2018-2022 Rate-Setting Proceedings for Satellite Digital Radio, Mechanical Royalties Likely To Be Contentious

Fundamental disagreements among music licensing stakeholders over the use of direct licensing deals and royalty compensation levels may make controversy in both the mechanical and satellite/PSS proceedings near inevitable, Oxenford and others said. “Certainly when anybody wants more money and folks don’t want to pay, fault lines can develop,” he said. Mechanical royalty rates now are 9.1 cents per copy for songs less than five minutes long and 1.75 cents-per-minute per copy for songs more than five minutes long. The mechanical royalty for ringtones is 24 cents per copy, while rates for interactive streams and limited downloads vary. Royalties for satellite digital performances are 10.5 percent of gross revenue through the end of 2016 and 11 percent through the end of 2017. Royalties for PSS performances are 8.5 percent of gross revenue through the end of 2017.

Both Oxenford and Future of Music CEO Casey Rae cited pressure from music publishers on behalf of content creators to increase the mechanical royalty rates above current levels. The existing mechanical rates have remained the same since early 2006, causing “deep frustration” among music publishers that could surface during the new mechanical proceeding, Rae said. “Songwriters have been through this before given that the mechanical royalty was frozen between 1909 and 1978,” said music industry attorney Chris Castle. “They’re not going to be wild about” continuing with the existing mechanical rates lest it result in a new rate freeze, he said.

The mechanical proceeding is likely to again produce “strange bedfellows” in the form of an uneasy alliance between record companies and on-demand digital services like Spotify, Castle said. Record companies and on-demand services sat on opposite sides during the CRB’s recently concluded proceeding to decide 2016-2020 royalty rates for performances on noninteractive webcasting services (see 1512160076 and 1512170063) but are “actually somewhat aligned in this particular instance,” Oxenford said. The Digital Media Association hopes parties in the mechanical proceeding “will be able to come together to achieve a mutually beneficial settlement that avoids the costs associated with a lengthy and time-consuming CRB proceeding,” said General Counsel Greg Barnes. “Our top priority right now is improving upon our current offerings in a manner that will yield even greater benefits for songwriters, singers and consumers of online music.”

The satellite/PSS proceeding, whose top participant is likely to be Sirius XM, could be contentious amid likely demands that those royalty rates increase because of Sirius’ increased success since the last rate-setting proceeding in 2013, Oxenford said. SoundExchange, which “wasn’t happy” with the 2013 outcome, will “probably ask for more” during the current proceeding, Oxenford said. It took years for CRB to resolve appeals of the last satellite/PSS proceeding and “I’d imagine there’s still some contentiousness about that,” said Fletcher Heald copyright and music licensing lawyer Kevin Goldberg. But parties to the satellite/PSS proceeding are likelier to settle than those in the mechanical proceeding because only a handful of companies are involved in satellite digital radio and PSS, he said. SoundExchange and RIAA separately confirmed that they will participate in the satellite/PSS proceeding, with an RIAA spokeswoman saying RIAA hopes “music creators are awarded fair market value for their work, especially from services like satellite radio which pays creators a below market rate while generating billions in revenue.” Sirius didn’t comment.

David Lowery, a music business lecturer at the University of Georgia and a songwriter, said he remains concerned about the possibility that direct deals could become increasingly influential in future CRB proceedings given the influence that Pandora’s deals with independent music label rights consortium Merlin Network and independent label Naxos had on the 2016-2020 webcasting proceeding. Any increase in the influence of direct deals in CRB proceedings “would make a mockery of the whole process,” Lowery said. Castle also predicted increasing attempts to introduce direct deals as benchmarks in future CRB proceedings, noting Sirius’ increasing interest in entering into such deals. The Copyright Office ruled in September that the CRB isn’t prohibited from considering direct deals as benchmarks in rate-setting proceedings because such deals don’t fall under a prohibition in the 2009 Webcaster Settlement Act that bars the CRB from considering alternative rate structures in its determinations (see 1509210054).

The scope of participation in the three 2018-2022 rate-setting proceedings will be the earliest sign of how the proceedings will fare, Goldberg said. “It pays to play,” but many smaller stakeholders in such proceedings “are deterred from participating” by the CRB’s $150 filing fee, he said. “What we learned from the [2016-2020 webcasting proceeding] is that small webcasters didn’t participate and are now kicking themselves as a result” because of the proceeding’s outcome.” Parties must file to participate in the three 2018-2022 proceedings by Feb. 4.