CRB's 2016-2020 Webcasting Rate-setting Ruling Mainly Benefits Pandora and Broadcasters, Lawyers Say
The 2016-2020 noninteractive webcaster royalty rates the Copyright Royalty Board released Wednesday are effectively a win for Pandora and broadcasters even though the actual rates fall between those parties’ proposed rates and a higher rate proposed by SoundExchange, industry lawyers told us. Noninteractive webcasters will be required to begin paying a 0.17 cent royalty per performance on nonsubscription services and a 0.22 cent royalty per performance on subscription services, the CRB said. The 2016-2020 webcasting rates take effect Jan. 1 and last through the end of 2020 (see 1512160076). The CRB’s ruling is likely to draw an appeal from SoundExchange, industry observers said.
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“When the dust starts to settle after this ruling, people are going to realize that what the CRB has essentially done is ignored the fact they had set a much higher rate in the last [webcasting rate-setting proceeding in 2011], which they then cut almost in half because Pandora then screamed bloody murder,” music industry attorney Chris Castle said. “Now we’re digging out of a hole to inch our way back to something that doesn’t even resemble what that original rate was.” The CRB had originally set a statutory 0.23 cent rate per performance.
Pandora executives welcomed the new 0.17 cent royalty rate for nonsubscription services during a Wednesday conference call with investors, even though it's an increase over the 0.14 cent rate it currently pays. Pandora had proposed that the CRB lower its webcasting royalty rate to 0.11 cent per performance. The 2016-2020 rate is "a rate we can work with and grow from," Pandora CEO Brian McAndrews said. The ruling "creates certainty for our business and will help us more definitively plan and act on our vision and goals,” Pandora Chief Financial Officer Mike Herring said. “If we make those investments now, we have a clear path to significant returns over the long term.” Pandora “probably came out of this feeling like ‘while it hurts a little bit, all in all we kind of dodged a bullet,’” said former National Music Publishers’ Association General Counsel Jay Rosenthal, a Mitchell Silberberg lawyer who represents music industry content owners.
The CRB ruling is also “going to help broadcasters,” though it may not be a net positive for all entities in the sector, said Fletcher Heald copyright and music licensing lawyer Kevin Goldberg. “This is a big savings for the smaller-to-midsize broadcaster in terms of royalties paid out every year.” NAB, which had proposed a 0.05 cent royalty rate, said in a statement it’s still “reviewing the CRB decision, but [is] pleased that streaming rates have begun to move in the right direction” away from what it believes are “rates that are too high” for local radio stations. “We hope today’s decision alleviates some of the rate burden and will enable more radio stations to stream music, which will benefit artists, songwriters and our millions of listeners,” NAB said. However, a full version of the CRB’s ruling still being reviewed by lawyers to parties in the webcasting rate-setting proceeding may remove the current exemption to the webcasting rates for small broadcasters, which “will hurt a lot of truly small broadcasters, who relied on that exemption from playlist reports of use,” Goldberg said. “They won’t care about the rate reduction because they were almost by definition not paying more than the $500 annual minimum fee anyway. The truly small broadcasters may not benefit at all and may in fact be harmed by this.”
A SoundExchange appeal of the CRB’s ruling is likely but is unlikely to hold up in court, Rosenthal said. Although an appeal of the ruling would likely be based on the details of the CRB’s yet-to-be-released full ruling on the rate-setting proceeding, at this point there’s no evident “appealable issue” on which SoundExchange could successfully base a challenge, he said. Content owners “probably feel like ‘we didn’t come out of this as well as we thought we were going to,” Rosenthal said. “Honestly I think [CRB] split the baby and were trying to give something to both sides in this proceeding.”
“We believe the rates set by the CRB do not reflect a market price for music and will erode the value of music in our economy,” SoundExchange CEO Michael Huppe said in a statement. “We will review the decision closely and consider all of our options. Additionally it is deeply disappointing to see that broadcasters are being given another unfair advantage. In their terrestrial business they do not pay a dime for the recordings they use and now this $17B industry will receive an additional huge subsidy on the music they use in webcasting.” SoundExchange had argued for a graduated rate beginning at 0.25 cent per performance in 2016, reaching 0.29 cent per performance in 2020.
Rosenthal and Digital Media Association General Counsel Gregory Barnes both noted the CRB’s unusual decision to tie any annual increase in the webcasting rates between 2017 and 2020 to the Consumer Price Index. Although the CRB has used the CPI as a factor in annual rate increases for other proceedings, it hasn’t happened previously for webcasting rates, Barnes said. But the CRB decision “makes sense since other rates also track with the CPI,” he said. Tying annual rate increases with the CPI would also “bring uncertainty since no one knows whether the increase from year to year will be more or less than it would have been under a steady graduated scale,” Rosenthal said.