The copyright industry's royalty board

Does the U.S. copyright industry have rule makers in its pocket?

In early March the U.S. Copyright Royalty Board published results of its hearings and deliberations on what Internet radio stations should pay to publishers and artists for the right to stream their music. Sadly the results were quite predictable: the board, like so many groups in Washington, D.C., rejected all input except from the copyright industry and set rates which, if they go into effect, might kill a lot of the diversity in Internet radio.

The Copyright Royalty Board, part of the Library of Congress, has been charged with determining a fair royalty rate for a number of things including "performances of musical compositions by colleges and universities" and "digital performance right in sound recordings and ephemeral recordings." Internet radio stations are covered by the latter category.

The process that resulted in the new rates started in early 2005 and involved many people and organizations interested in the topic. The copyright industry was well represented, with the prime input coming from SoundExchange, an industry group that collects and distributes royalties. SoundExchange did its job very well, but it had a very receptive audience in the members of the Copyright Royalty Board.

The board's report is 115 pages long. The first 100 pages consist of discussions of the issues and the remainder includes the rules. The board spends almost all of the first 100 pages explaining why it rejected input from everyone except for SoundExchange. The industry group did not get everything it wanted, but close to it. For example, SoundExchange wanted to charge small nonprofit Internet streamers the same rates as big commercial broadcasters. The board rejected that idea and carved out a lower cost tier for small nonprofits (with less than an average of 182 simultaneous listeners), but larger ones did not escape so easily. The board said quite specifically that the ability for Internet radio stations to afford the fees had no influence in its decision process (See footnote 7 on page 19 of the report.)

The fees proposed by SoundExchange and adopted by the board are high, more than US$8 per listener in 2006 (the rates are retroactive to Jan. 1, 2006) and will get higher (more than US$15 per listener in 2008). All stations, both commercial and noncommercial, are subject to a US$500 per year minimum payment. Compare this with the approximately US$1.50 per listener that over-the-air broadcasters paid in royalty fees in 2006

Clearly some streaming sites will fail under this fee structure, particularly popular but poor commercial sites. Even so, SoundExchange put out a press release saying the rates were "fair and reasonable", but then quickly let it be known to reporters that it might negotiate different fees (a percentage of profit for example) in some cases. Such a statement seems like a good idea in the face of growing congressional disgust at the one-sided process used in this case.

This column is not about the copyright industry being out to kill small and nonprofit Internet radio sites (even though it looks like they are and I will miss some of the sites badly). It is about how things work in Washington, D.C., where the copyright industry has the rule makers in its pocket. It also is where the rules made will continue to restrict the ability of the Internet to be something that you, your company and I can use for something other than a Disney- or carrier-controlled Tivo.

Disclaimer: I do not know if Harvard's radio station will be hurt by these new rules and I know of no university opinion on the topic, thus the above ramble is my own.

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Scott Bradner

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