing buyer and willing seller. IBS' constantly
changing rate proposals were not fashioned with this standard in mind
(let alone the evidence to support it), but rather appeared to spring
from some undefined meaning of ``fairness,'' or more likely the
impressions of Mr. Kass as to what his members would like to pay for
statutory royalties. Indeed, even with respect to Mr. Kass' somewhat
consistent mantra, that IBS members should not pay for any more than
the music that they used, there was no proffer of evidence to
demonstrate the nature or volume of that use, by what stations, or
under what circumstances. The aridity of the record necessitates the
rejection of IBS' proposal.
There is no dispute between SoundExchange and IBS that
noncommercial webcasting is a distinct segment of the noninteractive
webcasting market for which a willing buyer/willing seller hypothetical
marketplace would produce different, lower rates than we have
determined hereinabove for commercial webcasters. SX PFF at ]] 489-90;
IBS PFF at ]] 4, 26. There is also no dispute that the boundary of that
submarket is marked by 159,140 ATH per month per station or channel and
that any noncommercial webcaster exceeding this limitation should pay
the commercial rates adopted in this proceeding for the overage. SX PFF
at ] 489; IBS PFF at ] 26. There is a dispute as to the annual $500
minimum, recoupable fee (i.e., the flat fee rate) proposed by
SoundExchange and adopted by the Judges in the Webcaster II proceeding.
See 75 FR 56873 (September 17, 2010) (Remand order). IBS contends that
many of its members cannot afford the fee and will cease webcasting
activities, but it did not provide any financial records, data or other
information, beyond bare allegations of its counsel and Mr. Kass, to
support its claim. To the contrary, financial data obtained from IBS'
witness John E. Murphy, General Manager of WHUS, licensed to the
University of Connecticut, revealed that in 2009 WHUS generated total
revenues of $527,364.21 and had a profit of $87,041.55. 4/21/10 Tr. at
583:1-586:12 (Murphy).\29\ Mr. Murphy was the only witness to present
radio station financial data. Even Mr. Kass' statement that the average
operating budget of IBS members is $9,000, though wholly unsupported by
documentation, does not demonstrate a lack of ability to pay.\30\ Three
hundred and five noncommercial webcasters paid SoundExchange the $500
minimum fee in 2009 pursuant to the decision in Webcaster II, with an
additional 58
[[Page 13042]]
services paying more for exceeding the ATH cap or streaming more than
one station or channel. 75 FR 56874 (September 17, 2010) (Remand
order). Twenty-four noncommercial educational stations endorsed the
SoundExchange-CBI agreement which contains the same flat $500 fee. See
supra at Section III.A. In sum, we reject IBS' contention that the $500
fee is not affordable and cannot represent what a willing buyer would
pay in the hypothetical marketplace.
---------------------------------------------------------------------------
\29\ It was revealed that WHUS did not pay any statutory license
fees in 2009 nor did it file required reports of use. 4/21/10 Tr. at
579:21-582:3, 594:5-600:2 (Murphy).
\30\ Interestingly, IBS members pay an annual $125 membership
fee to IBS, and pay $85 per person, or $480 per station, to attend
IBS' annual conference in New York City, plus the cost of hotel
rooms. 4/21/10 Tr. at 593:12-594:3 (Murphy).
---------------------------------------------------------------------------
Having rejected in toto the contentions and claims of IBS,\31\ we
are persuaded that the presentation of SoundExchange best represents
the rates that would be paid in the willing buyer/willing seller
hypothetical marketplace for noncommercial webcasting. The annual
minimum fee of $500 per station or channel functions as the royalty
payable for usage of sound recordings up to 159,140 ATH per month. This
flat fee is the same that we adopted in Webcaster II and, as discussed
above, is demonstrably affordable to noncommercial webcasters. We find
that the SoundExchange-CBI agreement, which contains the very same fee
and rate structure, and the 24 comments supporting it are corroborative
evidence that our determination satisfies the statutory standard. As a
minimum fee, and mindful of the Court of Appeals' admonition regarding
evidence of administrative costs administering the licenses,
Intercollegiate Broadcast System, Inc. v. Copyright Royalty Bd., 574
F.3d at 761 (DC Cir. 2009), we are persuaded that the testimony of Ms.
Kessler as to estimates of average administrative costs per licensee
shows that a $500 minimum fee for noncommercial webcasters is more than
reasonable. SX PFF at ] 484; see also 75 FR 56874 (September 17, 2010)
(Remand order).
---------------------------------------------------------------------------
\31\ In its proposed findings, and for the first time in this
proceeding, IBS contends that ``Congress in Section 114(f)(2)
intended that the minimum rate be tailored to the type of service in
accord with the general public policy favoring small businesses,''
and that as a consequence the Judges are required under the
Regulatory Flexibility Act, 5 U.S.C. 601(6), to determine whether
the $500 fee unnecessarily burdens IBS' members. IBS PFF
(Reformatted) at ]] 10-13. There is no support in the text or
legislative history of the Copyright Act for the proposition that
section 114(f)(2) favors small businesses, and, indeed, IBS does not
supply any. To the contrary, section 114(f)(2)(B) is very clear as
to our task in this proceeding: To fashion rates (and terms) that
``most clearly represent the rates and terms that would have been
negotiated in the marketplace between a willing buyer and a willing
seller.'' IBS has also failed to support its contention that the
Judges must conduct a Regulatory Flexibility Act assessment of
impact of the $500 fee on IBS' members in particular. IBS has not
supplied the Judges with any evidence to adduce whether its members
are ``small entities'' within the meaning of 5 U.S.C. 601--IBS has
not supplied us with any documentary evidence of its membership,
even their names--nor has it demonstrated that the Regulatory
Flexibility Act applies to rate proceedings before the Judges. See 5
U.S.C. 601(2) (exempting from the definition of a rule of a
government agency ``a rule of particular applicability relating to
rates''); c.f. American Moving and Storage Assoc. v. DOD, 91
F.Supp.2d 132, 136 (D.D.C. 2000) (exception for ``a rule of
particular applicability relating to rates'' is explicit and broad).
In any event, the Judges did consider the circumstances of
noncommercial webcasters, discussed above, in establishing the $500
fee.
---------------------------------------------------------------------------
3. The Section 112 Noncommercial Webcaster Rates Determined by the
Judges
Although there is not a stipulation as to the rates for the section
112 license for noncommercial webcasters as there is for commercial
webcasters, supra at Section II.B.1, there is no disagreement between
SoundExchange and IBS. SoundExchange proposes the same bundled rate
approach for both the section 112 and 114 rights, five percent of which
is allocated as the section 112 royalty for making ephemeral copies,
and IBS endorses the proposal. SX PFF at ]] 671; IBS PFF at ] 24. The
testimony offered by SoundExchange supports this proposal and we adopt
it. SX PFF at ]] 672-688.
IV. Terms
The standard for setting terms of payment is what the record
reflects would have been agreed to by willing buyers and willing
sellers in the marketplace. Webcaster II, 72 FR 24102 (May 1, 2007);
see also Webcaster I, 67 FR 45266 (July 8, 2002). In Webcaster II, we
further established that we are obligated to ``adopt royalty payment
and distribution terms that are practical and efficient.'' Webcaster
II, 72 FR 24102 (May 1, 2007). The parties each submitted proposals of
the terms that they believe satisfy both of these requirements.\32\
SoundExchange based its proposal generally on the current terms as
adopted in Webcaster II and the proceeding setting the sections 112 and
114 rates and terms for preexisting satellite digital audio radio
services, with certain revisions, and proposed conforming editorial
changes to the webcasting terms in light of changes made in that
proceeding. SX PFF at ] 549. Live365 proposed changes to the
definitions of two terms in Sec. 380.2 of the current webcasting
regulations.\33\ Live365 PFF at ]] 382-87; Live365 PCL at ]] 77-79. IBS
proposed terms for noncommercial webcasters. IBS PFF at ] 26.
---------------------------------------------------------------------------
\32\ CBI's proposal consisted of the terms contained in the
agreement with SoundExchange submitted for adoption by the Judges.
Since we are adopting that agreement, see supra at Section III.A.,
CBI's proposal will not be discussed here.
\33\ Live365's request for an aggregator discount initially was
proposed as a term. However, as discussed supra at Section II.B.5.,
the aggregator discount was handled in the section on proposed rates
and thus will not be discussed here. See also, 9/30/10 Tr. at 615:5-
22 (Live365 Closing Argument).
---------------------------------------------------------------------------
SoundExchange and Live365 also stipulated to certain terms. See
Stipulation of SoundExchange, Inc. and Live365, Inc. Regarding Certain
Proposed Terms, Docket No. 2009-1 CRB Webcasting III (September 10,
2010) (``Joint Stipulation'').
When adopting royalty terms, we also strive, where possible, to
maintain consistency across the licenses set forth in sections 112 and
114 in order to maximize efficiency in and minimize the overall costs
associated with the administration of the license. Determination of
Rates and Terms for Preexisting Subscription Services and Satellite
Digital Audio Radio Services (Final rule and order), 73 FR 4080, 4098
(January 28, 2008) (``SDARS''). However, this goal is not overriding.
We will vary terms across the licenses where a party can demonstrate
the need for and the benefits of such variance. Id.
A. Collective
SoundExchange requests to be named the sole collective for the
collection and distribution of royalties paid by commercial and
noncommercial webcasters under the sections 112 and 114 licenses for
the period 2011-2015. SX PFF at ] 602; Second Revised Rates and Terms
of SoundExchange, Inc., Docket No. 2009-1 CRB Webcasting III, at
Proposed Regulations Sec. 380.4(b) (July 23, 2010). Live365 takes no
position regarding SoundExchange's request, Live365 RFF at ] 602, and
IBS does not appear to object, given its rate proposal refers to
SoundExchange as the collective. See Amplification of IBS' Restated
Rate Proposal, Docket No. 2009-1 CRB Webcasting III, at 2 (July 29,
2010).
We have determined previously that designation of a single
Collective ``presents the most economically and administratively
efficient system for collecting royalties under the blanket license
framework created by the statutory licenses.'' Webcaster II, 72 FR
24104 (May 1, 2007); see also SDARS, 73 FR 4099 (January 24, 2008). No
party has submitted evidence that would compel us to alter that
determination here. Indeed, no party requested the designation of
multiple collectives, and SoundExchange was the only party requesting
to be selected as a collective.\34\
---------------------------------------------------------------------------
\34\ As noted supra at n.4, RLI filed a written direct statement
but did not present oral testimony; therefore, their written direct
statement was not considered. In any event, RLI did not seek
designation as a Collective.
---------------------------------------------------------------------------
[[Page 13043]]
SoundExchange (and its predecessor) has served as the Collective
for the collection, processing and distribution of royalty payments
made under the sections 112 and 114 statutory licenses since their
inception thereby accumulating a wealth of knowledge and expertise in
administering these licenses. See Kessler Corrected WDT at 4. Moreover,
SoundExchange's designation as the sole Collective is supported by
artists and copyright owners. See Roberts Hedgpeth WDT at 1-2; McCrady
WDT at 19. This coupled with the absence of any opposition or record
evidence to suggest that SoundExchange should not serve in that
capacity here leads us to designate SoundExchange as the Collective for
the 2011-2015 license period.
B. Stipulated Terms and Technical and Conforming Changes
On September 10, 2010, SoundExchange and Live365 submitted a
stipulation regarding certain proposed terms in the Proposed
Regulations appearing as an attachment to Second Revised Proposed Rates
and Terms of SoundExchange, Inc. filed July 23, 2010. In several
instances, they have stipulated that current provisions of the
webcasting terms will remain unchanged. For example, SoundExchange and
Live365 agree that the current definitions of the following terms in
Sec. 380.2 shall remain unchanged: ``Commercial Webcaster,''
``Copyright Owners,'' ``Ephemeral Recording,'' ``Noncommercial
Webcaster,'' ``Performers,'' and ``Qualified Auditor.'' Joint
Stipulation, Exhibit A at 2-4 (September 10, 2010). Similarly, the
current provisions of Sec. 380.5 will remain unchanged. Id. at 9-11.
In other instances, stipulated terms consist of eliminating
provisions which were solely applicable to the 2006-2010 license period
(see, e.g., Sec. 380.4(d)) and reflecting changes necessitated by the
adoption of the NAB-SoundExchange and SoundExchange-CBI agreements
(see, e.g., Sec. 380.2 definition of ``Licensee''). Id. at 3, 8.
We find that the stipulated terms constitute for the most part
technical and non-controversial changes that will add to the clarity of
the regulations adopted today. Therefore, we are adopting the terms
stipulated to by SoundExchange and Live365.
For these same reasons, we are adopting the technical and
conforming changes proposed by SoundExchange, and not opposed by any
party, in Section IV of their Second Revised Rates and Terms, filed
July 23, 2010.
We now turn to those contested terms proposed for Commercial
Webcasters.
C. Contested Terms for Commercial Webcasters
1. Terms Proposed by Live365
Live365 proposes changes to the definitions of two terms in Sec.
380.2, namely, ``performance'' and ``aggregate tuning hours.'' \35\
Live365 PFF at ] 387 and PCL at ] 79. Specifically, Live365 proposes to
modify the definition of ``performance'' to ``exclude any performances
of sound recording that are not more than thirty (30) consecutive
seconds.'' Live365 PFF at ] 387. According to Live365, this proposed
modification conforms the definition of ``performance'' in Sec. 380.2
to that of a ``performance'' or ``play'' as defined in the four
interactive service agreements reviewed by Dr. Pelcovits. Id. Live365
also contends that past precedent has excluded partial performances
from ``royalty-bearing'' performances, citing to the Librarian's
adoption of a settlement agreement among SoundExchange, AFTRA, the
American Federation of Musicians of the United States and Canada, and
Digital Media Association which excluded from payment performances that
suffered technical interruptions or the closing down of a media player
or channel switching. Live365 PCL at ] 78, citing Digital Performance
Right In Sound Recordings And Ephemeral Recordings, Docket Nos. 2002-1
CARP DTRA3 & 2001-2 CARP DTNSRA, 74 FR 27506, 27509 (May 20, 2003).
---------------------------------------------------------------------------
\35\ In the proposed regulations attached to its proposed
findings of fact, Live365 included an additional term: A proposed
deadline for the completion and issuance of a report regarding an
audit to verify royalty payments. See Attachment to Live365's
Proposed Findings of Fact and Conclusions of Law, Sec. 380.6(g).
Since this proposal was not discussed in its proposed findings of
fact and Live365 presented no evidence to support the need for such
a term, we decline to adopt it.
---------------------------------------------------------------------------
Similarly, Live365 seeks to revise the current definition of
``aggregate tuning hours'' to exclude programming that does not contain
sound recordings such as talk, sports, and advertising not containing
sound recordings. Live365 PCL at ] 79. Live365 justifies its request by
asserting that ``programming without sound recordings should not be
subject to consideration in regulations dealing with a royalty to be
paid for the use of sound recordings.'' Id.
SoundExchange vehemently opposes adoption of either proposed
modification. First, SoundExchange contends that these proposed
modifications constitute new terms, not a revision to an existing
proposal, in violation of Sec. 351.4(b)(3) which allows for revision
of a rate proposal at any time up to and including submission of
proposed findings of fact.\36\ SX RFF at ] 223. Next, SoundExchange
asserts that Live365's citation to the four interactive service
agreements without more does not provide sufficient record support for
either the need for or benefit of this request. Id. at ]] 226-228. With
regard to the request to redefine ``aggregate tuning hours,''
SoundExchange argues that Live365 fails to point to anything in the
record explaining, much less supporting, the need for such proposal.
Id. at ]] 231-232. Finally, SoundExchange points to Live365's failure
to consider the potential effect of its definition of ``performance''
on the per-performance rate as yet another reason not to accept
Live365's proposal. Id. at ] 230. Were Live365's definition adopted,
SoundExchange contends that an upward adjustment would be needed to the
per-performance rate since neither Drs. Pelcovits nor Fratrik excluded
performances of less than 30 seconds in the calculation of their
respective per-performance rates.\37\ Id.
---------------------------------------------------------------------------
\36\ We need not address the validity of this argument since we
decline to adopt this term on other grounds.
\37\ According to SoundExchange, the upward adjustment would
result from a reduction in the number of plays in the calculation of
a per-performance rate. SX RFF at ] 230.
---------------------------------------------------------------------------
The Judges decline to adopt either of Live365's proposed
definitions. Live365 has provided insufficient record support for
either of its proposals. This is especially true with regard to its
proposed definition of ``aggregate tuning hours.'' It appears for the
first time in Live365's proposed conclusions of law without any
citation to the record or any substantive explanation as to why such a
change is needed or what benefits would result from its adoption. All
Live365 has provided is the unsupported assertions of counsel. Thus,
Live365 has not met its burden regarding adoption of this term. See
SDARS, 73 FR 4101 (January 28, 2008) (refusal to adopt bare proposals
unsupported by record evidence).
Likewise, Live365 has not met its burden with respect to adoption
of its proffered definition of ``performance.'' Neither the mere
citation to the four interactive service agreements in the record here
without more nor a reference to a settlement agreement adopted by the
Librarian in a CARP proceeding demonstrates that a willing buyer and a
willing seller would agree to such a term in the non-interactive
market. Live365 simply states that its
[[Page 13044]]
requested definition conforms to the definitions of ``performance'' and
``play'' in the agreements reviewed by Dr. Pelcovits with no discussion
of or cited support for why such conformance is needed or beneficial or
even appropriate here.
Live365's reference to adoption by the Librarian of the settlement
agreement in a prior CARP proceeding is unpersuasive. As with its
proposal regarding aggregate tuning hours, this justification is
offered for the first time in Live365's proposed conclusions of law.
Thus, like its proposed definition for aggregate tuning hours, the
proffered justification amounts to nothing more than an unsupported
argument of counsel.
More importantly, as SoundExchange correctly observes, since
neither Dr. Pelcovits nor Dr. Fratrik excluded performances from the
calculation of their respective per-performance rates, there would be
fewer plays in such calculations, thereby necessitating an upward
adjustment to the per-performance rates. Live365 never acknowledges
this effect much less addresses how to make the adjustment. See SX RFF
at ] 230. The lack of supportive evidence presented by Live365 when
combined with the potential problematic effect on the per-performance
rates requires rejection of this term.
2. Terms Proposed by SoundExchange
SoundExchange proposes several terms. We note at the outset that
several of SoundExchange's proposed terms are contained in some or all
of the WSA agreements, including the NAB-SoundExchange and
SoundExchange-CBI agreements adopted herein. Parties are free to agree
to whatever terms they choose. When such agreement is submitted to the
Judges for adoption, we are obligated to adopt said agreement in the
absence of objections after publication in the Federal Register. 17
U.S.C. 801(b)(7)(A); see supra at Section II.A. However, when parties
litigate over the adoption of a term, even one that is contained in an
adopted agreement, the requesting party must meet its burden with
respect to the standards set forth supra.
Evaluating SoundExchange's proposals in this light, we find that
SoundExchange has not met its burden.
a. Server Log Retention
SoundExchange urges the Judges to clarify that server logs are
among the records to be retained for three years pursuant to Sec.
380.4(h) and to be made available during an audit conducted pursuant to
Sec. 380.6. See Second Revised Rates and Terms of SoundExchange, Inc.,
Section III.A., Proposed Regulations, Sec. 380.4(h) (July 23, 2010);
Kessler Corrected WDT at 27. Although SoundExchange believes that
retention of these records is required under the current regulations,
it requests an amendment to include server logs since oftentimes such
logs are not retained. SX PFF at ]] 556-57; Kessler Corrected WDT at
27. SoundExchange asserts that ``[t]he evidence indicates marketplace
acceptance of such a term,'' citing to the SoundExchange-CBI agreement
which contains an equivalent term. SX PFF at ] 555.
In its opposition to this term, Live365 notes that neither the NAB-
SoundExchange agreement nor the Commercial Webcasters agreement
contains this term nor do any of the interactive service agreements
submitted in this proceeding. Live365 RFF at ] 555. Live365 further
argues that SoundExchange failed to establish how the benefits to
SoundExchange of this term outweigh the burden on licensees to comply.
Id. at ] 557.
Section 380.4(h), which governs the retention of records, requires
licensees to retain ``books and records'' relating to royalty payments.
The language does not include server logs and SoundExchange's
assumption that it does is incorrect. The question remains, however,
whether server logs should be included, and the Judges answer in the
negative because the record evidence does not support such a finding.
None of the interactive agreements in evidence here contain such
specificity. Live365 Exs. 17 and 18; McCrady WDT, Exs. 104-DR & 106-DR.
Rather, the agreements require licensees only to retain records
relating to their obligations under the agreement and in terms no more
specific than in the current regulation. See, e.g., Live365 Exs. 17 at
] 7(h) and Ex. 18 at ] 7(h); McCrady WDT, Exs. 104-DR at ] 6(j) and
106-DR at ] 4(h). Since these agreements were negotiated in a setting
free from the constraints of the regulatory scheme, they provide the
best evidence of the agreement of a willing buyer and a willing seller
in this respect.
We disagree with SoundExchange's assertion that inclusion of this
term in the SoundExchange-CBI WSA agreement constitutes ``marketplace
acceptance.'' As discussed supra and as acknowledged by SoundExchange,
such agreements were reached under atypical marketplace conditions,
since their negotiations were overshadowed by the possibility of a
regulatory proceeding. See supra at Section II.B.3.b.ii.; see also 9/
30/10 Tr. at 547:20-548:5 (SoundExchange Closing Argument).
Furthermore, while the SoundExchange-CBI agreement contains the term,
the NAB-SoundExchange and Commercial Webcasters agreements do not
despite the assertion of Ms. Kessler that server logs contain data that
is ``critical for verifying that licensees have made the proper
payments.'' Kessler Corrected WDT at 27; see also 4/20/10 Tr. at
455:15-17 (Kessler). If such data is ``critical,'' it is difficult to
understand why server logs were not included in the NAB-SoundExchange
and Commercial Webcasters agreements, particularly where these
agreement were negotiated by SoundExchange and cover ``webcasters
representing a substantial part of [the webcasting] market.'' 9/30/10
Tr. at 508:3-4 (SoundExchange Closing Argument); see supra at Section
II.B.3.b.ii.
Finally, retention of server logs for a three-year period may
present significant issues to webcasters regarding storage and costs.
No evidence was adduced by SoundExchange as to these important
considerations, and the Judges are hesitant to adopt a term without
such data. In sum, SoundExchange's request for retention of server logs
appears to be more of a want than a need, and we decline to amend Sec.
380.4(h) of our rules.
b. Standardized Forms for Statements of Account
SoundExchange proposes to require licensees to submit statements of
account on a standardized form prescribed by SoundExchange in order to
simplify licensees' calculations of the royalties owed and to
facilitate SoundExchange's ability to efficiently collect information
from licensees. SX PFF at ]] 572, 575. SoundExchange currently provides
a template statement of account on its Web site. Id. at ] 574.
SoundExchange notes that noncommercial educational webcasters are
required pursuant to their WSA agreement to use a form supplied by
SoundExchange. McCrady WDT, Ex. 103-DP at section 4.4.1.
Live365 opposes adoption of this term on the grounds that it is
addressed more appropriately in a notice and recordkeeping proceeding.
Live365 RFF at ] 574.
We are not persuaded that a need for mandatory use of a
standardized statement of account exists at this time nor do we find
support in the record for adoption of this term. As Mr. Funn testified,
the majority of webcasters currently use the template form made
available on SoundExchange's Web site. Funn WRT at 2; 8/2/10 Tr. at
492:2-3 (Funn) (``much more than half'' of
[[Page 13045]]
webcasters currently use template). Mr. Funn provided no information
quantifying the additional work for SoundExchange to process a
statement of account for the few webcasters who choose not to use the
template. The only example given in this regard focused on Live365 and
its submission of an altered form using incorrect rates, which is
irrelevant to SoundExchange's request. See Funn WDT at 3-4; 8/2/10 Tr.
at 465:19-22 (Funn).
Our skepticism regarding the need to require use of a standardized
form also stems from the fact that neither the NAB-SoundExchange WSA
agreement nor the Commercial Webcasters WSA agreement contains this
term. McCrady WDT, Exs. 101-DP and 102-DP. Moreover, although the
SoundExchange-CBI WSA agreement requires use of a SoundExchange-
supplied form, see McCrady WDT, Ex. 103-DP at section 4.4.1, such
language was not included in the SoundExchange-CBI agreement submitted
to the Judges and adopted herein. See Digital Performance Right in
Sound Recordings and Ephemeral Recordings (Proposed rule), 75 FR 16377,
16385 (Sec. 380.23(f)) (April 1, 2010).
Given the already widespread use of SoundExchange's template form,
the lack of quantification in the record of the time savings to
SoundExchange by having a standardized form, and SoundExchange's
failure to include this term in the NAB-SoundExchange and Commercial
Webcasters WSA agreements or the SoundExchange-CBI agreement submitted
to the Judges, we find that the record before us does not support the
adoption of this term.
c. Electronic Signature on Statement of Account
SoundExchange seeks to eliminate the requirement in the current
Sec. 380.4(f)(3) of a handwritten signature on the statement of
account. SX PFF at ] 576. According to SoundExchange, allowing
electronic signatures would make it easier for licensees to submit
their statements of account. Id., citing Funn WRT at 3 n.1.
SoundExchange further asserts that ``none [of the WSA agreements in
evidence] requires that statements of account bear a handwritten
signature.'' SX PFF at ] 577.
Live365 does not oppose this request as its own proposed
regulations eliminate the requirement for a handwritten signature on
the statement of account. See Attachment to PFF, Proposed Regulations,
Sec. 380.4(f)(3).
The Judges determine that the record evidence does not support
adoption of this term. The WSA agreements, as submitted as exhibits to
Mr. McCrady's written direct testimony do, despite SoundExchange's
assertions to the contrary, require a handwritten signature on a
statement of account. SoundExchange is correct that each agreement
requires statements of account to be provided each month, although
neither agreement sets forth the specific information to be included.
See McCrady WDT, Ex. 101-DP at section 4.6 (NAB), Ex. 102-DP at section
4.5 (Commercial Webcasters), and Ex. 103-DP at section 4.4.1 (CBI).
However, SoundExchange ignores the provision in each agreement which
states ``[t]o the extent not inconsistent with the Rates and Terms
herein, all applicable regulations, including 37 CFR Parts 370 and 380,
shall apply to activities subject to these Rates and Terms.'' See
McCrady WDT, Ex. 101-DP at section 6.1 (NAB), Ex. 102-DP at section 5.1
(Commercial Webcasters) and Ex. 103-DP at section 6.1 (CBI). Current
Sec. 380.4(f)(3) requires a handwritten signature; such requirement is
not inconsistent with the agreements' general requirement to simply
submit statements of account. Our interpretation is confirmed by the
fact that the NAB-SoundExchange and SoundExchange-CBI WSA agreements
submitted to the Judges for adoption here each retained the requirement
for a handwritten signature. See Proposed rule, 75 FR 16380 (Sec.
380.13(f)(3)), 16385 (Sec. 380.23(f)(4)) (April 1, 2010). Since we are
adopting those provisions as proposed on April 1, 2010, to accept
SoundExchange's proposal here would create an inconsistency in terms
that does not exist currently.
d. Identification of Licensees and Late Fee for Reports of Use
SoundExchange requests that the Judges harmonize identification of
licensees among the notice of intent to use the sections 112 and 114
licenses, the statements of account and the reports of use, and to
impose a late fee for reports of use. These two requests differ from
the rest of their requests in that these are notice and recordkeeping
terms.38 39 See Kessler Corrected WDT at 20-23, 27-28. This
is not the first time we have been asked to adopt terms regarding
notice and recordkeeping in this context. Webcaster II, 72 FR 24109
(May 1, 2007); SDARS, 73 FR 4101 (January 28, 2008). While the
Copyright Act grants us the authority to adopt such terms here (said
terms would supersede those set forth in 37 CFR Part 370), such
authority is discretionary. 17 U.S.C. 803(c)(3). To date, we have
declined to exercise this discretion. Webcaster II, 72 FR at 24109-10
(May 1, 2007); SDARS, 73 FR at 4101 (January 28, 2008).
---------------------------------------------------------------------------
\38\ SoundExchange requested these same, or similar, changes in
a rulemaking concluded last year where we imposed census reporting
for all services except those broadcasters paying no more than the
minimum fee. See Comments of SoundExchange, Docket No. RM 2008-7, at
20-23 (January 29, 2009). Such requests were outside the scope of
that rulemaking, which was to improve the reporting regulations in
light of technological developments since promulgation of the
interim regulation, and were deferred for consideration in a future
rulemaking. See Notice and Recordkeeping for Use of Sound Recordings
Under Statutory License (Final rule), 74 FR 52418, 52422-23 (October
13, 2009).
\39\ Ms. Kessler acknowledges, at least with respect to the late
fees for reports of use, that such proposals could be implemented in
either the notice and recordkeeping regulations or in the license
terms. Kessler Corrected WDT at 28.
---------------------------------------------------------------------------
Our prior refusals stemmed from our findings that the issues
presented, such as census reporting, were more appropriately addressed
in the context of a rulemaking proceeding and that ``no persuasive
testimony compelling an adjustment of the current recordkeeping
regulations'' was presented in either instance. SDARS, 73 FR 4101
(January 28, 2008), citing Webcaster II, 72 FR 24110 (May 1, 2007). In
light of the record before us, we decline to adopt SoundExchange's
proposals regarding the harmonization of licensee identification and
the imposition of a late fee for reports of use because the evidence
does not compel us to amend the current recordkeeping regulations here;
rather, these issues are more appropriately addressed in a future
rulemaking proceeding, for the reasons discussed below.
i. Identification of Licensees
SoundExchange asserts that harmonization of the identification of
licensees can be accomplished by (1) requiring licensees to identify
themselves on their statements of account and reports of use ``in
exactly the same way [they are] identified on the corresponding notice
of use * * * and that they cover the same scope of activity (e.g., the
same channels or stations),'' SX PFF at ] 568, Kessler Corrected WDT at
28; (2) making the regulations clear that the ``Licensee'' is ``the
entity identified on the notice of use, statement of account, and
report of use and that each Licensee must submit its own notice of use,
statement of account, and report of use,'' id. (emphasis in original);
and (3) requiring licensees to use an account number issued by
SoundExchange. Id. at ] 571. In support of these requests, Ms. Kessler
testified that these proposals would allow SoundExchange to more
quickly and efficiently match the requisite
[[Page 13046]]
notice of use, statement of account and report of use to the correct
licensee. Kessler Corrected WDT at 29; 4/20/10 Tr. at 461:2-8
(Kessler). She also claims that such requirements would impose ``little
or no evident cost'' to licensees, and licensees' accounting and
reporting efforts would be simplified by use of an account number.
Kessler Corrected WDT at 29. SoundExchange also points out that these
proposals are included in the NAB-SoundExchange and SoundExchange-CBI
agreements.\40\ SX PFF at ] 569.
---------------------------------------------------------------------------
\40\ We note that neither agreement mandates the use of an
account number.
---------------------------------------------------------------------------
While Live365 does not dispute SoundExchange's proposed findings of
fact on this issue, it did not stipulate to the language provided by
SoundExchange.
These claims are not sufficiently supported in the record. For
instance, there is nothing in the record that supports Ms. Kessler's
assertion regarding the potential costs, or lack thereof, to licensees
in complying with such a requirement. Without input from licensees
regarding such information, we are reluctant to adopt such a proposal.
Similarly, there is insufficient evidence to support mandating the use
of an account number. None of the WSA agreements in evidence contain
such a provision. McCrady WDT, Exs. 101-DP (NAB), 102-DP (Commercial
Webcasters) and 103-DP (CBI). All that exists is Ms. Kessler's
assertion that use of an account number may simplify a licensee's
accounting and reporting. Kessler Corrected WDT at 29. Moreover, while
the SoundExchange-CBI agreement as adopted herein requires that
statements of account list the licensee's name as it appears on the
notice of use, see Sec. 380.23(f)(1), it does not impose that
requirement with regard to reports of use. Compare McCrady Ex. 103-DP,
section 5.2.2 with Sec. 380.23(g). Thus, even if we adopted
SoundExchange's proposal, there would still be an inconsistency within
the webcasting regulations. We are, therefore, not persuaded that such
a proposal should be adopted here; rather, this issue is more
appropriately addressed in a future rulemaking proceeding.
ii. Late Fee for Reports of Use
SoundExchange seeks the imposition of the same late fee of 1.5% for
reports of use as currently exists for late payments and statements of
account. See 37 CFR 380.4(c). In support of its request, SoundExchange
proffered the testimony of Ms. Kessler. She testified that currently
there is widespread noncompliance with reporting requirements, either
failure to file a report of use at all or provision of late and/or
``grossly inadequate'' reports. Kessler Corrected WDT at 28. Given that
a report of use is ``a critical element in the fair and efficient
distribution of the royalties,'' 4/20/10 Tr. at 458:21-22 (Kessler),
such noncompliance significantly hampers SoundExchange's ability to
timely distribute the royalties. Kessler Corrected WDT at 28. Ms.
Kessler further noted ``that late fees in other areas does [sic] help
with our compliance situation.'' 4/20/10 Tr. at 458:19-20 (Kessler).
SoundExchange also points to the inclusion of a late fee for untimely
reports of use in the NAB-SoundExchange and SoundExchange-CBI WSA
agreements as further support for its request. SX PFF at ] 564.
Live365 questions SoundExchange's characterization of a payment as
being useless without a report of use given that both the NAB-
SoundExchange and CBI-SoundExchange agreements contain reporting
waivers. Live365 RCL at ] 20.
We are not persuaded by the record before us that there is a need
to adopt a late fee for reports of use in this context. The record
evidence does not show that a willing buyer and a willing seller would
agree to a late fee with respect to reporting, as none of the
interactive agreements in evidence contain such a term. Live365 Exs.
17, 18; McCrady WDT, Exs.104-DR and 106-DR. Although the NAB-
SoundExchange and SoundExchange-CBI WSA agreements do contain the late
fee, they were negotiated under the shadow of a regulatory proceeding,
and we note that this late fee was not included in the Commercial
Webcasters WSA agreement negotiated by SoundExchange.
D. Contested Terms for Noncommercial Webcasters
IBS has proposed two terms. The first is an exemption from the
recordkeeping reporting requirements for the small and very small
noncommercial webcaster subcategories it proposed in its rate request.
As discussed, supra, the Judges declined to recognize the proffered
subcategories, thus making IBS' request for recordkeeping reporting
exemptions moot. The second term proposed by IBS is an express
authorization that SoundExchange ``may elect to accept collective
payments on behalf of small and very small noncommercial webcasters.''
IBS PFF at ] 26. This request is also moot.\41\
---------------------------------------------------------------------------
\41\ Even if the request were not moot, it seems unnecessary.
SoundExchange is authorized, by virtue of its recognition as the
collective under the sections 112 and 114 licenses, to accept
payments on behalf of copyright owners, from one or more users of
the licenses.
---------------------------------------------------------------------------
V. Determination and Order
Having fully considered the record, the Copyright Royalty Judges
make the above Findings of Fact based on the record. Relying on these
Findings of Fact, the Copyright Royalty Judges unanimously adopt this
Final Determination of Rates and Terms for the statutory licenses for
the digital audio transmission of sound recordings, pursuant to 17
U.S.C. 114, and for the making of ephemeral phonorecords, pursuant to
17 U.S.C. 112(e), for the license period 2011-2015.
So ordered.
Dated: January 5, 2011.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
William J. Roberts, Jr.,
U.S. Copyright Royalty Judge.
Stanley C. Wisniewski,
U.S. Copyright Royalty Judge.
List of Subjects in 37 CFR Part 380
Copyright, Sound recordings.
Final Regulations
For the reasons set forth in the preamble, the Copyright Royalty
Judges revise part 380 of title 37 of the Code of Federal Regulations
to read as follows:
PART 380--RATES AND TERMS FOR CERTAIN ELIGIBLE NONSUBSCRIPTION
TRANSMISSIONS, NEW SUBSCRIPTION SERVICES AND THE MAKING OF
EPHEMERAL REPRODUCTIONS
Subpart A--Commercial Webcasters and Noncommercial Webcasters
Sec.
380.1 General.
380.2 Definitions.
380.3 Royalty fees for the public performance of sound recordings
and for ephemeral recordings.
380.4 Terms for making payment of royalty fees and statements of
account.
380.5 Confidential Information.
380.6 Verification of royalty payments.
380.7 Verification of royalty distributions.
380.8 Unclaimed funds.
Subpart B--Broadcasters
380.10 General.
380.11 Definitions.
380.12 Royalty fees for the public performance of sound recordings
and for ephemeral recordings.
380.13 Terms for making payment of royalty fees and statements of
account.
380.14 Confidential Information.
380.15 Verification of royalty payments.
380.16 Verification of royalty distributions.
380.17 Unclaimed funds.
[[Page 13047]]
Subpart C--Noncommercial Educational Webcasters
380.20 General.
380.21 Definitions.
380.22 Royalty fees for the public performance of sound recordings
and for ephemeral recordings.
380.23 Terms for making payment of royalty fees and statements of
account.
380.24 Confidential Information.
380.25 Verification of royalty payments.
380.26 Verification of royalty distributions.
380.27 Unclaimed funds.
Authority: 17 U.S.C. 112(e), 114(f), 804(b)(3).
Subpart A--Commercial Webcasters and Noncommercial Webcasters
Sec. 380.1 General.
(a) Scope. This subpart establishes rates and terms of royalty
payments for the public performance of sound recordings in certain
digital transmissions by Licensees as set forth in this subpart in
accordance with the provisions of 17 U.S.C. 114, and the making of
Ephemeral Recordings by Licensees in accordance with the provisions of
17 U.S.C. 112(e), during the period January 1, 2011, through December
31, 2015.
(b) Legal compliance. Licensees relying upon the statutory licenses
set forth in 17 U.S.C. 112(e) and 114 shall comply with the
requirements of those sections, the rates and terms of this subpart,
and any other applicable regulations.
(c) Relationship to voluntary agreements. Notwithstanding the
royalty rates and terms established in this subpart, the rates and
terms of any license agreements entered into by Copyright Owners and
Licensees shall apply in lieu of the rates and terms of this subpart to
transmission within the scope of such agreements.
Sec. 380.2 Definitions.
For purposes of this subpart, the following definitions shall
apply:
Aggregate Tuning Hours (ATH) means the total hours of programming
that the Licensee has transmitted during the relevant period to all
listeners within the United States from all channels and stations that
provide audio programming consisting, in whole or in part, of eligible
nonsubscription transmissions or noninteractive digital audio
transmissions as part of a new subscription service, less the actual
running time of any sound recordings for which the Licensee has
obtained direct licenses apart from 17 U.S.C. 114(d)(2) or which do not
require a license under United States copyright law. By way of example,
if a service transmitted one hour of programming to 10 simultaneous
listeners, the service's Aggregate Tuning Hours would equal 10. If 3
minutes of that hour consisted of transmission of a directly licensed
recording, the service's Aggregate Tuning Hours would equal 9 hours and
30 minutes. As an additional example, if one listener listened to a
service for 10 hours (and none of the recordings transmitted during
that time was directly licensed), the service's Aggregate Tuning Hours
would equal 10.
Broadcaster is a type of Licensee that owns and operates a
terrestrial AM or FM radio station that is licensed by the Federal
Communications Commission.
Collective is the collection and distribution organization that is
designated by the Copyright Royalty Judges. For the 2011-2015 license
period, the Collective is SoundExchange, Inc.
Commercial Webcaster is a Licensee, other than a Noncommercial
Webcaster, that makes eligible digital audio transmissions.
Copyright Owners are sound recording copyright owners who are
entitled to royalty payments made under this subpart pursuant to the
statutory licenses under 17 U.S.C. 112(e) and 114.
Ephemeral Recording is a phonorecord created for the purpose of
facilitating a transmission of a public performance of a sound
recording under a statutory license in accordance with 17 U.S.C. 114,
and subject to the limitations specified in 17 U.S.C. 112(e).
Licensee is a person that has obtained a statutory license under 17
U.S.C. 114, and the implementing regulations, to make eligible
nonsubscription transmissions, or noninteractive digital audio
transmissions as part of a new subscription service (as defined in 17
U.S.C. 114(j)(8)) other than a Service as defined in Sec. 383.2(h) of
this chapter, or that has obtained a statutory license under 17 U.S.C.
112(e), and the implementing regulations, to make Ephemeral Recordings
for use in facilitating such transmissions, but that is not--
(1) A Broadcaster as defined in Sec. 380.11; or
(2) A Noncommercial Educational Webcaster as defined in Sec.
380.21.
Noncommercial Webcaster is a Licensee that makes eligible digital
audio transmissions and
(1) Is exempt from taxation under section 501 of the Internal
Revenue Code of 1986 (26 U.S.C. 501),
(2) Has applied in good faith to the Internal Revenue Service for
exemption from taxation under section 501 of the Internal Revenue Code
and has a commercially reasonable expectation that such exemption shall
be granted, or
(3) Is operated by a State or possession or any governmental entity
or subordinate thereof, or by the United States or District of
Columbia, for exclusively public purposes.
Performance is each instance in which any portion of a sound
recording is publicly performed to a listener by means of a digital
audio transmission (e.g., the delivery of any portion of a single track
from a compact disc to one listener) but excluding the following:
(1) A performance of a sound recording that does not require a
license (e.g., a sound recording that is not copyrighted);
(2) A performance of a sound recording for which the service has
previously obtained a license from the Copyright Owner of such sound
recording; and
(3) An incidental performance that both:
(i) Makes no more than incidental use of sound recordings
including, but not limited to, brief musical transitions in and out of
commercials or program segments, brief performances during news, talk
and sports programming, brief background performances during disk
jockey announcements, brief performances during commercials of sixty
seconds or less in duration, or brief performances during sporting or
other public events and
(ii) Other than ambient music that is background at a public event,
does not contain an entire sound recording and does not feature a
particular sound recording of more than thirty seconds (as in the case
of a sound recording used as a theme song).
Performers means the independent administrators identified in 17
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C.
114(g)(2)(D).
Qualified Auditor is a Certified Public Accountant.
Side Channel is a channel on the Web site of a Broadcaster which
channel transmits eligible transmissions that are not simultaneously
transmitted over the air by the Broadcaster.
Sec. 380.3 Royalty fees for the public performance of sound
recordings and for ephemeral recordings.
(a) Royalty rates. Royalty rates and fees for eligible digital
transmissions of sound recordings made pursuant to 17 U.S.C. 114, and
the making of ephemeral recordings pursuant to 17 U.S.C. 112(e) are as
follows:
(1) Commercial Webcasters: For all digital audio transmissions,
including simultaneous digital audio retransmissions of over-the-air AM
or
[[Page 13048]]
FM radio broadcasts, and related Ephemeral Recordings, a Commercial
Webcaster will pay a royalty of: $0.0019 per performance for 2011;
$0.0021 per performance for 2012; $0.0021 per performance for 2013;
$0.0023 per performance for 2014; and $0.0023 per performance for 2015.
(2) Noncommercial Webcasters: (i) For all digital audio
transmissions totaling not more than 159,140 Aggregate Tuning Hours
(ATH) in a month, including simultaneous digital audio retransmissions
of over-the-air AM or FM radio broadcasts, and related Ephemeral
Recordings, a Noncommercial Webcaster will pay an annual per channel or
per station performance royalty of $500 in 2011, 2012, 2013, 2014, and
2015.
(ii) For all digital audio transmissions totaling in excess of
159,140 Aggregate Tuning Hours (ATH) in a month, including simultaneous
digital audio retransmissions of over-the-air AM or FM radio
broadcasts, and related Ephemeral Recordings, a Noncommercial Webcaster
will pay a royalty of: $0.0019 per performance for 2011; $0.0021 per
performance for 2012; $0.0021 per performance for 2013; $0.0023 per
performance for 2014; and $0.0023 per performance for 2015.
(b) Minimum fee--(1) Commercial Webcasters. Each Commercial
Webcaster will pay an annual, nonrefundable minimum fee of $500 for
each calendar year or part of a calendar year of the period 2011-2015
during which it is a Licensee pursuant to 17 U.S.C. 112(e) or 114. This
annual minimum fee is payable for each individual channel and each
individual station maintained by Commercial Webcasters, and is also
payable for each individual Side Channel maintained by Broadcasters who
are Commercial Webcasters, provided that a Commercial Webcaster shall
not be required to pay more than $50,000 per calendar year in minimum
fees in the aggregate (for 100 or more channels or stations). For each
such Commercial Webcaster, the annual minimum fee described in this
paragraph (b)(1) shall constitute the minimum fees due under both 17
U.S.C. 112(e)(4) and 114(f)(2)(B). Upon payment of the minimum fee, the
Commercial Webcaster will receive a credit in the amount of the minimum
fee against any additional royalty fees payable in the same calendar
year.
(2) Noncommercial Webcasters. Each Noncommercial Webcaster will pay
an annual, nonrefundable minimum fee of $500 for each calendar year or
part of a calendar year of the period 2011-2015 during which it is a
Licensee pursuant to 17 U.S.C. 112(e) or 114. This annual minimum fee
is payable for each individual channel and each individual station
maintained by Noncommercial Webcasters, and is also payable for each
individual Side Channel maintained by Broadcasters who are
Noncommercial Webcasters. For each such Noncommercial Webcaster, the
annual minimum fee described in this paragraph (b)(2) shall constitute
the minimum fees due under both 17 U.S.C. 112(e)(4) and 114(f)(2)(B).
Upon payment of the minimum fee, the Noncommercial Webcaster will
receive a credit in the amount of the minimum fee against any
additional royalty fees payable in the same calendar year.
(c) Ephemeral recordings. The royalty payable under 17 U.S.C.
112(e) for the making of all Ephemeral Recordings used by the Licensee
solely to facilitate transmissions for which it pays royalties shall be
included within, and constitute 5% of, the total royalties payable
under 17 U.S.C. 112(e) and 114.
Sec. 380.4 Terms for making payment of royalty fees and statements of
account.
(a) Payment to the Collective. A Licensee shall make the royalty
payments due under Sec. 380.3 to the Collective.
(b) Designation of the Collective. (1) Until such time as a new
designation is made, SoundExchange, Inc., is designated as the
Collective to receive statements of account and royalty payments from
Licensees due under Sec. 380.3 and to distribute such royalty payments
to each Copyright Owner and Performer, or their designated agents,
entitled to receive royalties under 17 U.S.C. 112(e) or 114(g).
(2) If SoundExchange, Inc. should dissolve or cease to be governed
by a board consisting of equal numbers of representatives of Copyright
Owners and Performers, then it shall be replaced by a successor
Collective upon the fulfillment of the requirements set forth in
paragraph (b)(2)(i) of this section.
(i) By a majority vote of the nine Copyright Owner representatives
and the nine Performer representatives on the SoundExchange board as of
the last day preceding the condition precedent in this paragraph
(b)(2), such representatives shall file a petition with the Copyright
Royalty Judges designating a successor to collect and distribute
royalty payments to Copyright Owners and Performers entitled to receive
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves
authorized the Collective.
(ii) The Copyright Royalty Judges shall publish in the Federal
Register within 30 days of receipt of a petition filed under paragraph
(b)(2)(i) of this section an order designating the Collective named in
such petition.
(c) Monthly payments. A Licensee shall make any payments due under
Sec. 380.3 on a monthly basis on or before the 45th day after the end
of each month for that month. All monthly payments shall be rounded to
the nearest cent.
(d) Minimum payments. A Licensee shall make any minimum payment due
under Sec. 380.3(b) by January 31 of the applicable calendar year,
except that payment for a Licensee that has not previously made
eligible nonsubscription transmissions, noninteractive digital audio
transmissions as part of a new subscription service or Ephemeral
Recordings pursuant to the licenses in 17 U.S.C. 114 and/or 17 U.S.C.
112(e) shall be due by the 45th day after the end of the month in which
the Licensee commences to do so.
(e) Late payments and statements of account. A Licensee shall pay a
late fee of 1.5% per month, or the highest lawful rate, whichever is
lower, for any payment and/or statement of account received by the
Collective after the due date. Late fees shall accrue from the due date
until payment and the related statement of account are received by the
Collective.
(f) Statements of account. Any payment due under Sec. 380.3 shall
be accompanied by a corresponding statement of account. A statement of
account shall contain the following information:
(1) Such information as is necessary to calculate the accompanying
royalty payment;
(2) The name, address, business title, telephone number, facsimile
number (if any), electronic mail address and other contact information
of the person to be contacted for information or questions concerning
the content of the statement of account;
(3) The handwritten signature of:
(i) The owner of the Licensee or a duly authorized agent of the
owner, if the Licensee is not a partnership or corporation;
(ii) A partner or delegee, if the Licensee is a partnership; or
(iii) An officer of the corporation, if the Licensee is a
corporation.
(4) The printed or typewritten name of the person signing the
statement of account;
(5) The date of signature;
(6) If the Licensee is a partnership or corporation, the title or
official position held in the partnership or corporation by the person
signing the statement of account;
(7) A certification of the capacity of the person signing; and
[[Page 13049]]
(8) A statement to the following effect:
I, the undersigned owner or agent of the Licensee, or officer or
partner, have examined this statement of account and hereby state
that it is true, accurate, and complete to my knowledge after
reasonable due diligence.
(g) Distribution of royalties. (1) The Collective shall promptly
distribute royalties received from Licensees to Copyright Owners and
Performers, or their designated agents, that are entitled to such
royalties. The Collective shall only be responsible for making
distributions to those Copyright Owners, Performers, or their
designated agents who provide the Collective with such information as
is necessary to identify the correct recipient. The Collective shall
distribute royalties on a basis that values all performances by a
Licensee equally based upon the information provided under the reports
of use requirements for Licensees contained in Sec. 370.4 of this
chapter.
(2) If the Collective is unable to locate a Copyright Owner or
Performer entitled to a distribution of royalties under paragraph
(g)(1) of the section within 3 years from the date of payment by a
Licensee, such royalties shall be handled in accordance with Sec.
380.8.
(h) Retention of records. Books and records of a Licensee and of
the Collective relating to payments of and distributions of royalties
shall be kept for a period of not less than the prior 3 calendar years.
Sec. 380.5 Confidential Information.
(a) Definition. For purposes of this subpart, ``Confidential
Information'' shall include the statements of account and any
information contained therein, including the amount of royalty
payments, and any information pertaining to the statements of account
reasonably designated as confidential by the Licensee submitting the
statement.
(b) Exclusion. Confidential Information shall not include documents
or information that at the time of delivery to the Collective are
public knowledge. The party claiming the benefit of this provision
shall have the burden of proving that the disclosed information was
public knowledge.
(c) Use of Confidential Information. In no event shall the
Collective use any Confidential Information for any purpose other than
royalty collection and distribution and activities related directly
thereto.
(d) Disclosure of Confidential Information. Access to Confidential
Information shall be limited to:
(1) Those employees, agents, attorneys, consultants and independent
contractors of the Collective, subject to an appropriate
confidentiality agreement, who are engaged in the collection and
distribution of royalty payments hereunder and activities related
thereto, for the purpose of performing such duties during the ordinary
course of their work and who require access to the Confidential
Information;
(2) An independent and Qualified Auditor, subject to an appropriate
confidentiality agreement, who is authorized to act on behalf of the
Collective with respect to verification of a Licensee's statement of
account pursuant to Sec. 380.6 or on behalf of a Copyright Owner or
Performer with respect to the verification of royalty distributions
pursuant to Sec. 380.7;
(3) Copyright Owners and Performers, including their designated
agents, whose works have been used under the statutory licenses set
forth in 17 U.S.C. 112(e) and 114 by the Licensee whose Confidential
Information is being supplied, subject to an appropriate
confidentiality agreement, and including those employees, agents,
attorneys, consultants and independent contractors of such Copyright
Owners and Performers and their designated agents, subject to an
appropriate confidentiality agreement, for the purpose of performing
their duties during the ordinary course of their work and who require
access to the Confidential Information; and
(4) In connection with future proceedings under 17 U.S.C. 112(e)
and 114 before the Copyright Royalty Judges, and under an appropriate
protective order, attorneys, consultants and other authorized agents of
the parties to the proceedings or the courts.
(e) Safeguarding of Confidential Information. The Collective and
any person identified in paragraph (d) of this section shall implement
procedures to safeguard against unauthorized access to or dissemination
of any Confidential Information using a reasonable standard of care,
but no less than the same degree of security used to protect
Confidential Information or similarly sensitive information belonging
to the Collective or person.
Sec. 380.6 Verification of royalty payments.
(a) General. This section prescribes procedures by which the
Collective may verify the royalty payments made by a Licensee.
(b) Frequency of verification. The Collective may conduct a single
audit of a Licensee, upon reasonable notice and during reasonable
business hours, during any given calendar year, for any or all of the
prior 3 calendar years, but no calendar year shall be subject to audit
more than once.
(c) Notice of intent to audit. The Collective must file with the
Copyright Royalty Judges a notice of intent to audit a particular
Licensee, which shall, within 30 days of the filing of the notice,
publish in the Federal Register a notice announcing such filing. The
notification of intent to audit shall be served at the same time on the
Licensee to be audited. Any such audit shall be conducted by an
independent and Qualified Auditor identified in the notice, and shall
be binding on all parties.
(d) Acquisition and retention of report. The Licensee shall use
commercially reasonable efforts to obtain or to provide access to any
relevant books and records maintained by third parties for the purpose
of the audit. The Collective shall retain the report of the
verification for a period of not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent and Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to the
Collective, except where the auditor has a reasonable basis to suspect
fraud and disclosure would, in the reasonable opinion of the auditor,
prejudice the investigation of such suspected fraud, the auditor shall
review the tentative written findings of the audit with the appropriate
agent or employee of the Licensee being audited in order to remedy any
factual errors and clarify any issues relating to the audit; Provided
that an appropriate agent or employee of the Licensee reasonably
cooperates with the auditor to remedy promptly any factual errors or
clarify any issues raised by the audit.
(g) Costs of the verification procedure. The Collective shall pay
the cost of the verification procedure, unless it is finally determined
that there was an underpayment of 10% or more, in which case the
Licensee shall, in addition to paying the amount of any underpayment,
bear the reasonable costs of the verification procedure.
Sec. 380.7 Verification of royalty distributions.
(a) General. This section prescribes procedures by which any
Copyright Owner or Performer may verify the royalty distributions made
by the Collective; provided, however, that
[[Page 13050]]
nothing contained in this section shall apply to situations where a
Copyright Owner or Performer and the Collective have agreed as to
proper verification methods.
(b) Frequency of verification. A Copyright Owner or Performer may
conduct a single audit of the Collective upon reasonable notice and
during reasonable business hours, during any given calendar year, for
any or all of the prior 3 calendar years, but no calendar year shall be
subject to audit more than once.
(c) Notice of intent to audit. A Copyright Owner or Performer must
file with the Copyright Royalty Judges a notice of intent to audit the
Collective, which shall, within 30 days of the filing of the notice,
publish in the Federal Register a notice announcing such filing. The
notification of intent to audit shall be served at the same time on the
Collective. Any audit shall be conducted by an independent and
Qualified Auditor identified in the notice, and shall be binding on all
Copyright Owners and Performers.
(d) Acquisition and retention of report. The Collective shall use
commercially reasonable efforts to obtain or to provide access to any
relevant books and records maintained by third parties for the purpose
of the audit. The Copyright Owner or Performer requesting the
verification procedure shall retain the report of the verification for
a period of not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent and Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to a Copyright
Owner or Performer, except where the auditor has a reasonable basis to
suspect fraud and disclosure would, in the reasonable opinion of the
auditor, prejudice the investigation of such suspected fraud, the
auditor shall review the tentative written findings of the audit with
the appropriate agent or employee of the Collective in order to remedy
any factual errors and clarify any issues relating to the audit;
Provided that the appropriate agent or employee of the Collective
reasonably cooperates with the auditor to remedy promptly any factual
errors or clarify any issues raised by the audit.
(g) Costs of the verification procedure. The Copyright Owner or
Performer requesting the verification procedure shall pay the cost of
the procedure, unless it is finally determined that there was an
underpayment of 10% or more, in which case the Collective shall, in
addition to paying the amount of any underpayment, bear the reasonable
costs of the verification procedure.
Sec. 380.8 Unclaimed funds.
If the Collective is unable to identify or locate a Copyright Owner
or Performer who is entitled to receive a royalty distribution under
this subpart, the Collective shall retain the required payment in a
segregated trust account for a period of 3 years from the date of
distribution. No claim to such distribution shall be valid after the
expiration of the 3-year period. After expiration of this period, the
Collective may apply the unclaimed funds to offset any costs deductible
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding
the common law or statutes of any State.
Subpart B--Broadcasters
Sec. 380.10 General.
(a) Scope. This subpart establishes rates and terms of royalty
payments for the public performance of sound recordings in certain
digital transmissions made by Broadcasters as set forth herein in
accordance with the provisions of 17 U.S.C. 114, and the making of
Ephemeral Recordings by Broadcasters as set forth herein in accordance
with the provisions of 17 U.S.C. 112(e), during the period January 1,
2011, through December 31, 2015.
(b) Legal compliance. Broadcasters relying upon the statutory
licenses set forth in 17 U.S.C. 112(e) and 114 shall comply with the
requirements of those sections, the rates and terms of this subpart,
and any other applicable regulations not inconsistent with the rates
and terms set forth herein.
(c) Relationship to voluntary agreements. Notwithstanding the
royalty rates and terms established in this subpart, the rates and
terms of any license agreements entered into by Copyright Owners and
digital audio services shall apply in lieu of the rates and terms of
this subpart to transmission within the scope of such agreements.
Sec. 380.11 Definitions.
For purposes of this subpart, the following definitions shall
apply:
Aggregate Tuning Hours means the total hours of programming that
the Broadcaster has transmitted during the relevant period to all
listeners within the United States from any channels and stations that
provide audio programming consisting, in whole or in part, of Eligible
Transmissions.
Broadcaster means an entity that:
(1) Has a substantial business owning and operating one or more
terrestrial AM or FM radio stations that are licensed as such by the
Federal Communications Commission;
(2) Has obtained a compulsory license under 17 U.S.C. 112(e) and
114 and the implementing regulations therefor to make Eligible
Transmissions and related ephemeral recordings;
(3) Complies with all applicable provisions of Sections 112(e) and
114 and applicable regulations; and
(4) Is not a noncommercial webcaster as defined in 17 U.S.C.
114(f)(5)(E)(i).
Broadcaster Webcasts mean eligible nonsubscription transmissions
made by a Broadcaster over the Internet that are not Broadcast
Retransmissions.
Broadcast Retransmissions mean eligible nonsubscription
transmissions made by a Broadcaster over the Internet that are
retransmissions of terrestrial over-the-air broadcast programming
transmitted by the Broadcaster through its AM or FM radio station,
including ones with substitute advertisements or other programming
occasionally substituted for programming for which requisite licenses
or clearances to transmit over the Internet have not been obtained. For
the avoidance of doubt, a Broadcast Retransmission does not include
programming that does not require a license under United States
copyright law or that is transmitted on an Internet-only side channel.
Collective is the collection and distribution organization that is
designated by the Copyright Royalty Judges. For the 2011-2015 license
period, the Collective is SoundExchange, Inc.
Copyright Owners are sound recording copyright owners who are
entitled to royalty payments made under this subpart pursuant to the
statutory licenses under 17 U.S.C. 112(e) and 114(f).
Eligible Transmission shall mean either a Broadcaster Webcast or a
Broadcast Retransmission.
Ephemeral Recording is a phonorecord created for the purpose of
facilitating an Eligible Transmission of a public performance of a
sound recording under a statutory license in accordance with 17 U.S.C.
114(f), and subject to the limitations specified in 17 U.S.C. 112(e).
Performance is each instance in which any portion of a sound
recording is publicly performed to a listener by means of a digital
audio transmission (e.g., the delivery of any portion of a
[[Page 13051]]
single track from a compact disc to one listener) but excluding the
following:
(1) A performance of a sound recording that does not require a
license (e.g., a sound recording that is not copyrighted);
(2) A performance of a sound recording for which the Broadcaster
has previously obtained a license from the Copyright Owner of such
sound recording; and
(3) An incidental performance that both:
(i) Makes no more than incidental use of sound recordings
including, but not limited to, brief musical transitions in and out of
commercials or program segments, brief performances during news, talk
and sports programming, brief background performances during disk
jockey announcements, brief performances during commercials of sixty
seconds or less in duration, or brief performances during sporting or
other public events and
(ii) Other than ambient music that is background at a public event,
does not contain an entire sound recording and does not feature a
particular sound recording of more than thirty seconds (as in the case
of a sound recording used as a theme song).
Performers means the independent administrators identified in 17
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C.
114(g)(2)(D).
Qualified Auditor is a Certified Public Accountant.
Small Broadcaster is a Broadcaster that, for any of its channels
and stations (determined as provided in Sec. 380.12(c)) over which it
transmits Broadcast Retransmissions, and for all of its channels and
stations over which it transmits Broadcaster Webcasts in the aggregate,
in any calendar year in which it is to be considered a Small
Broadcaster, meets the following additional eligibility criteria:
(1) During the prior year it made Eligible Transmissions totaling
less than 27,777 Aggregate Tuning Hours; and
(2) During the applicable year it reasonably expects to make
Eligible Transmissions totaling less than 27,777 Aggregate Tuning
Hours; provided that, one time during the period 2011-2015, a
Broadcaster that qualified as a Small Broadcaster under the foregoing
definition as of January 31 of one year, elected Small Broadcaster
status for that year, and unexpectedly made Eligible Transmissions on
one or more channels or stations in excess of 27,777 aggregate tuning
hours during that year, may choose to be treated as a Small Broadcaster
during the following year notwithstanding paragraph (1) of the
definition of ``Small Broadcaster'' if it implements measures
reasonably calculated to ensure that it will not make Eligible
Transmissions exceeding 27,777 aggregate tuning hours during that
following year. As to channels or stations over which a Broadcaster
transmits Broadcast Retransmissions, the Broadcaster may elect Small
Broadcaster status only with respect to any of its channels or stations
that meet all of the foregoing criteria.
Sec. 380.12 Royalty fees for the public performance of sound
recordings and for ephemeral recordings.
(a) Royalty rates. Royalties for Eligible Transmissions made
pursuant to 17 U.S.C. 114, and the making of related ephemeral
recordings pursuant to 17 U.S.C. 112(e), shall, except as provided in
Sec. 380.13(g)(3), be payable on a per-performance basis, as follows:
(1) 2011: $0.0017;
(2) 2012: $0.0020;
(3) 2013: $0.0022;
(4) 2014: $0.0023;
(5) 2015: $0.0025.
(b) Ephemeral royalty. The royalty payable under 17 U.S.C. 112(e)
for any reproduction of a phonorecord made by a Broadcaster during this
license period and used solely by the Broadcaster to facilitate
transmissions for which it pays royalties as and when provided in this
section is deemed to be included within such royalty payments and to
equal the percentage of such royalty payments determined by the
Copyright Royalty Judges for other webcasting as set forth in Sec.
380.3.
(c) Minimum fee. Each Broadcaster will pay an annual, nonrefundable
minimum fee of $500 for each of its individual channels, including each
of its individual side channels, and each of its individual stations,
through which (in each case) it makes Eligible Transmissions, for each
calendar year or part of a calendar year during 2011-2015 during which
the Broadcaster is a licensee pursuant to licenses under 17 U.S.C.
112(e) and 114, provided that a Broadcaster shall not be required to
pay more than $50,000 in minimum fees in the aggregate (for 100 or more
channels or stations). For the purpose of this subpart, each individual
stream (e.g., HD radio side channels, different stations owned by a
single licensee) will be treated separately and be subject to a
separate minimum, except that identical streams for simulcast stations
will be treated as a single stream if the streams are available at a
single Uniform Resource Locator (URL) and performances from all such
stations are aggregated for purposes of determining the number of
payable performances hereunder. Upon payment of the minimum fee, the
Broadcaster will receive a credit in the amount of the minimum fee
against any additional royalties payable for the same calendar year for
the same channel or station. In addition, an electing Small Broadcaster
also shall pay a $100 annual fee (the ``Proxy Fee'') to the Collective
for the reporting waiver discussed in Sec. 380.13(g)(2).
Sec. 380.13 Terms for making payment of royalty fees and statements
of account.
(a) Payment to the Collective. A Broadcaster shall make the royalty
payments due under Sec. 380.12 to the Collective.
(b) Designation of the Collective. (1) Until such time as a new
designation is made, SoundExchange, Inc., is designated as the
Collective to receive statements of account and royalty payments from
Broadcasters due under Sec. 380.12 and to distribute such royalty
payments to each Copyright Owner and Performer, or their designated
agents, entitled to receive royalties under 17 U.S.C. 112(e) and
114(g).
(2) If SoundExchange, Inc. should dissolve or cease to be governed
by a board consisting of equal numbers of representatives of Copyright
Owners and Performers, then it shall be replaced by a successor
Collective upon the fulfillment of the requirements set forth in
paragraph (b)(2)(i) of this section.
(i) By a majority vote of the nine Copyright Owner representatives
and the nine Performer representatives on the SoundExchange board as of
the last day preceding the condition precedent in this paragraph
(b)(2), such representatives shall file a petition with the Copyright
Royalty Board designating a successor to collect and distribute royalty
payments to Copyright Owners and Performers entitled to receive
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves
authorized such Collective.
(ii) The Copyright Royalty Judges shall publish in the Federal
Register within 30 days of receipt of a petition filed under paragraph
(b)(2)(i) of this section an order designating the Collective named in
such petition.
(c) Monthly payments and reporting. Broadcasters must make monthly
payments where required by Sec. 380.12, and provide statements of
account and reports of use, for each month on the 45th day following
the month in which the Eligible Transmissions subject to the payments,
statements of account, and reports of use were made. All monthly
payments shall be rounded to the nearest cent.
(d) Minimum payments. A Broadcaster shall make any minimum
[[Page 13052]]
payment due under Sec. 380.12(b) by January 31 of the applicable
calendar year, except that payment by a Broadcaster that was not making
Eligible Transmissions or Ephemeral Recordings pursuant to the licenses
in 17 U.S.C. 114 and/or 17 U.S.C. 112(e) as of said date but begins
doing so thereafter shall be due by the 45th day after the end of the
month in which the Broadcaster commences to do so.
(e) Late fees. A Broadcaster shall pay a late fee for each instance
in which any payment, any statement of account or any report of use is
not received by the Collective in compliance with applicable
regulations by the due date. The amount of the late fee shall be 1.5%
of a late payment, or 1.5% of the payment associated with a late
statement of account or report of use, per month, or the highest lawful
rate, whichever is lower. The late fee shall accrue from the due date
of the payment, statement of account or report of use until a fully
compliant payment, statement of account or report of use is received by
the Collective, provided that, in the case of a timely provided but
noncompliant statement of account or report of use, the Collective has
notified the Broadcaster within 90 days regarding any noncompliance
that is reasonably evident to the Collective.
(f) Statements of account. Any payment due under Sec. 380.12 shall
be accompanied by a corresponding statement of account. A statement of
account shall contain the following information:
(1) Such information as is necessary to calculate the accompanying
royalty payment;
(2) The name, address, business title, telephone number, facsimile
number (if any), electronic mail address (if any) and other contact
information of the person to be contacted for information or questions
concerning the content of the statement of account;
(3) The handwritten signature of:
(i) The owner of the Broadcaster or a duly authorized agent of the
owner, if the Broadcaster is not a partnership or corporation;
(ii) A partner or delegee, if the Broadcaster is a partnership; or
(iii) An officer of the corporation, if the Broadcaster is a
corporation.
(4) The printed or typewritten name of the person signing the
statement of account;
(5) The date of signature;
(6) If the Broadcaster is a partnership or corporation, the title
or official position held in the partnership or corporation by the
person signing the statement of account;
(7) A certification of the capacity of the person signing; and
(8) A statement to the following effect:
I, the undersigned owner or agent of the Broadcaster, or officer
or partner, have examined this statement of account and hereby state
that it is true, accurate, and complete to my knowledge after
reasonable due diligence.
(g) Reporting by Broadcasters in General. (1) Broadcasters other
than electing Small Broadcasters covered by paragraph (g)(2) of this
section shall submit reports of use on a per-performance basis in
compliance with the regulations set forth in part 370 of this chapter,
except that the following provisions shall apply notwithstanding the
provisions of such part 370 of this chapter from time to time in
effect:
(i) Broadcasters may pay for, and report usage in, a percentage of
their programming hours on an Aggregate Tuning Hour basis as provided
in paragraph (g)(3) of this section.
(ii) Broadcasters shall submit reports of use to the Collective on
a monthly basis.
(iii) As provided in paragraph (d) of this section, Broadcasters
shall submit reports of use by no later than the 45th day following the
last day of the month to which they pertain.
(iv) Except as provided in paragraph (g)(3) of this section,
Broadcasters shall submit reports of use to the Collective on a census
reporting basis (i.e., reports of use shall include every sound
recording performed in the relevant month and the number of
performances thereof).
(v) Broadcasters shall either submit a separate report of use for
each of their stations, or a collective report of use covering all of
their stations but identifying usage on a station-by-station basis;
(vi) Broadcasters shall transmit each report of use in a file the
name of which includes:
(A) The name of the Broadcaster, exactly as it appears on its
notice of use, and
(B) If the report covers a single station only, the call letters of
the station.
(vii) Broadcasters shall submit reports of use with headers, as
presently described in Sec. 370.4(e)(7) of this chapter.
(viii) Broadcasters shall submit a separate statement of account
corresponding to each of their reports of use, transmitted in a file
the name of which includes:
(A) The name of the Broadcaster, exactly as it appears on its
notice of use, and
(B) If the statement covers a single station only, the call letters
of the station.
(2) On a transitional basis for a limited time in light of the
unique business and operational circumstances currently existing with
respect to Small Broadcasters and with the expectation that Small
Broadcasters will be required, effective January 1, 2016, to report
their actual usage in compliance with then-applicable regulations.
Small Broadcasters that have made an election pursuant to paragraph (h)
of this section for the relevant year shall not be required to provide
reports of their use of sound recordings for Eligible Transmissions and
related Ephemeral Recordings. The immediately preceding sentence
applies even if the Small Broadcaster actually makes Eligible
Transmissions for the year exceeding 27,777 Aggregate Tuning Hours, so
long as it qualified as a Small Broadcaster at the time of its election
for that year. In addition to minimum royalties hereunder, electing
Small Broadcasters will pay to the Collective a $100 Proxy Fee to
defray costs associated with this reporting waiver, including
development of proxy usage data.
(3) Broadcasters generally reporting pursuant to paragraph (g)(1)
of this section may pay for, and report usage in, a percentage of their
programming hours on an Aggregate Tuning Hours basis, if
(i) Census reporting is not reasonably practical for the
programming during those hours, and
(ii) If the total number of hours on a single report of use,
provided pursuant to paragraph (g)(1) of this section, for which this
type of reporting is used is below the maximum percentage set forth
below for the relevant year:
(A) 2011: 16%;
(B) 2012: 14%;
(C) 2013: 12%;
(D) 2014: 10%;
(E) 2015: 8%.
(iii) To the extent that a Broadcaster chooses to report and pay
for usage on an Aggregate Tuning Hours basis pursuant to this paragraph
(g)(3), the Broadcaster shall
(A) Report and pay based on the assumption that the number of sound
recordings performed during the relevant programming hours is 12 per
hour;
(B) Pay royalties (or recoup minimum fees) at the per-performance
rates provided in Sec. 380.12 on the basis of paragraph (g)(3)(iii)(A)
of this section;
(C) Include Aggregate Tuning Hours in reports of use; and
(D) Include in reports of use complete playlist information for
usage reported on the basis of Aggregate Tuning Hours.
[[Page 13053]]
(h) Election of Small Broadcaster Status. To be eligible for the
reporting waiver for Small Broadcasters with respect to any particular
channel in a given year, a Broadcaster must satisfy the definition set
forth in Sec. 380.11 and must submit to the Collective a completed and
signed election form (available on the SoundExchange Web site at http://www.soundexchange.com) by no later than January 31 of the applicable
year. Even if a Broadcaster has once elected to be treated as a Small
Broadcaster, it must make a separate, timely election in each
subsequent year in which it wishes to be treated as a Small
Broadcaster.
(i) Distribution of royalties. (1) The Collective shall promptly
distribute royalties received from Broadcasters to Copyright Owners and
Performers, or their designated agents, that are entitled to such
royalties. The Collective shall only be responsible for making
distributions to those Copyright Owners, Performers, or their
designated agents who provide the Collective with such information as
is necessary to identify and pay the correct recipient. The Collective
shall distribute royalties on a basis that values all performances by a
Broadcaster equally based upon information provided under the report of
use requirements for Broadcasters contained in Sec. 370.4 of this
chapter and this subpart, except that in the case of electing Small
Broadcasters, the Collective shall distribute royalties based on proxy
usage data in accordance with a methodology adopted by the Collective's
Board of Directors.
(2) If the Collective is unable to locate a Copyright Owner or
Performer entitled to a distribution of royalties under paragraph
(g)(1) of this section within 3 years from the date of payment by a
Broadcaster, such distribution may be first applied to the costs
directly attributable to the administration of that distribution. The
foregoing shall apply notwithstanding the common law or statutes of any
State.
(j) Retention of records. Books and records of a Broadcaster and of
the Collective relating to payments of and distributions of royalties
shall be kept for a period of not less than the prior 3 calendar years.
Sec. 380.14 Confidential Information.
(a) Definition. For purposes of this subpart, ``Confidential
Information'' shall include the statements of account and any
information contained therein, including the amount of royalty
payments, and any information pertaining to the statements of account
reasonably designated as confidential by the Broadcaster submitting the
statement.
(b) Exclusion. Confidential Information shall not include documents
or information that at the time of delivery to the Collective are
public knowledge. The party claiming the benefit of this provision
shall have the burden of proving that the disclosed information was
public knowledge.
(c) Use of Confidential Information. In no event shall the
Collective use any Confidential Information for any purpose other than
royalty collection and distribution and activities related directly
thereto.
(d) Disclosure of Confidential Information. Access to Confidential
Information shall be limited to:
(1) Those employees, agents, attorneys, consultants and independent
contractors of the Collective, subject to an appropriate
confidentiality agreement, who are engaged in the collection and
distribution of royalty payments hereunder and activities related
thereto, for the purpose of performing such duties during the ordinary
course of their work and who require access to the Confidential
Information;
(2) An independent and Qualified Auditor, subject to an appropriate
confidentiality agreement, who is authorized to act on behalf of the
Collective with respect to verification of a Broadcaster's statement of
account pursuant to Sec. 380.15 or on behalf of a Copyright Owner or
Performer with respect to the verification of royalty distributions
pursuant to Sec. 380.16;
(3) Copyright Owners and Performers, including their designated
agents, whose works have been used under the statutory licenses set
forth in 17 U.S.C. 112(e) and 114(f) by the Broadcaster whose
Confidential Information is being supplied, subject to an appropriate
confidentiality agreement, and including those employees, agents,
attorneys, consultants and independent contractors of such Copyright
Owners and Performers and their designated agents, subject to an
appropriate confidentiality agreement, for the purpose of performing
their duties during the ordinary course of their work and who require
access to the Confidential Information; and
(4) In connection with future proceedings under 17 U.S.C. 112(e)
and 114(f) before the Copyright Royalty Judges, and under an
appropriate protective order, attorneys, consultants and other
authorized agents of the parties to the proceedings or the courts.
(e) Safeguarding of Confidential Information. The Collective and
any person identified in paragraph (d) of this section shall implement
procedures to safeguard against unauthorized access to or dissemination
of any Confidential Information using a reasonable standard of care,
but not less than the same degree of security used to protect
Confidential Information or similarly sensitive information belonging
to the Collective or person.
Sec. 380.15 Verification of royalty payments.
(a) General. This section prescribes procedures by which the
Collective may verify the royalty payments made by a Broadcaster.
(b) Frequency of verification. The Collective may conduct a single
audit of a Broadcaster, upon reasonable notice and during reasonable
business hours, during any given calendar year, for any or all of the
prior 3 calendar years, but no calendar year shall be subject to audit
more than once.
(c) Notice of intent to audit. The Collective must file with the
Copyright Royalty Board a notice of intent to audit a particular
Broadcaster, which shall, within 30 days of the filing of the notice,
publish in the Federal Register a notice announcing such filing. The
notification of intent to audit shall be served at the same time on the
Broadcaster to be audited. Any such audit shall be conducted by an
independent and Qualified Auditor identified in the notice, and shall
be binding on all parties.
(d) Acquisition and retention of report. The Broadcaster shall use
commercially reasonable efforts to obtain or to provide access to any
relevant books and records maintained by third parties for the purpose
of the audit. The Collective shall retain the report of the
verification for a period of not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent and Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to the
Collective, except where the auditor has a reasonable basis to suspect
fraud and disclosure would, in the reasonable opinion of the auditor,
prejudice the investigation of such suspected fraud, the auditor shall
review the tentative written findings of the audit with the appropriate
agent or employee of the Broadcaster being audited in order to remedy
any factual errors and clarify any issues relating to the audit;
Provided that an appropriate
[[Page 13054]]
agent or employee of the Broadcaster reasonably cooperates with the
auditor to remedy promptly any factual error or clarify any issues
raised by the audit.
(g) Costs of the verification procedure. The Collective shall pay
the cost of the verification procedure, unless it is finally determined
that there was an underpayment of 10% or more, in which case the
Broadcaster shall, in addition to paying the amount of any
underpayment, bear the reasonable costs of the verification procedure.
Sec. 380.16 Verification of royalty distributions.
(a) General. This section prescribes procedures by which any
Copyright Owner or Performer may verify the royalty distributions made
by the Collective; Provided, however, that nothing contained in this
section shall apply to situations where a Copyright Owner or Performer
and the Collective have agreed as to proper verification methods.
(b) Frequency of verification. A Copyright Owner or Performer may
conduct a single audit of the Collective upon reasonable notice and
during reasonable business hours, during any given calendar year, for
any or all of the prior 3 calendar years, but no calendar year shall be
subject to audit more than once.
(c) Notice of intent to audit. A Copyright Owner or Performer must
file with the Copyright Royalty Board a notice of intent to audit the
Collective, which shall, within 30 days of the filing of the notice,
publish in the Federal Register a notice announcing such filing. The
notification of intent to audit shall be served at the same time on the
Collective. Any audit shall be conducted by an independent and
Qualified Auditor identified in the notice, and shall be binding on all
Copyright Owners and Performers.
(d) Acquisition and retention of report. The Collective shall use
commercially reasonable efforts to obtain or to provide access to any
relevant books and records maintained by third parties for the purpose
of the audit. The Copyright Owner or Performer requesting the
verification procedure shall retain the report of the verification for
a period of not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent and Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to a Copyright
Owner or Performer, except where the auditor has a reasonable basis to
suspect fraud and disclosure would, in the reasonable opinion of the
auditor, prejudice the investigation of such suspected fraud, the
auditor shall review the tentative written findings of the audit with
the appropriate agent or employee of the Collective in order to remedy
any factual errors and clarify any issues relating to the audit;
Provided that the appropriate agent or employee of the Collective
reasonably cooperates with the auditor to remedy promptly any factual
errors or clarify any issues raised by the audit.
(g) Costs of the verification procedure. The Copyright Owner or
Performer requesting the verification procedure shall pay the cost of
the procedure, unless it is finally determined that there was an
underpayment of 10% or more, in which case the Collective shall, in
addition to paying the amount of any underpayment, bear the reasonable
costs of the verification procedure.
Sec. 380.17 Unclaimed funds.
If the Collective is unable to identify or locate a Copyright Owner
or Performer who is entitled to receive a royalty distribution under
this subpart, the Collective shall retain the required payment in a
segregated trust account for a period of 3 years from the date of
distribution. No claim to such distribution shall be valid after the
expiration of the 3-year period. After expiration of this period, the
Collective may apply the unclaimed funds to offset any costs deductible
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding
the common law or statutes of any State.
Subpart C--Noncommercial Educational Webcasters
Sec. 380.20 General.
(a) Scope. This subpart establishes rates and terms, including
requirements for royalty payments, recordkeeping and reports of use,
for the public performance of sound recordings in certain digital
transmissions made by Noncommercial Educational Webcasters as set forth
herein in accordance with the provisions of 17 U.S.C. 114, and the
making of Ephemeral Recordings by Noncommercial Educational Webcasters
as set forth herein in accordance with the provisions of 17 U.S.C.
112(e), during the period January 1, 2011, through December 31, 2015.
(b) Legal compliance. Noncommercial Educational Webcasters relying
upon the statutory licenses set forth in 17 U.S.C. 112(e) and 114 shall
comply with the requirements of those sections, the rates and terms of
this subpart, and any other applicable regulations not inconsistent
with the rates and terms set forth herein.
(c) Relationship to voluntary agreements. Notwithstanding the
royalty rates and terms established in this subpart, the rates and
terms of any license agreements entered into by Copyright Owners and
digital audio services shall apply in lieu of the rates and terms of
this subpart to transmissions within the scope of such agreements.
Sec. 380.21 Definitions.
For purposes of this subpart, the following definitions shall
apply:
ATH or Aggregate Tuning Hours means the total hours of programming
that a Noncommercial Educational Webcaster has transmitted during the
relevant period to all listeners within the United States over all
channels and stations that provide audio programming consisting, in
whole or in part, of Eligible Transmissions, including from any
archived programs, less the actual running time of any sound recordings
for which the Noncommercial Educational Webcaster has obtained direct
licenses apart from 17 U.S.C. 114(d)(2) or which do not require a
license under United States copyright law. By way of example, if a
Noncommercial Educational Webcaster transmitted one hour of programming
to 10 simultaneous listeners, the Noncommercial Educational Webcaster's
Aggregate Tuning Hours would equal 10. If three minutes of that hour
consisted of transmission of a directly licensed recording, the
Noncommercial Educational Webcaster's Aggregate Tuning Hours would
equal 9 hours and 30 minutes. As an additional example, if one listener
listened to a Noncommercial Educational Webcaster for 10 hours (and
none of the recordings transmitted during that time was directly
licensed), the Noncommercial Educational Webcaster's Aggregate Tuning
Hours would equal 10.
Collective is the collection and distribution organization that is
designated by the Copyright Royalty Judges. For the 2011-2015 license
period, the Collective is SoundExchange, Inc.
Copyright Owners are sound recording copyright owners who are
entitled to royalty payments made under this subpart pursuant to the
[[Page 13055]]
statutory licenses under 17 U.S.C. 112(e) and 114(f).
Eligible Transmission means an eligible nonsubscription
transmission made by a Noncommercial Educational Webcaster over the
Internet.
Ephemeral Recording is a phonorecord created for the purpose of
facilitating an Eligible Transmission of a public performance of a
sound recording under a statutory license in accordance with 17 U.S.C.
114(f), and subject to the limitations specified in 17 U.S.C. 112(e).
Noncommercial Educational Webcaster means Noncommercial Webcaster
(as defined in 17 U.S.C. 114(f)(5)(E)(i)) that
(1) Has obtained a compulsory license under 17 U.S.C. 112(e) and
114 and the implementing regulations therefor to make Eligible
Transmissions and related ephemeral recordings;
(2) Complies with all applicable provisions of Sections 112(e) and
114 and applicable regulations;
(3) Is directly operated by, or is affiliated with and officially
sanctioned by, and the digital audio transmission operations of which
are staffed substantially by students enrolled at, a domestically
accredited primary or secondary school, college, university or other
post-secondary degree-granting educational institution; and
(4) Is not a ``public broadcasting entity'' (as defined in 17
U.S.C. 118(g)) qualified to receive funding from the Corporation for
Public Broadcasting pursuant to the criteria set forth in 47 U.S.C.
396.
Performance is each instance in which any portion of a sound
recording is publicly performed to a listener by means of a digital
audio transmission (e.g., the delivery of any portion of a single track
from a compact disc to one listener) but excluding the following:
(1) A performance of a sound recording that does not require a
license (e.g., a sound recording that is not copyrighted);
(2) A performance of a sound recording for which the Noncommercial
Educational Webcaster has previously obtained a license from the
Copyright Owner of such sound recording; and
(3) An incidental performance that both:
(i) Makes no more than incidental use of sound recordings,
including, but not limited to, brief musical transitions in and out of
commercials or program segments, brief performances during news, talk
and sports programming, brief background performances during disk
jockey announcements, brief performances during commercials of sixty
seconds or less in duration, or brief performances during sporting or
other public events; and
(ii) Other than ambient music that is background at a public event,
does not contain an entire sound recording and does not feature a
particular sound recording of more than thirty seconds (as in the case
of a sound recording used as a theme song).
Performers means the independent administrators identified in 17
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C.
114(g)(2)(D).
Qualified Auditor is a Certified Public Accountant.
Sec. 380.22 Royalty fees for the public performance of sound
recordings and for ephemeral recordings.
(a) Minimum fee. Each Noncommercial Educational Webcaster shall pay
an annual, nonrefundable minimum fee of $500 (the ``Minimum Fee'') for
each of its individual channels, including each of its individual side
channels, and each of its individual stations, through which (in each
case) it makes Eligible Transmissions, for each calendar year it makes
Eligible Transmissions subject to this subpart. For clarity, each
individual stream (e.g., HD radio side channels, different stations
owned by a single licensee) will be treated separately and be subject
to a separate minimum. In addition, a Noncommercial Educational
Webcaster electing the reporting waiver described in Sec.
380.23(g)(1), shall pay a $100 annual fee (the ``Proxy Fee'') to the
Collective.
(b) Additional usage fees. If, in any month, a Noncommercial
Educational Webcaster makes total transmissions in excess of 159,140
Aggregate Tuning Hours on any individual channel or station, the
Noncommercial Educational Webcaster shall pay additional usage fees
(``Usage Fees'') for the Eligible Transmissions it makes on that
channel or station after exceeding 159,140 total ATH at the following
per-performance rates:
(1) 2011: $0.0017;
(2) 2012: $0.0020;
(3) 2013: $0.0022;
(4) 2014: $0.0023;
(5) 2015: $0.0025.
(6) For a Noncommercial Educational Webcaster unable to calculate
actual total performances and not required to report ATH or actual
total performances under Sec. 380.23(g)(3), the Noncommercial
Educational Webcaster may pay its Usage Fees on an ATH basis, provided
that the Noncommercial Educational Webcaster shall pay its Usage Fees
at the per-performance rates provided in paragraphs (b)(1) through (5)
of this section based on the assumption that the number of sound
recordings performed is 12 per hour. The Collective may distribute
royalties paid on the basis of ATH hereunder in accordance with its
generally applicable methodology for distributing royalties paid on
such basis. In addition, and for the avoidance of doubt, a
Noncommercial Educational Webcaster offering more than one channel or
station shall pay Usage Fees on a per-channel or -station basis.
(c) Ephemeral royalty. The royalty payable under 17 U.S.C. 112(e)
for any ephemeral reproductions made by a Noncommercial Educational
Webcaster and covered by this subpart is deemed to be included within
the royalty payments set forth in paragraphs (a) and (b)(1) through (5)
of this section and to equal the percentage of such royalty payments
determined by the Copyright Royalty Judges for other webcasting in
Sec. 380.3.
Sec. 380.23 Terms for making payment of royalty fees and statements
of account.
(a) Payment to the Collective. A Noncommercial Educational
Webcaster shall make the royalty payments due under Sec. 380.22 to the
Collective.
(b) Designation of the Collective. (1) Until such time as a new
designation is made, SoundExchange, Inc., is designated as the
Collective to receive statements of account and royalty payments from
Noncommercial Educational Webcasters due under Sec. 380.22 and to
distribute such royalty payments to each Copyright Owner and Performer,
or their designated agents, entitled to receive royalties under 17
U.S.C. 112(e) or 114(g).
(2) If SoundExchange, Inc., should dissolve or cease to be governed
by a board consisting of equal numbers of representatives of Copyright
Owners and Performers, then it shall be replaced by a successor
Collective upon the fulfillment of the requirements set forth in
paragraph (b)(2)(i) of this section.
(i) By a majority vote of the nine Copyright Owner representatives
and the nine Performer representatives on the SoundExchange board as of
the last day preceding the condition precedent in this paragraph
(b)(2), such representatives shall file a petition with the Copyright
Royalty Board designating a successor to collect and distribute royalty
payments to Copyright Owners and Performers entitled to receive
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves
authorized such Collective.
(ii) The Copyright Royalty Judges shall publish in the Federal
Register within 30 days of receipt of a petition filed under paragraph
(b)(2)(i) of this
[[Page 13056]]
section an order designating the Collective named in such petition.
(c) Minimum fee. Noncommercial Educational Webcasters shall submit
the Minimum Fee, and Proxy Fee if applicable, accompanied by a
statement of account, by January 31st of each calendar year, except
that payment of the Minimum Fee, and Proxy Fee if applicable, by a
Noncommercial Educational Webcaster that was not making Eligible
Transmissions or Ephemeral Recordings pursuant to the licenses in 17
U.S.C. 114 and/or 17 U.S.C. 112(e) as of said date but begins doing so
thereafter shall be due by the 45th day after the end of the month in
which the Noncommercial Educational Webcaster commences doing so.
Payments of minimum fees must be accompanied by a certification, signed
by an officer or another duly authorized faculty member or
administrator of the institution with which the Noncommercial
Educational Webcaster is affiliated, on a form provided by the
Collective, that the Noncommercial Educational Webcaster.
(1) Qualifies as a Noncommercial Educational Webcaster for the
relevant year; and
(2) Did not exceed 159,140 total ATH in any month of the prior year
for which the Noncommercial Educational Webcaster did not submit a
statement of account and pay any required Usage Fees. At the same time
the Noncommercial Educational Webcaster must identify all its stations
making Eligible Transmissions and identify which of the reporting
options set forth in paragraph (g) of this section it elects for the
relevant year (provided that it must be eligible for the option it
elects).
(d) Usage fees. In addition to its obligations pursuant to
paragraph (c) of this section, a Noncommercial Educational Webcaster
must make monthly payments of Usage Fees where required by Sec.
380.22(b), and provide statements of account to accompany these
payments, for each month on the 45th day following the month in which
the Eligible Transmissions subject to the Usage Fees and statements of
account were made. All monthly payments shall be rounded to the nearest
cent.
(e) Late fees. A Noncommercial Educational Webcaster shall pay a
late fee for each instance in which any payment, any statement of
account or any report of use is not received by the Collective in
compliance with the applicable regulations by the due date. The amount
of the late fee shall be 1.5% of the late payment, or 1.5% of the
payment associated with a late statement of account or report of use,
per month, compounded monthly for the balance due, or the highest
lawful rate, whichever is lower. The late fee shall accrue from the due
date of the payment, statement of account or report of use until a
fully compliant payment, statement of account or report of use (as
applicable) is received by the Collective, provided that, in the case
of a timely provided but noncompliant statement of account or report of
use, the Collective has notified the Noncommercial Educational
Webcaster within 90 days regarding any noncompliance that is reasonably
evident to the Collective.
(f) Statements of account. Any payment due under Sec. 380.22 shall
be accompanied by a corresponding statement of account. A statement of
account shall contain the following information:
(1) The name of the Noncommercial Educational Webcaster, exactly as
it appears on the notice of use, and if the statement of account covers
a single station only, the call letters or name of the station;
(2) Such information as is necessary to calculate the accompanying
royalty payment as prescribed in this subpart;
(3) The name, address, business title, telephone number, facsimile
number (if any), electronic mail address (if any) and other contact
information of the person to be contacted for information or questions
concerning the content of the statement of account;
(4) The handwritten signature of an officer or another duly
authorized faculty member or administrator of the applicable
educational institution;
(5) The printed or typewritten name of the person signing the
statement of account;
(6) The date of signature;
(7) The title or official position held by the person signing the
statement of account;
(8) A certification of the capacity of the person signing; and
(9) A statement to the following effect:
I, the undersigned officer or other duly authorized faculty
member or administrator of the applicable educational institution,
have examined this statement of account and hereby state that it is
true, accurate, and complete to my knowledge after reasonable due
diligence.
(g) Reporting by Noncommercial Educational Webcasters in general--
(1) Reporting waiver. In light of the unique business and operational
circumstances currently existing with respect to Noncommercial
Educational Webcasters, and for the purposes of this subpart only, a
Noncommercial Educational Webcaster that did not exceed 55,000 total
ATH for any individual channel or station for more than one calendar
month in the immediately preceding calendar year and that does not
expect to exceed 55,000 total ATH for any individual channel or station
for any calendar month during the applicable calendar year may elect to
pay to the Collective a nonrefundable, annual Proxy Fee of $100 in lieu
of providing reports of use for the calendar year pursuant to the
regulations at Sec. 370.4 of this chapter. In addition, a
Noncommercial Educational Webcaster that unexpectedly exceeded 55,000
total ATH on one or more channels or stations for more than one month
during the immediately preceding calendar year may elect to pay the
Proxy Fee and receive the reporting waiver described in this paragraph
(g)(1) during a calendar year, if it implements measures reasonably
calculated to ensure that it will not make Eligible Transmissions
exceeding 55,000 total ATH during any month of that calendar year. The
Proxy Fee is intended to defray the Collective's costs associated with
this reporting waiver, including development of proxy usage data. The
Proxy Fee shall be paid by the date specified in paragraph (c) of this
section for paying the Minimum Fee for the applicable calendar year and
shall be accompanied by a certification on a form provided by the
Collective, signed by an officer or another duly authorized faculty
member or administrator of the applicable educational institution,
stating that the Noncommercial Educational Webcaster is eligible for
the Proxy Fee option because of its past and expected future usage and,
if applicable, has implemented measures to ensure that it will not make
excess Eligible Transmissions in the future.
(2) Sample-basis reports. A Noncommercial Educational Webcaster
that did not exceed 159,140 total ATH for any individual channel or
station for more than one calendar month in the immediately preceding
calendar year and that does not expect to exceed 159,140 total ATH for
any individual channel or station for any calendar month during the
applicable calendar year may elect to provide reports of use on a
sample basis (two weeks per calendar quarter) in accordance with the
regulations at Sec. 370.4 of this chapter, except that,
notwithstanding Sec. 370.4(d)(2)(vi), such an electing Noncommercial
Educational Webcaster shall not be required to include ATH or actual
total performances and may in lieu thereof provide channel or station
name and play frequency. Notwithstanding the foregoing, a Noncommercial
Educational Webcaster that is able to report ATH or actual total
performances is encouraged to do so.
[[Page 13057]]
These reports of use shall be submitted to the Collective no later than
January 31st of the year immediately following the year to which they
pertain.
(3) Census-basis reports. If any of the following three conditions
is satisfied, a Noncommercial Educational Webcaster must report
pursuant to this paragraph (g)(3):
(i) The Noncommercial Educational Webcaster exceeded 159,140 total
ATH for any individual channel or station for more than one calendar
month in the immediately preceding calendar year;
(ii) The Noncommercial Educational Webcaster expects to exceed
159,140 total ATH for any individual channel or station for any
calendar month in the applicable calendar year; or
(iii) The Noncommercial Educational Webcaster otherwise does not
elect to be subject to paragraphs (g)(1) or (2) of this section. A
Noncommercial Educational Webcaster required to report pursuant to this
paragraph (g)(3) shall provide reports of use to the Collective
quarterly on a census reporting basis (i.e., reports of use shall
include every sound recording performed in the relevant quarter),
containing information otherwise complying with applicable regulations
(but no less information than required by Sec. 370.4 of this chapter),
except that, notwithstanding Sec. 370.4(d)(2)(vi), such a
Noncommercial Educational Webcaster shall not be required to include
ATH or actual total performances, and may in lieu thereof provide
channel or station name and play frequency, during the first calendar
year it reports in accordance with this paragraph (g)(3). For the
avoidance of doubt, after a Noncommercial Educational Webcaster has
been required to report in accordance with this paragraph (g)(3) for a
full calendar year, it must thereafter include ATH or actual total
performances in its reports of use. All reports of use under this
paragraph (g)(3) shall be submitted to the Collective no later than the
45th day after the end of each calendar quarter.
(h) Distribution of royalties. (1) The Collective shall promptly
distribute royalties received from Noncommercial Educational Webcasters
to Copyright Owners and Performers, or their designated agents, that
are entitled to such royalties. The Collective shall only be
responsible for making distributions to those Copyright Owners,
Performers, or their designated agents who provide the Collective with
such information as is necessary to identify and pay the correct
recipient. The Collective shall distribute royalties on a basis that
values all performances by a Noncommercial Educational Webcaster
equally based upon the information provided under the report of use
requirements for Noncommercial Educational Webcasters contained in
Sec. 370.4 of this chapter and this subpart, except that in the case
of Noncommercial Educational Webcasters that elect to pay a Proxy Fee
in lieu of providing reports of use pursuant to paragraph (g)(1) of
this section, the Collective shall distribute the aggregate royalties
paid by electing Noncommercial Educational Webcasters based on proxy
usage data in accordance with a methodology adopted by the Collective's
Board of Directors.
(2) If the Collective is unable to locate a Copyright Owner or
Performer entitled to a distribution of royalties under paragraph
(h)(1) of this section within 3 years from the date of payment by a
Noncommercial Educational Webcaster, such distribution may first be
applied to the costs directly attributable to the administration of
that distribution. The foregoing shall apply notwithstanding the common
law or statutes of any State.
(i) Server logs. Noncommercial Educational Webcasters shall retain
for a period of no less than three full calendar years server logs
sufficient to substantiate all information relevant to eligibility,
rate calculation and reporting under this subpart. To the extent that a
third-party Web hosting or service provider maintains equipment or
software for a Noncommercial Educational Webcaster and/or such third
party creates, maintains, or can reasonably create such server logs,
the Noncommercial Educational Webcaster shall direct that such server
logs be created and maintained by said third party for a period of no
less than three full calendar years and/or that such server logs be
provided to, and maintained by, the Noncommercial Educational
Webcaster.
Sec. 380.24 Confidential Information.
(a) Definition. For purposes of this subpart, ``Confidential
Information'' shall include the statements of account and any
information contained therein, including the amount of Usage Fees paid,
and any information pertaining to the statements of account reasonably
designated as confidential by the Noncommercial Educational Webcaster
submitting the statement.
(b) Exclusion. Confidential Information shall not include documents
or information that at the time of delivery to the Collective are
public knowledge. The party claiming the benefit of this provision
shall have the burden of proving that the disclosed information was
public knowledge.
(c) Use of Confidential Information. In no event shall the
Collective use any Confidential Information for any purpose other than
royalty collection and distribution and activities related directly
thereto.
(d) Disclosure of Confidential Information. Access to Confidential
Information shall be limited to:
(1) Those employees, agents, attorneys, consultants and independent
contractors of the Collective, subject to an appropriate
confidentiality agreement, who are engaged in the collection and
distribution of royalty payments hereunder and activities related
thereto, for the purpose of performing such duties during the ordinary
course of their work and who require access to Confidential
Information;
(2) An independent Qualified Auditor, subject to an appropriate
confidentiality agreement, who is authorized to act on behalf of the
Collective with respect to verification of a Noncommercial Educational
Webcaster's statement of account pursuant to Sec. 380.25 or on behalf
of a Copyright Owner or Performer with respect to the verification of
royalty distributions pursuant to Sec. 380.26;
(3) Copyright Owners and Performers, including their designated
agents, whose works have been used under the statutory licenses set
forth in 17 U.S.C. 112(e) and 114(f) by the Noncommercial Educational
Webcaster whose Confidential Information is being supplied, subject to
an appropriate confidentiality agreement, and including those
employees, agents, attorneys, consultants and independent contractors
of such Copyright Owners and Performers and their designated agents,
subject to an appropriate confidentiality agreement, for the purpose of
performing their duties during the ordinary course of their work and
who require access to the Confidential Information; and
(4) In connection with future proceedings under 17 U.S.C. 112(e)
and 114(f) before the Copyright Royalty Judges, and under an
appropriate protective order, attorneys, consultants and other
authorized agents of the parties to the proceedings or the courts.
(e) Safeguarding of Confidential Information. The Collective and
any person identified in paragraph (d) of this section shall implement
procedures to safeguard against unauthorized access to or dissemination
of any Confidential Information using a reasonable standard of care,
but no less than the same degree of security used to protect
Confidential Information or similarly sensitive information belonging
to the Collective or person.
[[Page 13058]]
Sec. 380.25 Verification of royalty payments.
(a) General. This section prescribes procedures by which the
Collective may verify the royalty payments made by a Noncommercial
Educational Webcaster.
(b) Frequency of verification. The Collective may conduct a single
audit of a Noncommercial Educational Webcaster, upon reasonable notice
and during reasonable business hours, during any given calendar year,
for any or all of the prior 3 calendar years, but no calendar year
shall be subject to audit more than once.
(c) Notice of intent to audit. The Collective must file with the
Copyright Royalty Board a notice of intent to audit a particular
Noncommercial Educational Webcaster, which shall, within 30 days of the
filing of the notice, publish in the Federal Register a notice
announcing such filing. The notification of intent to audit shall be
served at the same time on the Noncommercial Educational Webcaster to
be audited. Any such audit shall be conducted by an independent
Qualified Auditor identified in the notice and shall be binding on all
parties.
(d) Acquisition and retention of report. The Noncommercial
Educational Webcaster shall use commercially reasonable efforts to
obtain or to provide access to any relevant books and records
maintained by third parties for the purpose of the audit. The
Collective shall retain the report of the verification for a period of
not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to the
Collective, except where the auditor has a reasonable basis to suspect
fraud and disclosure would, in the reasonable opinion of the auditor,
prejudice the investigation of such suspected fraud, the auditor shall
review the tentative written findings of the audit with the appropriate
agent or employee of the Noncommercial Educational Webcaster being
audited in order to remedy any factual errors and clarify any issues
relating to the audit; Provided that an appropriate agent or employee
of the Noncommercial Educational Webcaster reasonably cooperates with
the auditor to remedy promptly any factual errors or clarify any issues
raised by the audit.
(g) Costs of the verification procedure. The Collective shall pay
the cost of the verification procedure, unless it is finally determined
that there was an underpayment of 10% or more, in which case the
Noncommercial Educational Webcaster shall, in addition to paying the
amount of any underpayment, bear the reasonable costs of the
verification procedure.
Sec. 380.26 Verification of royalty distributions.
(a) General. This section prescribes procedures by which any
Copyright Owner or Performer may verify the royalty distributions made
by the Collective; Provided, however, that nothing contained in this
section shall apply to situations where a Copyright Owner or Performer
and the Collective have agreed as to proper verification methods.
(b) Frequency of verification. A Copyright Owner or Performer may
conduct a single audit of the Collective upon reasonable notice and
during reasonable business hours, during any given calendar year, for
any or all of the prior 3 calendar years, but no calendar year shall be
subject to audit more than once.
(c) Notice of intent to audit. A Copyright Owner or Performer must
file with the Copyright Royalty Board a notice of intent to audit the
Collective, which shall, within 30 days of the filing of the notice,
publish in the Federal Register a notice announcing such filing. The
notification of intent to audit shall be served at the same time on the
Collective. Any audit shall be conducted by an independent Qualified
Auditor identified in the notice, and shall be binding on all Copyright
Owners and Performers.
(d) Acquisition and retention of report. The Collective shall use
commercially reasonable efforts to obtain or to provide access to any
relevant books and records maintained by third parties for the purpose
of the audit. The Copyright Owner or Performer requesting the
verification procedure shall retain the report of the verification for
a period of not less than 3 years.
(e) Acceptable verification procedure. An audit, including
underlying paperwork, which was performed in the ordinary course of
business according to generally accepted auditing standards by an
independent Qualified Auditor, shall serve as an acceptable
verification procedure for all parties with respect to the information
that is within the scope of the audit.
(f) Consultation. Before rendering a written report to a Copyright
Owner or Performer, except where the auditor has a reasonable basis to
suspect fraud and disclosure would, in the reasonable opinion of the
auditor, prejudice the investigation of such suspected fraud, the
auditor shall review the tentative written findings of the audit with
the appropriate agent or employee of the Collective in order to remedy
any factual errors and clarify any issues relating to the audit;
Provided that the appropriate agent or employee of the Collective
reasonably cooperates with the auditor to remedy promptly any factual
errors or clarify any issues raised by the audit.
(g) Costs of the verification procedure. The Copyright Owner or
Performer requesting the verification procedure shall pay the cost of
the procedure, unless it is finally determined that there was an
underpayment of 10% or more, in which case the Collective shall, in
addition to paying the amount of any underpayment, bear the reasonable
costs of the verification procedure.
Sec. 380.27 Unclaimed funds.
If the Collective is unable to identify or locate a Copyright Owner
or Performer who is entitled to receive a royalty distribution under
this subpart, the Collective shall retain the required payment in a
segregated trust account for a period of 3 years from the date of
distribution. No claim to such distribution shall be valid after the
expiration of the 3-year period. After expiration of this period, the
Collective may apply the unclaimed funds to offset any costs deductible
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding
the common law or statutes of any State.
Dated: January 5, 2011.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
Approved by:
James H. Billington,
Librarian of Congress.
[FR Doc. 2011-4995 Filed 3-8-11; 8:45 am]
BILLING CODE 1410-72-P