Legislative Fixes

As it did in the past, Congress continues to address problems surrounding performance licensing in a piecemeal fashion. Bills have been introduced in both houses to rectify the perceived injustices of the webcaster rate proceedings, introduce platform parity and require over-the-air radio to pay a performance license. While most of these bills would go some way in improving the current morass, they do not go far enough. In addition, one of them threatens to erode consumer rights in the name of introducing platform parity.

Small Webcaster Settlement Act

Pursuant to calls by small commercial webcasters to set aside the Webcaster I ruling, Congress passed the Small Commercial Webcasters Settlement Act of 2002 (SWSA). The SWSA allowed SoundExchange to negotiate licenses directly with small webcasters. However, the SWSA specified that rates negotiated under the Act were a compromise that did not represent an actual market place transaction. As a result they were not to be regarded as benchmarks in any future CRB proceedings.

On December 12, 2002, SoundExchange and a coalition of small commercial webcasters called the Voice of Webcasters notified the Copyright Office that they had negotiated an agreement under the SWSA. The Office published the terms of this agreement, which became the alternate rates available to small commercial webcasters.

The agreement significantly lowered the rates for small webcasters. For 1998-2000, it allowed webcasters to pay either 8% of gross revenues or 5% of their total expenses—whichever was higher. For 2003 and 2004, these rates were set at 10% of gross revenue for the first $125,000 and 12% of revenue for any amount exceeding that figure.

Internet Radio Equality Act

Two companion bills, both named the “Internet Radio Equality Act” (IREA) were introduced in the House and Senate in 2007. Both bills aimed to nullify the May 1, 2007, royalty determination of the Copyright Royalty Board – Webcaster II.

Both bills proposed to replace the controversial willing buyer/willing seller standard for determination of royalties with current standards that apply to other digital music services such as satellite radio. Also, both bills would replace the rates set by Webcaster II. Under the bills’, all webcasters would have the option of paying either 0.33 cents per hour of transmission to one listener or 7.5% of revenues received by the provider.

A coalition of webcasters, calling itself the SaveNetRadio Coalition, has come out in support of the House bill. Because the bills are so similar, one can infer the coalition is likely to support the Senate bill as well. SoundExhcange and MusicFirst oppose the bills and contend that these rates would serve as a windfall for large webcasters. As of the publishing date of this website, both bills are pending before Congress.

The Perform Act of 2007

The Perform Act was introduced in the Senate on Jan 11, 2007. The bill seeks to reform rate-setting procedures and introduce platform parity. Like the IREA, this bill would change the controversial willing buyer/willing seller standard to one based on fair market value. It would also require uniform rate setting standards for webcasters, satellite radio providers and cable radio services. However, the bill would not apply to analog broadcasters, who could continue to transmit music without paying performers and record companies.

While the bill’s proposals to establish platform parity and reform rate-setting standards and procedures would bring about much needed reform, the bill also contains several provisions that are unfair to consumers. First, the bill would severely restrict home recording rights and require services to install DRM to achieve these restrictions. Consumers would be allowed to record only based on blocks of time and not on specific songs, albums or artists. In addition, the devices would have to be designed so that consumers could only listen to the recordings in the same order they were recorded. What does this mean in practical terms? It means that users would be allowed to record a random block of songs—say 5 minutes worth of songs from their favorite radio station—but would not be allowed to split that recording into separate songs or to attempt to record only specific songs played on the station.

The DRM provisions of the Perform Act are based on the reasoning that modern devices that allow consumers to record songs, create their own playlists and listen to music in whatever order they wish would amount to a distribution of music and displace record sales. Thus, any digital broadcast of an audio recording must be protected using technological protection measures. The reasoning seems to be specifically targeted at XM’s portable receiver called the inno.

The Performance Rights Act

The Performance Rights Act of 2007 was introduced in the House and Senate on December 18, 2007. Both bills would require over-the-air broadcasters to pay a performance license to labels and performers, as is the case for satellite, cable and Internet radio services. They would subject broadcasters to the same statutory license as webcasters and satellite radio services. However, the bills would still treat traditional broadcasters more favorably than satellite or Internet radio service providers by not requiring them to abide by all the conditions that the other services have to abide by in order to be eligible for the statutory license. The bills seek to alleviate any burden the license may cause on non-commercial and small radio stations by giving them a flat fee option.

The bills are a good first step towards achieving parity. However, they would fail to level the playing field among all providers of music services by not addressing the disparities in rate setting procedures. Also, they would not ensure that an artist’s share of the revenues is not used by record labels to “recoup” their advances—a remnant of the music industry’s archaic contract structure. The Perform Act has passed the House Subcommittee on Courts, the Internet and Intellectual Property.