A new paper from a Washington, D.C. think tank clearly recounts how entrenched interests crafted copyright law to establish copyright royalty obligations that put webcasters at a severe disadvantage to other forms of radio -- and calls on Congress to fix it.
The highly-regarded Brookings Institution last week published "Digital Music Broadcast Royalties: The Case for a Level Playing Field" in which it calls for Congress to enact legislation requiring the use of a consistent legal standard for royalties when it comes to "all non-interactive digital audio broadcasting."
We've often discussed (such as here) -- as have leading experts in the field, such as attorney David Oxenford -- the fact that sound recording performance royalties for Internet radio are determined using a significantly different (and, as it's been demonstrated, dramatically unfavorable) legal standard than those for other forms of radio.
The bottom-line result of the different legal standard can be seen in recent Copyright Royalty Board determinations. For instance, the CRB, based on the widely-used "801(b)(1)" standard in copyright law, "concluded in a December 2007 ruling that the satellite radio royalty rates should start at 6% of gross revenue for 2006, rising gradually to 8% in 2012." The same group of judges, using the significantly different "willing buyer/willing seller" standard (instead of 801(b)(1)), determined a royalty rate for Internet radio of $.0021 "per performance" (songs x listeners) for 2012. Pandora, had it been paying this rate instead of its special discounted agreement rate with SoundExchange, "its payments to SoundExchange for sound recording performance licenses would likely have... approach(ed) or exceed(ed) its revenue of $80.1 million."
The Brookings paper is an excellent primer on the differences between U.S. Copyright Law's "801(b)(1)" standard (used for rate-setting for satellite radio and services like Music Choice) and the "willing buyer/willing seller" standard that 1998's Digital Millennium Copyright Act mandated for webcasting. It also very nicely recounts the history of webcasting royalties, CARP and CRB, the DMCA, and more. The author, Brookings nonresident senior fellow John Villasenor, has published articles in Forbes (covered in RAIN here and here) on this very topic.
Brookings has at least one ally in Congress already. In July we reported (here) that Utah Republican Congressman Jason Chaffetz has begun crafting a bill that would indeed replace the "willing buyer/willing seller" standard in webcast royalty determinations with the 801(b)(1) standard.