Copyright Royalty Board

In a move being celebrated in radio circles, a federal appeals court in Washington has upheld a decision by the Copyright Royalty Board which broadcasters felt more reasonably assessed music licensing fees for stations aiming to grow their digital reach. The decision, released Tuesday by the U.S. Court of Appeals for the D.C. Circuit, was a clean sweep for the CRB, which had conducted a six-week review, digging through more than 12,000 pages of documents, and heard the oral testimony of 47 witnesses – before it decided on the rates for the Jan. 2016-Dec. 2020 period.

The appeal had been filed more than two years ago by SoundExchange. The digital royalty collections agent for record labels and artists had argued the CRB rates set during the so-called “Web IV” proceedings didn’t reflect a “fair market price” for radio stations’ use of music online. SoundExchange said the decision wasn’t supported by any “substantial evidence” and that, if the rates were allowed to stand, they would “erode the value of music.”

SoundExchange declined to comment on the court's decision.

The rates adopted by the CRB set royalty rates on non-subscription advertising-supported webcasts at $0.17 for every 100 songs streamed. That was about one-third less than the $0.25 that most broadcast streamers had been paying under the previous rate agreement. But it was also above the $0.14 that pureplay webcasters were paying at the time of the decision. At the same time, the CRB cut the royalty rate on subscription webcasts by 14% to $0.22 cents for every 100 songs streamed. And, unlike the prior royalty structure, the Web IV rates didn’t include an alternate calculation based on percentage of revenue, but instead are solely based on per-performance rates.

The three-judge panel rejected SoundExchange’s arguments, including that the CRB used the wrong benchmarks when it crafted the rates paid by radio stations for their ad-based non-interactive streams. SoundExchange thought the CRB should have considered what subscription-based commercial webcasters were paying as a guide rather than using agreements signed between iHeartMedia and Warner Music Group and between Pandora and Merlin, an agency representing thousands of independent record companies.

“We reject that challenge and uphold the Board’s decision,” Judge Sri Srinivasan wrote in the 35-page decision. “The Copyright Act specifically contemplates the Board’s ability to adopt different rates for distinct market segments in the provision of webcasting services,” he added. SoundExchange also argued CRB should have considered the total compensation being paid to record companies paid under agreements rather than focusing on per-performance rates. But as Srinivasan noted in the decision, SoundExchange faced “an uphill battle” challenging what the CRB used as its benchmarks since federal law gives it “broad discretion” over deciding what’s useful.

The National Association of Broadcasters had been fighting to keep the rates set by the CRB in place, saying they were a step in the right direction after years of broadcasters being hit with rate increases nearly double what pureplay streaming services were being charged. “NAB is delighted by the D.C. Circuit’s decision to uphold the streaming rates for broadcasters set by the Copyright Royalty Board,” a spokesman said Tuesday.

Attorney David Oxenford said the decision likely means that unless SoundExchange moves forward with its legal challenges, any lingering doubts about the current royalties have been resolved, and the rates will likely remain in place though the end of 2020. “That is not far away, and next year, the process will begin again, as the CRB starts its proceeding to determine the rates for 2021-2025,” he wrote in a blog post.

Shining Light On ‘Steering’

One result of the court case is it shined light on a practice known as “steering.” In court documents both Pandora and iHeartMedia showed how their agreements with the record industry allowed them to use technology to alter the natural occurrence of performances under its algorithm. If either webcaster opted to “steer” in favor of a given record label, their services could play songs from artists on the label more often than its algorithm would otherwise yield.

As Srinivasan wrote in his decision, that practice gives a record label broader exposure that can help attract additional listeners to the label’s artists and generate revenue for the label from traditional sources like music sales and merchandise. “The parties agreed that if the webcaster steered in favor of the record company—increasing the number of plays for the record company’s artists by a certain percentage—the webcaster could reduce the per-performance license rate it paid to the record company,” Srinivasan noted.

Rather than fight the practice, the CRB has embraced it, concluding just the threat of steering can introduce price competition into the market and helps to keep record companies in check from overcharging music users like radio stations. And as Srinivasan explained, a webcaster’s threat to steer in favor of a copyright holder’s competitors can induce the copyright holder to agree to lower per-performance rates without ever actually changing the music mix.