By: Elizabeth Gaffney
On the heels of the 57th Annual Grammy Awards, the music industry’s biggest night of the year, the spotlight has shifted to Washington D.C. and the battle over music rates and copyright laws. The dispute is between SoundExchange, a nonprofit organization in charge of collecting and distributing digital performance royalties, and various online radio stations.[1] The digital radio stations are pushing for lower royalty rates to make listening more affordable to the public, while SoundExchange is concerned about higher compensation for artists and labels.[2]
For the first time in five years, a decision must be made regarding the statutory rates and revenues for webcasters.[3] Ultimately, the decision rests on the judgment of the Copyright Royalty Board, comprised of three unelected judges.[4]  These judges are tasked with the difficult job of approving new royalty rates for online radio stations such as Pandora, IHeartMedia, and Spotify.[5] The decision they make is in part a difficult one because the parties are far from compromising and the industry has greatly expanded since 2011, with both Apple’s iTunesRadio and Google’s Songza coming on the scene.[6] But, the frontrunner is still Pandora, asking for a 27% decrease to 11 cents per stream, while SoundExchange wants an increase from the previous rate to 25 cents per stream.[7]
When making such decisions the Board considers four goals codified in the Copyright Statute § 114.[8] Simplified, these objectives are: (1) to maximize public availability; (2) to balance the owner’s return and the user’s income in a fair manner, considering the economy; (3) to show the respective roles of the copyright owner and user in the available product with regard to their relative contribution, whether it is creative, technological, capital, or a new market; and (4) to maintain status quo in the industry by managing the impact of and upholding widespread practices.[9] However, as recently as this past December, the Copyright Royalty Board’s decision to set preexisting subscription services at a higher rate was affirmed by the United States Court of Appeals, stating the Board has broad discretion.[10] Due to this precedent, it is likely that the Board’s pending ruling will not be overturned if either side appeals the decision.
For better or for worse, the future of the whole industry lies in the hands of these three judges, who astonishingly have very little supervision and are not appointed by the President, nor confirmed by the Senate.[11] A 2004 statute mandated that the Librarian of Congress elect the Board.[12] This quiet, but powerful trio is scheduled to make a decision by this December.[13] Ultimately, its determination will have a serious impact. If the rates are lowered, there will likely be more webcasting. But, if they are raised, the webcasters will have to collaborate with labels to obtain direct licenses.[14] Either way, the negotiated rates are sure to leave one side feeling jilted in this billion-dollar industry.
[1] SoundExchange, http://www.soundexchange.com/about/ (last visited Feb. 17, 2015).
[2] Alex Byers, The Secret Policy War at the Grammys, Politico (Feb. 8, 2015), http://www.politico.com/story/2015/02/policy-war-grammys-114990.html?ml=tb.
[3] Id.
[4] Id.
[5] Glenn Peoples, How the Upcoming Change in Digital Royalty Rates Will Alter How We All Listen, Billboard (Oct. 31, 2014), http://www.billboard.com/articles/business/6304253/war-over-digital-royalty-rates-2015.
[6] Id.
[7] Id.
[8] See Music Choice v. Copyright Royalty Bd., 774 F.3d 1000 (D.C. Cir. 2014).
[9] Id. at 1014.
[10] Id. at 1016.
[11] SoundExchange, Inc. v. Librarian of Cong., 571 F.3d 1220, 1226 (D.C. Cir. 2009).
[12] Id. at 1222.
[13] Byers, supra note 2.
[14] Peoples, supra note 5.