Controversies Surrounding the Performance License for Sound Recordings

Platform Parity

The term “platform parity” refers to the idea that there should be equal treatment under the law for all types of services that transmit music, regardless of the medium used, whether analog or digital, or when the service was established. As we have already pointed out, the current law distinguishes between over-the-air radio, satellite radio, Internet radio and other types of transmission services in terms of the licensing rates and the conditions imposed in order to be eligible for the statutory license. At one end of the spectrum, over-the-air radio is completely exempt from any conditions or from the obligation to pay a royalty. On the other end of the spectrum, Internet radio services have been saddled with the highest rates and the most onerous conditions. The companies that market these services are currently leading the charge for parity. The recording industry has supported these calls for parity as well.

The broadcasters, on the other hand, argue for a continuation of the status quo. They claim that Congress has thus far exempted over-the-air radio from a performance fee in recognition of the fact that radio play promotes record sales. However, the Copyright Office has rebuffed these claims. Register of Copyrights Marybeth Peters explained in her testimony before the House of Representatives that broadcasting is no longer the only promotional tool because consumers are exposed to music from numerous other sources. She pointed out that the Copyright Arbitration Royalty Panel (CARP) (the panel that set webcasting rates for the period 1998- 2002) had observed that webcasting was just as promotional as broadcasting. Additionally, the Office has also suggested that a rollout of HD radio and satellite radio devices would threaten to displace record sales. Therefore, the Office has urged Congress to require radio broadcasters to pay a sound recording performance license.

Webcaster Rates

As we mentioned before, if record labels and music services fail to agree upon a royalty rate, the Copyright Royalty Board will determine the cost of these royalties. So far, there have been two such proceedings, and Internet radio services have claimed that both have resulted in rates so high that most small webcasters would be driven out of business. These proceedings are referred to as “Webcaster I” and “Webcaster II.” Webcasters have complained that in both proceedings a standard that was wrong to begin with was misapplied.

The law requires that rates be set based on the what a willing buyer, in the position of an Internet radio company, would have paid a willing seller, in the position of the record label. In applying this standard the CRB may look at other licensing transactions as benchmarks. In both rate determination proceedings, the webcasters claimed that the wrong benchmarks were used. In Webcaster I, the CRB’s predecessor, the Copyright Arbitration Royalty Panel used the agreement between the RIAA and Yahoo! as a benchmark. Webcasters claimed that this agreement was based on a monopolistic market where the RIAA adopted a take-it-or-leave it approach to license sound recordings. In Webcaster II, the CRB set rates based on an agreement between interactive music services and record companies.

Webcasters have also claimed that the per-performance metric used to calculate royalties was wrong. Webcaster I, imposed a royalty rate based on one listener listening for one hour. Webcaster II set the rate based on one song streamed per listener. The Radio and Internet NewsletterRAIN gives the following example: 500 listeners listening to one song would result in 500 listener hours and the station would have to pay a royalty for each listener hour. It explains that the rate based on this metric would result in the webcaster paying more per song transmitted than the revenue they made per song.