Internet rights, rates (and wrongs)

I have always been suspicious that the only reason that songwriter and music publisher collection societies the Performing Right Society (PRS) and the Mechanical Copyright Collection Society (MCPS) in the UK ever evolved into 'PRS for Music' was because that at that time no-one quite knew what a stream or a download was in law and that the merger only way they could sensibly (and legitimately) explain their right(s) to collect royalties from the use of their member’s songs on the internet. There was (and still is) much debate about what constitutes a 'stream' and what constitutes a 'download' and whether these form a public performance (whether a broadcast or a 'communication to the public') or more like the sale of a copy of a copyrighted work - a 'per unit' sale. There again, some ask whether they both? Or are they the same thing? Or is copyright law so hopelessly out of tune with the modern world that none of these definitions are actually applicable? Well now a US Federal appeals court has had a go at casting some much needed light on these issues and indeed on how the US collection society should be levying royalties for the use of (here) collection society ASCAP (songwriter and music publisher) members' works.

Looking at royalty rates first, The US Second Circuit Court of Appeals has overturned a District Court's decision that applied collection society ASCAP's streaming music royalty to Yahoo and RealNetworks’s activities and ordered a lower court to re-examine its findings. The Court of Appeals said that "in setting the royalty rate, the District Court must follow an approach more tailored to the varying nature and scope of Yahoo's music use" saying that "The district court did not adequately support the reasonableness of the 2.5% royalty rate applied to the value of the Internet companies' music use". The lower court was also ordered to "conduct a more complete analysis of the various uses of ASCAP's musical works by RealNetworks."

Judge John M. Walker, Chief Judge Dennis Jacobs and Judge Debra Ann Livingston said that the lower ("Rate") court’s establishment of benchmarks using the rates cable companies and broadcast stations pay for licensing music was inappropriate because the nature and scope of the online companies’ use of music differed significantly. The judges sided with Yahoo! and criticised the Rate court for relying on inconsistent sets of data sources when coming up with its music licensing formulae and said that the rate court’s attempt to come up with a simple 2.5% across-the-board license for the two online services was imprecise -and did not take into account the different kinds of services that both Yahoo! and RealNetworks offer. The three-judge panel also found that the Rate court did not give enough of a rationale for basing its licensing fee formula on the amount of time a piece of music is streamed, rather than on page views, which is the primary driver of advertising revenue. The appellate court also found that Yahoo can’t be compared to television stations because its business isn’t as reliant on music as the television industry with Judge Walker, giving the opinion of the Court, saying "Nearly every program on a television station somehow utilizes musical works,” adding “In contrast, only a fraction of the traffic on Yahoo!’s web site uses music — much of Yahoo!’s web site does not implicate any music whatsoever. Given that Yahoo!’s revenue base relies far less on ASCAP content than the television networks’ revenue base, we believe that comparing percentages of overall revenue bases is of little probative value in this benchmark analysis.” The judge also pointed to Yahoo!’s more specific licensing terms with BMI in the USA for the different kinds of uses of music as an example of how licensing agreements can be more reflective of the nature of the use of the music and noted that ASCAP’s own agreements with Turner Broadcasting for its various cable stations also accommodate different kinds of licenses depending on how each station uses music.

The appellate court did agree with the lower court on one separate, but key issue that ASCAP had appealed. The Court rejected the notion that a music download constitutes a "public performance" of a song. The Court held that downloads do not constitute a public performance of a work as defined under current US copyright law. The court said "In answering the question of whether a download is a public performance, we turn to Section 101 of the Copyright Act, which states that '[t]o ‘perform’ a work means to recite, render, play, dance, or act it, either directly or by means of any device or process'," ruling that "A download plainly is neither a 'dance' nor an 'act'. Thus, we must determine whether a download of a musical work falls within the meaning of the terms 'recite,' 'render,' or 'play'." Judge Walker then went on to say that the court would look at he ordinary sense of the words 'recite,' 'render,' and 'play' which refer to actions that can be perceived contemporaneously saying "Itzakh Perlman gives a 'recital' of Beethoven’s Violin Concerto in D Major when he performs it aloud before an audience .... Jimmy Hendrix memorably (or not, depending on one’s sensibility) offered a 'rendition' of the Star-Spangled Banner at Woodstock when he performed it aloud in 1969. Yo-Yo Ma 'plays' the Cello Suite No. 1 when he draws the bow across his cello strings to audibly reproduce the notes that Bach inscribed. Music is neither recited, rendered, nor played when a recording (electronic or otherwise) is simply delivered to a potential listener."

The court held that "The downloads at issue in this appeal are not musical performances that are contemporaneously perceived by the listener .... They are simply transfers of electronic files containing digital copies from an on-line server to a local hard drive. The downloaded songs are not performed in any perceptible manner during the transfers; the user must take some further action to play the songs after they are downloaded."The ruling also made a clear distinction with the streaming of files which, like broadcasts, had to be licensed for their performance saying "[Yahoo! and Real's] stream transmissions, which all parties agree constitute public performances, illustrate why a download is not a public performance. A stream is an electronic transmission that renders the musical work audible as it is received by the client-computer’s temporary memory. This transmission, like a television or radio broadcast, is a performance because there is a playing of the song that is perceived simultaneously with the transmission".

The Court sent the case back to the lower court to reconsider the method of calculating the licence fees due to ASCAP.


http://www.dmwmedia.com/news/2010/09/28/appeals-court-music-downloads-not-039public-performances039

http://broadbandbreakfast.com/2010/09/ascap-music-licensing-fees-voided-for-yahoo-realnetworks/

http://www.out-law.com/page-11406

Knockback for record labels in US streaming decision

A three-judge federal appeals court has upheld a 2007 decision that a Yahoo Inc Internet radio service is not required to pay “per play” fees to the copyright holders of sound recordings. In a second defeat for the labels which brought the appeal (including Arista Records, Sony BMG, Capitol Records Inc, Motown Records Co and Virgin Records America) the U.S. Second Circuit Court of Appeals upheld the 2007 jury verdict that Yahoo’s Launchcast did not give listeners enough control to be an "interactive service" that and that Launchcast only needs pay the licensing fees set by SoundExchange, the organsiation that collects royalties on sound recordings. Launchcast lets users create personalised "radio stations" that play songs in a particular genre or match pre-determined selection such as similarity to the listeners favorite artists or songs.

The original 2001 copyright infringement claim (and subsequent appeal) is really down to one question - what constitutes an “interactive service”? This term is defined is US law as a service

"that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording ... which is selected by or on behalf of the recipient".

In his 42-page decision Judge Richard Wesley said Congress enacted the law because previous laws did not do enough to protect sound recording copyright holders from falling record sales but found that Launchcast "does not provide sufficient control" to convince listeners to choose to listen to music on the Internet, instead of buying music. The record labels had argued that the ability of listeners to skip songs they don't like made the service interactive but the court disagreed saying "The user has control over the genre of songs to be played for 5,000 songs" with Judge Wesley adding “but this degree of control is no different from a traditional radio listener expressing a preference for a country music station over a classic rock station".

Whilst the case adds some clarity to what is and isn’t currently an interactive service in the US, it does little to clarify what other services might be covered, not least as the case started in 2001 and online music has moved on in leaps and bounds since then. I suspect ultimately the line between what will replace physical sales (which can currently be most simply defined as a “download”) and what might replace broadcasting (whether it is web “broadcasting” or streaming) will become so blurred they will be impossible to separate – and with new online and on-demand business models like LastFM and Spotify sprouting up on a regular basis this could be something the courts may need to revisit soon.

Arista Records LLC et al v. Launch Media Inc, U.S. Second Circuit Court of Appeals, No. 07-2576.

http://www.reuters.com/article/technologyNews/idUSTRE57K3HW20090821

On-demand streaming royalties and ad-supported content

As has been widely reported, PRS for Music (the collective formerly known as the PRS/MCPS Alliance) has announced (via this press release) its new royalty rates for that rapidly-growing sector of the online music market; the on-demand streaming services.

The widely criticised minimum per-track royalty (previously 0.22p per track) is plummeting to 0.085p per track - or 85p per 1,000 tracks served, or what the advertising industry refers to as CPM (cost per thousand).

That still looks like a tough order when it comes to advertiser-supported content. For these sites, just to cover this new reduced royalty, an ad-supported site that plays an ad before every track has to sell that advertising at a CPM of 85p - if it only wants an advert one track in 10, then it needs to sell at a CPM of £8.50 - which is two to three times what a typical TV advertising campaign costs in the UK. And that is just to cover the PRS costs, let alone pay record labels, technology suppliers and make any money for itself.

The other moving part is the royalty rate - up from 8% to 10.5% of revenue - this is a neat move by PRS for Music - because the minima are still relatively high, it is likely that most business plans will focus on those numbers and not on the percentage rate, while PRS will have a headline royalty rate that, perhaps for the first time in a consumer market, will top 10% and which PRS will doubtless use as a reference point in other negotiations and Copyright Tribunal proceedings.

Finally a word on the process - the author (declaration of interest - he has represented interests adverse to PRS for Music on many occasions) notes that PRS asserts that an "extensive seven month consultation period" preceded the announcement, but that the concept that what customers think might be as important, or more important, than what a society's members think, still seems a challenge. It would be wonderful if some economists could invent some kind of bargaining process which would force collecting societies to negotiate as if in a real market situation.

Written by John Enser.