surplus-humanity

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135

Internet Radio Disparity: The Need for

Greater Equity in the Copyright Royalty

Payment Structure

Jessica L. Bagdanov

INTRODUCTION

When Radiohead released the album “In Rainbows” in 2007,

they provided a downloadable version on the band’s website for

which buyers could pay whatever price they wanted, even zero.

Commentators noted, “[f]or the beleaguered recording business

Radiohead has put in motion the most audacious experiment in

years.”

Although some fans downloaded the album for free,

many paid money for it,

and the album made more money than

the band’s two previous albums combined, which were never

offered for free.

Not many musical artists could get away with

the creative antics of Radiohead,

but this novel marketing

J.D. candidate 2011 Chapman University School of Law. B.A. 2007 Westmont

College. I am incredibly grateful to Chapman University School of Law Professors Heidi

Brown and John Tehranian for their thoughtful editorial input on this Comment; to my

colleagues on Chapman Law Review for their tireless efforts and hours of work; also to my

parents, Doug and Connie Baird, for always encouraging me to pursue what inspires me;

and finally, to my husband, Tim Bagdanov, for his unfailing love and constant support.

1 Jon Pareles, Pay What You Want for This Article, N.Y. TIMES, Dec. 9, 2007, (Arts

& Leisure), at 1, available at http://www.nytimes.com/2007/12/09/arts/music/09pare.html

?ex=1354856400&en=ec2f1c29937292be&ei=5090&partner=rssuserland&emc=rss&pagew

anted=all.

2 Id.

3 About sixty-two percent of those who downloaded “In Rainbows” paid nothing

seventeen percent paid between one cent and four dollars; twelve percent paid between

eight and twelve dollars; six percent paid between four dollars and eight dollars; and four

percent paid between twelve and twenty dollars. Greg Sandoval, Free beats fee for

Radiohead’s ‘In Rainbows’, CNET NEWS BLOG (Nov. 5, 2007, 11:30 AM),

http://news.cnet.com/8301-10784_3-9811013-7.html. However, Radiohead produced the

album independently and was not sharing revenue with its old record label, EMI. Id.

4 Eric Pfanner, Radiohead Blazes a Marketing Trail, N.Y. TIMES (Aug. 24, 2009),

http://www.nytimes.com/2009/08/24/business/media/24iht-cache24.html?_r=1&scp=2&sq=

radiohead&st=cse.

5 Steven Corn noted that Radiohead already had an extremely loyal fan base when

they released “In Rainbows” as a pay-what-you-want download, and that it would not be

so easy for smaller, less visible music groups. Steven Corn, The Digital Lowdown,

ROYALTY WEEK, Oct. 30, 2007, at 7, available at http://www.aarcroyalties.com/new/media/

royalty_week_103007.pdf.

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136 Chapman Law Review [Vol. 14:135

strategy demonstrates the changing nature of the recording

industry and illustrates that record labels may need to change

their business models in order to stay afloat in an industry

driven by Internet streaming and advertising. Thom Yorke, lead

singer of Radiohead, said to Time Magazine, “I like the people at

our record company, but the time is at hand when you have to

ask why anyone needs one. And, yes, it probably would give us

some perverse pleasure to say ‘F___ you’ to this decaying

business model.”

The introduction of the Internet brought new ways for music

lovers to listen to their favorite artists without having to

purchase full albums. New methods of broadcasting music, such

as Internet

and satellite radio,

changed the face of radio and

broadcast licensing.

Musical recordings began to stream online

“by transmissions that are akin to radio broadcasts over the

Internet, whether to the public at large or directly to individuals

upon request, called webcasting.”

Many record companies and

other musical copyright holders became concerned that copyright

laws could not sufficiently protect their copyrighted content

and

that such entities and individuals would lose large percentages of

revenue due to Internet radio and piracy.

Indeed, the recording

industry has suffered financially due to the digital age.

It has

been noted, however, that if properly managed, Internet radio

6 Josh Tyrangiel, Radiohead Says: Pay What You Want, TIME (Oct. 1, 2007),

http://www.time.com/time/arts/article/0,8599,1666973,00.html.

7 Simply defined, Internet radio is the “continuous transmission of streaming audio

over the Internet.” ERIC LEE, HOW INTERNET RADIO CAN CHANGE THE WORLD 11 (2005).

8 Satellite radio stations, like Sirius and XM Radio, broadcast crystal clear music

from satellites in space and are often offered on a subscription basis. See generally What

is XM, XM RADIO, http://www.xmradio.com/whatisxm/index.xmc (last visited Sept. 29,

2010). This Comment is solely focused, however, on the legal issues pertaining to

Internet radio, and does not provide legal insight into the realm of satellite radio.

9 See generally MICHAEL C. KEITH, THE RADIO STATION (8th ed. 2010).

10 Bob Kohn, A Primer on the Law of Webcasting and Digital Music Delivery, 20 ENT.

L. REP. 4, 4 (1998). “Webcasting” and “Internet radio” are used interchangeably

throughout this paper. Internet radio is one type of webcasting. Some webcasters are

companies that operate Federal Communications Commission-licensed radio stations and

stream their programming over both the Internet and traditional AM/FM stations, and

others broadcast solely over the Internet. Cydney A. Tune & Christopher R. Lockard,

Navigating the Tangled Web of Webcasting Royalties, 27 ENT. & SPORTS LAW., no. 3, 2009

at 20.

11 Kohn, supra note 10.

12 Andrey Spektor, How “Choruss” Can Turn Into a Cacophony: The Record

Industry’s Stranglehold on the Future of Music Business, 16 RICH. J. L. & TECH. 1, 6–8

(2009), http://law.richmond.edu/jolt/v16i1/article3.pdf.

13 The recording industry brought in forty billion dollars in annual sales ten years

ago, and now it only brings in half of that. Brad Stone & Claire Cain Miller, Music

Forecast: In a Cloud, N.Y. TIMES, Dec. 16, 2009, at B1, available at

http://www.nytimes.com/2009/12/16/technology/internet/16tune.html?dbk.

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2010] Internet Radio Disparity 137

may also be a significant way for record companies to increase

record sales.

Kurt Hanson, founder and CEO of AccuRadio (a

small online radio site),

explained, “Internet radio is one of the

few bright spots in the music industry, giving airplay to dozens of

genres and thousands of artists that never received airplay

before.”

Although not a perfect substitute for purchasing

music, webcasting makes it easier for listeners to buy music from

artists they like than other forms of radio do.

The major issue in the statutory regulation of Internet radio

has been the performance right: who has one, who should get one

and how much it should cost.

Those who own a “performance

right” are entitled to receive royalties whenever someone else—

like a webcaster—broadcasts the copyrighted material.

Throughout recent history, copyright law related to performance

rights has changed dramatically.

Although the current system

has continued to achieve significant improvements, is still unfair

to webcasters. While terrestrial broadcast radio stations pay

minimal royalties for the music they play,

webcasters often

must pay at least twenty-five percent of their yearly revenue in

royalties.

This Comment advocates for a more balanced

14 “Online listening has become an increasingly valuable outlet for music companies

and artists. Internet radio services can appeal to niche audiences by tailoring individual

streams, and they feature independent artists who might never get played on broadcast

stations.” Claire Cain Miller, Music Labels Reach Deal With Internet Radio Sites, N.Y.

TIMES, July 8, 2009, at B2. See also David Oxenford, Copyright Royalty Board Releases

Music Royalties for Internet Radio Streaming for 2006–2010, DAVIS WRIGHT TREMAINE

LLP (Apr. 12, 2007), http://www.dwt.com/LearningCenter/Advisories?find=24816.

15 AccuRadio purports to currently reach approximately four-hundred thousand

listeners per month, compared to forty million Pandora users reported for 2009. Compare

The AccuRadio Story, ACCURADIO, http://www.accuradio.com/aboutaccuradio/ (last visited

Oct. 1, 2010), with Alexandra Osorio, Has Pandora Finally Arrived? Latest Stats Looking

Quite Impressive, DIGITAL MUSIC NEWS (Jan. 4, 2010), http://www.digitalmusicnews.com/

stories/121609pandora.

16 Miller, supra note 14.

17 Webcasting is not a complete substitute for purchasing music, although it has

certainly posed a threat to the recording industry. In most cases, webcasting services do

not allow a user to choose a particular song at a particular time. The user may choose a

specific genre, or a type of music preferred, but is left with a playlist of music chosen at

random by the programming of the webcasting service. See, e.g., PANDORA RADIO,

http://www.pandora.com (last visited Oct. 1, 2010). For a very detailed account of how a

webcasting service akin to Pandora scientifically works, see Arista Records LLC v.

Launch Media, Inc., 578 F.3d 148, 162–64 (2nd Cir. 2009).

18 Robert Ashton, Artists vs Radio: America’s Battle Royal for Royalties, MUSIC

WEEK, Jan. 19, 2008, at 14. See also Part I, infra, which discusses the difference between

a musical work and a sound recording, and the statutory process of granting both

copyrights a performance right.

19 See infra Part I.

20 See infra Part I.

21 See infra note 174 and accompanying text.

22 See infra Part II.

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138 Chapman Law Review [Vol. 14:135

structure, where Internet radio is less-heavily burdened,

especially considering the significant advertisement advantages

it has over other forms of broadcast radio.

In order to fully understand the problems associated with

the current structure of broadcast copyright laws, particularly as

applied to Internet radio, one must appreciate the history of the

law and its evolution over time. Part I of this Comment provides

an overview of current copyright law applicable to webcasting

and Internet radio.

Part II discusses current royalty rate

structures that apply to different webcasting business models.

Part III notes the unfairness of the current rate structure and

discusses new issues it must face because of the continued

advancement of technology. Finally, Part IV proposes that to

create a more balanced system, Congress should pass the

Performance Rights Act, which would amend current copyright

law to require terrestrial broadcast stations to compensate

artists, just like all other mediums of radio broadcasting.

The

Act should require that SoundExchange

create an opt-out

database where artists can waive royalty payments.

Hence,

while actually raising royalty revenue coming to artists with the

Performance Rights Act, broadcasters could enjoy an efficient

way to reduce royalty payments.

I. CURRENT COPYRIGHT LAW APPLICABLE TO WEBCASTING AND

INTERNET RADIO

Regulation of Internet radio, like other copyright issues,

derives from the Copyright Act of 1976 (Copyright Act).

Two

amendments to the Copyright Act significantly determined the

future of Internet radio and webcasting: the Digital Performance

Right in Sound Recordings Act of 1995

and the Digital

Millennium Copyright Act of 1998.

This statutory framework,

23 This Comment does not purport to provide an exhaustive account of copyright law

or even a complete explanation of all copyright issues pertaining to the Internet. Rather,

the sole purpose of this Comment is to explore the law surrounding and governing

Internet radio.

24 See infra Part IV.A.

25 SoundExchange is “an independent, nonprofit performance rights organization”

that acts as the sole collection agency of statutory royalties on behalf of featured artists

and the owners of sound recording copyrights. The Copyright Royalty Board (CRB)

appointed SoundExchange to collect and distribute these digital performance royalties.

SOUNDEXCHANGE, http://soundexchange.com (last visited Oct. 1, 2010).

26 See infra Part IV.B.

27 The Copyright Act of 1976 was enacted as Pub. L. No. 94-553, 90 Stat. 2541 on

Oct. 19, 1976, and is codified in Title 17 of the United States Code.

28 See infra Part I.B.

29 See infra Part I.C.

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set in place long before webcasting existed, determines the

methods used to calculate royalty rates and licensing schemes for

the new business models of the twenty-first century.

A. The Copyright Act of 1976

Section 102 of the Copyright Act grants copyright protection

to works that are categorized as, among other things,

“musical

works”

and “sound recordings.”

A “musical work” refers to the

notes and lyrics of a song,

whereas a “sound recording” results

from “the fixation of a series of musical, spoken, or other

sounds.”

A song that is sung and performed by an artist

constitutes a sound recording, whereas the person who wrote the

song is the creator of a musical work.

While the holder of a

musical work copyright retains a right of performance—meaning

the person will be paid in royalties whenever that composition is

performed—the holder of a sound recording right will not.

As a

consequence of this lack of protection, other artists may perform

their own versions of a musical work and thereby produce their

own sound recording.

Often a record label owns the copyright

in a sound recording,

and the composer of the piece assigns his

30 Section 102 also affords copyright protection to literary works, dramatic works,

pantomimes and choreographic works, pictorial, graphic and sculptural works, motion

pictures, and other audiovisual works and architectural works. 17 U.S.C. §§ 102(a)(1),

(3)–(6), (8) (2006).

31 § 102(a)(2).

32 § 102(a)(7) (2010).

33 Digital Performance Right in Sound Recordings and Ephemeral Records, 72 Fed.

Reg. 24,084, 24,086 (May 1, 2007) (to be codified at 37 C.F.R. pt. 380).

34 17 U.S.C. § 101.

35 “For example, in the piece ‘Let It Be’ recorded by the Beatles, only John Lennon

and Paul McCartney originally held a ‘musical work’ copyright as the song’s composers,

while John, Paul, Ringo Starr and George Harrison all originally held a ‘sound recording’

Act: A Needed Substantive Cure for Webcasting Royalty Standards and Congressional

Bargaining Chip, 8 LOY. L. & TECH. ANN. 1, 5 (2009).

36 Digital Performance Right in Sound Recordings and Ephemeral Records, 72 Fed.

Reg. at 24,086.

37 Id. For a practical example of the relationship between a musical work and a

sound recording, and the impact of the distinction on performance rights, see Henry H.

Perritt, Jr., New Architectures for Music: Law Should Get Out of the Way, 29 HASTINGS

COMM. & ENT. L. J. 259, 272–73 (2007).

38 Digital Performance Right in Sound Recordings and Ephemeral Records, 72 Fed.

Reg. at 24,086. Sound recording copyright owners are typically record labels, and they

have the right to license the public performance of a sound recording by means of a digital

audio transmission. What is a Sound Recording Copyright Owner, SOUNDEXCHANGE,

http://soundexchange.com/category/faq/general-questions/#question-454 (last visited Oct.

1, 2009). The “Big Four” music companies—Universal, Sony/BMG, Warner, and Electric

& Musical Industries Ltd. (EMI)—have both record label and music publishing arms.

About EMI, http://www.emi.com/page/emi/AboutEMI (last visited Nov. 6, 2009). For

example, EMI Group’s record labels include Capitol and Virgin, and its New Music

department “finds and develops new, exciting and successful music.” Id. Its music

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140 Chapman Law Review [Vol. 14:135

interest in the musical work to a music publisher in exchange for

a continued interest in royalties drawn from it.

Under section 102 today, licensing revenues for both musical

works and sound recordings flow whenever such items are sold as

compact discs (CDs) or Internet downloads, or when they are

used in television and Internet commercials.

Revenues also

accrue for a musical work when it is “performed publicly through

radio, television, and Internet broadcasting . . . and venues of

every kind where music is played.”

However, no similar

performance right generated licensing revenues for holders of

sound recording rights under the Copyright Act until 1995.

Essentially, if a song was broadcasted over the radio, the

composer enjoyed copyright compensation, but the artist

performing the song and the record label did not.

The

commencement of the digital age, specifically the ability to

stream music over the Internet, posed a serious financial threat

to record labels by offering consumers a replacement for

purchasing compact discs.

In response, copyright holders—

specifically artists holding sound recording rights—looked to

Congress for more protection of their ownership rights.

publishing arm “is in the business of acquiring, protecting, administering and exploiting

the rights in musical compositions.” Id. Active songwriters under EMI Music Publishing

include Amy Winehouse, Kanye West and Jay-Z. Id.

39 AL KOHN & BOB KOHN, KOHN ON MUSIC LICENSING 408 (3d ed. 2002). According

to the Music Publishers Association, a music publisher seeks out new and talented

songwriters and composers and supports them as they develop their talents. A music

publisher is also responsible for distributing copyright royalties to its supported

songwriters and composers. See What is Music Publishing?, MUSIC PUBLISHERS ASS’N

ONLINE, http://www.mpaonline.org.uk/FAQ (click “What is Music Publishing?”) (last

visited Oct. 1, 2010).

40 Kevin C. Parks, Black Hole or Celestial Jukebox? Section 114 and the Future of

Music, 1 LANDSLIDE, no. 2, 2008 at 46, 47.

41 Id.

42 See infra Part I.B. Historically, radio broadcasters opposed the recognition of a

performance right in sound recording copyrights. See Musser, supra note 35, at 5–6.

43 Steven M. Marks, Entering the Sound Recording Performance Right Labyrinth:

Defining Interactive Services and the Broadcast Exemption, 20 LOY. L.A. ENT. L. REV. 309,

310 (2000). Historically, this inequity between the musical work and sound recording

copyrights “was maintained by virtue of the powerful lobbying efforts of the broadcasting

industry . . . which successfully resisted legislation that would have cost its members

much in the way of additional operating costs by imposing a requirement that

performance royalties be paid to labels and recording artists.” Parks, supra note 40, at 48.

See also Musser, supra note 35, at 5.

44 See Parks, supra note 40, at 48.

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B. The Digital Performance Right in Sound Recordings Act

In 1995, Congress granted sound recording copyright owners

a limited right of public performance in the Digital Performance

Right in Sound Recordings Act (DPRA).

Congress finally

recognized that the then-current state of the Copyright Act did

not sufficiently protect such copyright holders from commercial

exploitation.

The congressional committee in charge intended

to “control the distribution of [copyright holders’] product by

digital transmissions . . . without imposing new and

unreasonable burdens on radio and television broadcasters,

which often promote, and appear to pose no threat to, the

distribution of sound recordings.”

The statute provides in

pertinent part:

Subject to sections 107 through 122, the owner of a copyright under

[Title 17 of the United States Code] has the exclusive rights to do and

to authorize any of the following . . . in the case of sound recordings, to

perform the copyrighted work publicly by means of a digital audio

transmission.

The purpose of the DPRA was to ensure that performing

artists, record companies and others “whose livelihood depends

upon effective copyright protection for sound recordings, [would]

be protected as new technologies affect the ways in which their

creative works are used.”

The DPRA created a limited right, rather than an exclusive

right, to transmissions

in order to balance various “industry

interests.”

It also created a compulsory license for certain

45 Digital Performance Right in Sound Recording Act of 1995 (DPRA), Pub. L. No.

104-39, 109 Stat. 336 (codified in scattered sections of 17 U.S.C.).

46 See Kohn, supra note 10, at 6; Musser, supra note 35, at 6.

47 S. REP. NO. 104-128, at 15 (1995), reprinted in 1995 U.S.C.C.A.N. 356, 362. The

“copyright holders” referred to by the DPRA are holders of sound recording copyrights,

rather than musical work rights, which have enjoyed significant protection since the

original Copyright Act of 1976. See supra Part I.A.

48 S. REP. NO. 104-128, at 15.

49 DPRA § 2; 17 U.S.C. § 106(6) (2006).

50 S. REP. NO. 104-128, at 10.

51 Congress created a “limited public performance right exclusive to the digital

medium.” Musser, supra note 35, at 6. It shied away from creating an exclusive right of

public performance because Congress wanted to ensure that the new act would not

unnecessarily infringe on the performance of musical works. Id. See also S. REP. NO. 104-

128, at 16.

52 W. Jonathan Cardi, Über-Middleman: Reshaping the Broken Landscape of Music

interests of the Copyright Office, record producers, performers, music composers,

publishers, and broadcasters “without upsetting the longstanding business and

contractual relationships” between these entities. S. REP. NO. 104-128, at 13.

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142 Chapman Law Review [Vol. 14:135

transmissions, depending on the type of service provided.

Although it gave the exclusive right of performance to sound

recording copyright holders, the DPRA created a complex “three-

tiered system,”

categorizing license requirements into separate

rates for: (1) interactive services, (2) non-interactive subscription

transmissions, and (3) non-subscription digital audio

transmissions of sound recordings.

The DPRA tailored

licensing requirements to these different types of service

providers, depending on the likelihood of an effect on record

sales

or on the likelihood that “infringing reproductions” would

be created.

Owners of interactive services

are responsible for the most

stringent level of copyright licensing requirements and cannot

receive a compulsory license.

The DPRA defined an interactive

service as “one that enables a member of the public to

receive . . . on request . . . a transmission of a particular sound

recording . . . selected by or on behalf of the recipient.”

Interactive services do not qualify for the simple statutory license

structure “because of the ability of listeners to select specific

music that will be included in the stream . . . .”

Instead, they

must negotiate performance licenses with both the owners of the

copyrights in the transmitted musical compositions and also the

owners of the sound recordings.

Non-interactive transmissions

are subject to compulsory

licensing

only if they conform to specific statutory require-

53 A “compulsory license” means that if a webcaster meets specific statutory

requirements, it may use a particular sound recording without having to obtain

permission directly from the copyright holder, so long as it pays a statutory rate. Tune &

Lockard, supra note 10, at 21.

54 Bonneville Int’l Corp. v. Peters, 153 F. Supp. 2d 763, 767 (E.D. Pa. 2001) Cardi,

supra note 52, at 850.

55 Cardi, supra note 52, at 850–52.

56 Bonneville Int’l Corp., 153 F. Supp. 2d at 767.

57 Cardi, supra note 52, at 850.

58 Grooveshark is a good example of an interactive service. It lets a user choose a

particular song to hear on request, and the user may personalize song playlists. See

Grooveshark, http://www.grooveshark.com (last visited Oct. 1, 2010).

59 Musser, supra note 35, at 8.

60 Marks, supra note 43, at 313 (quoting 17 U.S.C. § 114(d)(1) (Supp. III 1997)

(codified as amended at 17 U.S.C. § 114(j)(7))).

61 Oxenford, supra note 14.

62 Cardi, supra note 52, at 851. See also Kellen Myers, The RIAA, the DMCA, and

the Forgotten Few Webcasters: A Call for Change in Digital Copyright Royalties, 61 FED.

COMM. L. J. 431, 440 (2009).

63 In a non-interactive service, a user may not choose a specific song and have it

played immediately, but rather a user can choose a genre of music one prefers. Spektor,

supra note 12, at 29. Pandora is a good example of a non-interactive transmission

because, although it allows limited control over which artists and songs a user hears, it

does not allow users to choose “more than three tracks from the same album or more than

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ments;

otherwise, they must negotiate privately with sound

recording copyright holders just like interactive services are

required to do.

If private negotiations fail between these

entities, an arbitration panel organized by the Copyright Office

determines the royalty rate for the compulsory license.

It is

this compulsory license that allows Internet services to use

legally recorded sound recordings in their webcasts

without

seeking permission directly from the copyright owners.

Non-subscription digital audio transmissions

of sound

recordings are those not controlled or limited to certain

recipients

and are totally exempt from the sound recording

performance right.

This third type of transmission constitutes

the most important exemption in the DPRA

and includes radio

and television broadcasts that are “available free of charge”

four tracks by one recording artist.” Myers, supra note 62, at 440. See also Arista Records

LLC v. Launch Media, Inc., 578 F.3d 148, 154 (2d. Cir. 2009). This case dealt with the

webcasting service LAUNCHcast which is similar to Pandora, and the Second Circuit

held that, as a matter of law, LAUNCHcast was not an interactive service within the

meaning of 17 U.S.C. § 114. Id. at 164.

64 See supra note 53 for an explanation of “compulsory licensing.”

65 Such requirements include that the service not be interactive, not pre-announce

the broadcast of a particular song, and must include information about the recording

broadcasted. 17 U.S.C. § 114(d)(2)(C); Tune and Lockard, supra note 10, at 21–22.

66 See Allison Kidd, Recent Development, Mending the Tear in the Internet Radio

Community: A Call for a Legislative Band-Aid, 4 N.C. J.L. & TECH. 339, 348 (2003).

67 Arbitrations of this kind were completed through a Copyright Arbitration Royalty

Panel (CARP) when Congress enacted the DPRA. See Amy Duvall, Note, Royalty Rate-

Setting for Webcasters: A Royal(ty) Mess, 15 MICH. TELECOMM. & TECH. L. REV. 267, 271

(2008). However, the rate-setting process was reexamined in 2004, and Congress passed

the Copyright Royalty and Distribution Reform Act (CRDRA), which replaced the CARP

adjudicators with a full-time, three-judge panel, now known as the Copyright Royalty

Board (CRB), which currently sets royalty rates. Id. at 278.

68 Public Performance of Sound Recordings: Definition of a Service, 65 Fed. Reg.

77,292, 77,294 (Dec. 11. 2000) (to be codified at 37 C.F.R. pt. 201).

69 David Oxenford, SoundExchange to Audit Internet Radio Royalty Payments of

Last.FM—What is the Value of Music?, BROADCAST LAW BLOG (Mar. 28, 2008)

http://www.broadcastlawblog.com/2008/03/articles/internet-radio/soundexchange-to-audit-

internet-radio-royalty-payments-of-lastfm-what-is-the-value-of-music/.

70 Cydney Tune, Webcaster Music Royalty Rates—in Flux and on the Rise, 1401

CLIENT ALERT 1, 1 (June 15, 2007), http://www.pillsburylaw.com/siteFiles/Publications/

5EA3137178E2E2204487E5B973E75B47.pdf.

71 Examples include local AM/FM radio stations, some Internet radio stations, and

television broadcasts. Emily D. Harwood, Note, Staying Afloat in the Internet Stream:

How to Keep Web Radio from Drowning in Digital Copyright Royalties, 56 FED. COMM. L.

J. 673, 680 (2004).

72 S. REP. NO. 104-128, at 16 (1995), reprinted in 1995 U.S.C.C.A.N. 356; Kohn,

supra note 10, at 12.

73 17 U.S.C. § 114(d)(1)(A)–(B) (2006).

74 H. R. REP. NO. 104-274, at 14 (1995); S. REP. NO. 104-128, at 16.

75 Harwood, supra note 71, at 680.

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144 Chapman Law Review [Vol. 14:135

the public. Non-subscription transmissions include “any trans-

mission that is not a subscription transmission.”

This complex method for determining licensing requirements

and royalty rates became even more difficult for new companies

to navigate after the rising popularity and sophistication of the

Internet in and after 1998,

and copyright holders again called

for greater copyright protection—as well as clarification—from

Congress.

C. The Digital Millennium Copyright Act

The Digital Millennium Copyright Act (DMCA) was enacted

in October of 1998

in response to claims that the DPRA did not

adequately respond to the application of royalty rates to Internet

radio.

Record companies and the Recording Industry of

America Association (RIAA) expressed concerns that labels were

not sufficiently protected from Internet piracy under the DPRA.

Since webcasters were not included in the DPRA provisions,

“webcasters and the recording industry fought over whether

webcasters should qualify for the limited public performance

right or be treated as an interactive service” and be required to

negotiate privately with copyright holders.

Specifically, the

recording industry and the RIAA complained that webcasting

services of the non-subscription nature diminished record sales,

cut into profits, and hindered growth of the recording industry.

Convinced, Congress enacted the DMCA in line with its historical

76 17 U.S.C. § 114(j)(9) (2006).

77 The late 1990s saw a rapid growth and improvement in webcasting and streaming

technologies. Myers, supra note 62, at 438.

78 Digital Millennium Copyright Act, Pub. L. No. 105-304, 112 Stat. 2860 (1998),

codified in part in 17 U.S.C. § 114 (2006).

79 Kidd, supra note 66, at 349.

80 Arista Records LLC v. Launch Media, Inc., 578 F.3d 148, 153 (2d. Cir. 2009). This

recent case constitutes one of the more in-depth judicial analyses of the DMCA, relating it

to a specific non-subscription webcasting service, LAUNCHcast. After the ruling, P2P

defense lawyer Ray Beckerman “thanked” Sony BMG music for appealing the trial court

decision, claiming that the Second Circuit’s determination that, as a matter of law,

LAUNCHcast was not interactive, created a “safe harbor for a whole industry and

business model.” Ray Beckerman, RIAA Loses Its Case Against Yahoo’s Launch Media

Internet Radio Station Provider, RECORDING INDUSTRY VS THE PEOPLE BLOG (Aug. 22,

2009), http://recordingindustryvspeople.blogspot.com/2009/08/riaa-loses-its-case-against-

yahoos.html.

81 Duvall, supra note 67, at 272.

82 Arista Records, 578 F.3d at 154. See also Kimberly L. Craft, The Webcasting

Music Revolution is Ready to Begin, as Soon as We Figure Out the Copyright Law: The

Story of the Music Industry at War With Itself, 24 HASTINGS COMM. & ENT. L. J. 1, 12

(2001). With the DMCA, Congress targeted services like Napster, which provide users

with “a degree of predictability—based on choices made by the user—that approximates

the predictability the music listener seeks when purchasing music.” Arista Records, 578

F.3d at 161.

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2010] Internet Radio Disparity 145

policy of “preventing the diminution in record sales through

outright piracy of music or new digital media that offered

listeners the ability to select music in such a way that they would

forego purchasing records.”

The DMCA expanded the class of

transmissions that are subject to compulsory licenses, namely

the non-interactive subscription services.

Although “Congress

did not alter the section 114(d)(1)(A) exemption for

‘nonsubscription broadcast transmission[s],’”

the newly

expanded category subject to compulsory licenses included

services previously categorized as non-subscription broadcasts.

Some webcasts were no longer considered part of the third

category exempt from statutory licenses.

With this expansion,

Congress was merely trying to “clarify that webcasters are

subject to the sound recording performance right.”

Indeed, the

DMCA left webcasters “clearly subject to royalty payments.”

The DMCA amended the Copyright Act to broaden the sound

performance right to include a more expansive definition of an

“interactive service” as it pertains to individual licensing.

webcasting continued to gain popularity, the DPRA’s definition of

“interactive service” began to break down.

Section 114 of the

83 Arista Records, 578 F.3d at 157 (emphasis added).

84 Bonneville Int’l Corp. v. Peters, 153 F. Supp. 2d 763, 769 (E. D. Pa. 2001) Brian

Flavin, Recent Development, A Digital Cry for Help: Internet Radio’s Struggle to Survive a

Second Royalty Rate Determination Under the Willing Buyer/Willing Seller Standard, 27

ST. LOUIS U. PUB. L. REV. 427, 436 (2008).

85 Bonneville Int’l. Corp., 153 F. Supp. 2d at 769 (citing 17 U.S.C. § 114(d)(1)(A)).

86 Id. An eligible non-subscription transmission is defined in the DMCA as follows:

A noninteractive nonsubscription digital audio transmission not exempt under

subsection (d)(1) that is made as part of a service that provides audio

programming consisting, in whole or in part, or performances of sound

recordings, including retransmissions of broadcast transmissions, if the

primary purpose of the service is to provide to the public such audio or other

entertainment programming, and the primary purpose of the service is not to

sell, advertise, or promote particular products or services other than sound

recordings, live concerts, or other music-related events.

17 U.S.C. § 114(j)(6) (2006). This definition is synonymous with the definition of

“commercial webcaster” provided by SoundExchange. See Commercial Webcaster,

SOUNDEXCHANGE, http://soundexchange.com/service-provider/service-category/im-not-

sure-help-me-figure-it-out/quiz-commercial-webcaster/ (last visited Oct. 1, 2010).

87 Bonneville Int’l. Corp., 153 F. Supp. 2d at 769. Webcasters had begun offering

custom genre channels of sound recordings while still maintaining a non-subscription

relationship with users. Id.

88 Marks, supra note 43, at 327.

89 Spektor, supra note 12, at 10.

90 Stephen Kramarsky, Second Circuit Finds Internet Radio Not Interactive Service,

N.Y. L.J., Sept. 15, 2009, at 5.

91 Marks, supra note 43, at 314. For example, some services “allowed users to create

their own programs by selecting and rating particular artists,” and hence could create

personalized programs in ways that were not anticipated by the intent of “interactive”

when Congress enacted the DPRA. Id.

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146 Chapman Law Review [Vol. 14:135

DMCA addressed the perceived deficiency in the DPRA,

providing:

An ‘interactive service’ is one 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, whether

or not as part of a program, which is selected by or on behalf of the

recipient.

This definition altered what the DPRA considered

“interactive” because it no longer required a user to have a

personal choice in what songs are played throughout a webcast.

As long as “the user has influenced the program in such way that

the ‘recipient might identify certain artists that become the basis

of the personal program,’”

the service would be considered

interactive within the meaning of the statute.

Internet radio

webcasts, however, do not typically fall under the DMCA

definition of “interactive service”

and are either subject to the

compulsory licensing scheme determined by the Copyright

Arbitration Royalty Panel (CARP),

or must privately negotiate

with copyright holders. CARP was supposed to “establish rates

and terms that most clearly represent[ed] the rates and terms

that would have been negotiated in the marketplace between a

92 17 U.S.C. § 114(j)(D)(7) (2006).

93 Michael Lang, Comment, The Regulation of Shrink-Wrapped Radio: Implications

of Copyright on Podcasting, 14 COMMLAW CONSPECTUS 463, 481 (2006) (quoting H. R.

Rep. No. 105-796, at 87 (1998) (Conf. Rep.)).

94 A service would be interactive if it

allowed a small number of individuals to request that sound recordings be

performed in a program specially created for that group and not available to

any individuals outside of that group. In contrast, a service would not be

interactive if it merely transmitted to a large number of recipients of the

service’s transmissions a program consisting of sound recordings requested by

a small number of those listeners.

H.R. Conf. Rep. 105-796, at 87–88, reprinted in 1998 U.S.C.C.A.N. 639 (1998). Compare

this explanation with that of the U.S. Court of Appeals for the Second Circuit in Arista

Records, 578 F.3d at 162–64.

95 The definition of “interactive service” states:

The ability of individuals to request that particular sound recordings be

performed for reception by the public at large . . . does not make a service

interactive, if the programming on each channel of the service does not

substantially consist of sound recordings that are performed within 1 hour of

the request.

17 U.S.C. § 114(j)(7). See also Duvall, supra note 67, at n.182. Pandora, for example, does

not allow a user to choose the next song on his current channel, but the user may skip

songs or approve of songs to “shape future listening.” Id.

96 CARP was established to facilitate arbitration between broadcasters and sound

recording copyright holders. Recall that the CRB currently oversees such negotiations

and sets royalty rates. See supra note 67 and accompanying text.

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2010] Internet Radio Disparity 147

willing buyer and a willing seller.”

The DMCA requires

Internet webcasters to obtain licenses and pay royalties to both

the performance rights organizations

as well as to the owners of

the copyrights of sound recordings and musical works, because

each of these entities has an ownership right in a given song or

other musical work.

II. CURRENT ROYALTY RATE STRUCTURE

As we have seen, Internet webcasters—just like other

broadcasters—must pay royalties for the musical recordings

performed on their online stations or channels. This section

considers the most current protections afforded to performance

rights holders by the federal government and explores what

webcasters must pay in royalties to keep their businesses

running. The Copyright Royalty Board (CRB)

100

set highly

controversial royalty rates in 2007, and experienced intense

backlash from webcasters as a result.

101

More recent attempts to

balance the rate structure for webcasting companies have been

seen as an improvement over the 2007 rates, but are still

questionable and continue to favor other forms of broadcast

radio, such as terrestrial broadcasting stations.

102

A. The 2007 Royalty Rates Set by the Copyright Royalty Board

When the DPRA was enacted in 1995, CARP—and

subsequently the CRB

103

—designated SoundExchange

104

as the

administrative agency responsible for collecting and distributing

compulsory performance royalties for sound recording copyright

97 Duvall, supra note 67, at 272 (quoting Digital Millennium Copyright Act, Pub. L.

No. 105-304, 112 Stat. 2860, 2895–96 (1998)).

98 Tune & Lockard, supra note 10, at 20. The performance rights organizations

(PROs) consist of the American Society of Composers, Authors and Publishers (ASCAP),

Broadcast Music, Inc., and SESAC. Id. These organizations represent all “songwriters,

composers, and music publishers in the United States for purposes of licensing and

collecting royalties from any public performance of a song.” Id.

99 Id.

100 The Copyright Royalty Board (CRB) was established by the U.S. Copyright Office

and consists of three full-time copyright royalty judges, whose responsibility it is to “make

determinations and adjustments of reasonable terms and rates of royalty payments as

provided in [17 U.S.C. § 114].” 17 U.S.C. § 801(b)(1) (2006). For more information on the

CRB and governing laws, see COPYRIGHT ROYALTY BOARD, http://www.loc.gov/crb (last

visited Oct. 1, 2010).

101 See infra Part II.A.

102 See infra Part II.B.

103 See supra notes 67 and 100 for information on the CRB and its predecessors.

104 For information on SoundExchange, see supra note 25.

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148 Chapman Law Review [Vol. 14:135

holders.

105

In March 2007, the CRB, together with Sound-

Exchange, established a new royalty rate system under the

authority of section 114 based on a “per performance”

calculation.

106

The system set forth royalty rates

107

for

commercial webcasters,

108

small commercial webcasters (less

than $1.2 million in revenue per year),

109

and noncommercial

webcasters.

110

The new rates for commercial webcasters and

small commercial webcasters were set as follows: $0.0008 per

performance for 2006, $0.0011 per performance for 2007, $0.0014

per performance for 2008, $0.0018 per performance for 2009, and

$0.0019 per performance for 2010.

111

The CRB also set a $500

minimum fee per channel for broadcasters.

112

Under this

structure, small webcasters did not pay different royalty rates

than larger companies.

113

In contrast, noncommercial webcasters

were subject to a minimum annual fee of $500 per channel or

station.

114

The high rates established for commercial and small

commercial webcasters upset many and resulted in numerous

attempts to negotiate different agreements with Sound-

105 See Susan Butler, CRB Appoints SoundExchange Sole ‘Collective,’ ALLBUSINESS

(Mar. 8, 2007), http://www.allbusiness.com/retail-trade/miscellaneous-retail-retail-stores-

not/4394859-1.html; Oxenford, supra note 14.

106 This means that webcasters must pay royalties based on how many times a given

recording is performed (or played over the stream). For example, if a given recording is

played a total of one hundred times in one year, the webcaster responsible for those

performances would have to pay the given royalty rate times one hundred. See generally

Tune, supra note 70.

107 SoundExchange participates in the royalty rate setting process, either through

voluntary settlements between parties or proceedings before the CRB. See The Law,

SOUNDEXCHANGE, http://soundexchange.com/about/the-law (last visited Oct. 1, 2010). For

more about different types of negotiations between private parties, see supra Part II.B.

108 “Commercial broadcaster” is synonymous with “eligible nonsubscription trans-

mission.” See supra note 86.

109 Tune, supra note 70, at 2.

110 A noncommercial webcaster is one that is exempt from taxation under section 501

of the Internal Revenue Code, or that is operated by a governmental entity, meaning it is

a non-profit organization. Duvall, supra note 67, at 280; Steve Gordon, Update on

Webcasting Royalty Rates: Part Two of Two, ENT. L. & FIN., Sept. 2004, at 3, 3–4,

available at http://www.stevegordonlaw.com/update_webcast_royalty_rates2.htm. Non-

commercial webcasters also tend to have different sources of funding, such as listener

donations, corporate sponsorships and university funding. Duvall, supra note 67, at 280.

111 Tune, supra note 70, at 2.

112 Daniel Castro, Internet Radio and Copyright Royalties: Reforming a Broken

System, INFO. TECH. & INNOVATION FOUND. 5 (May 10, 2007), http://www.itif.org/files/

InternetRadio.pdf.

113 Id.

114 Tune, supra note 70, at 2.

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2010] Internet Radio Disparity 149

Exchange.

115

Complaints were not heard, however, because the

CRB quickly rejected all rehearing proposals in April 2007.

116

The rate schedule established in 2007 was the product of two

years of litigation between SoundExchange and parties

representing all types of webcasting and broadcasting services,

where the parties appeared and argued before the CRB in order

to determine a fair royalty structure. The CRB adopted

significant rate increases on the advice of SoundExchange,

117

over opposition by numerous digital broadcasters who argued

that the proper structure should calculate royalties due based on

a percentage of revenue, rather than the “per performance”

structure advocated by SoundExchange.

118

Webcasters argued

that this effort by SoundExchange was nothing more than a

“major label money grab—an attempt to revive a dying business

model through exorbitant fee increases at the expense of

technological developments and consumer interests.”

119

The fees

set by SoundExchange would exceed the total annual revenues

for many Internet radio stations,

120

and although large

115 Many webcasting sites argued these unreasonable rates would eat up most of

their revenue and would put Internet radio out of business. Miller, supra note 14. See

also Oxenford, supra note 14.

116 Tune, supra note 70, at 2; Oxenford, supra note 14.

117 SoundExchange argued to the CRB that the per-performance rate for sound

recording copyrights should be calculated based on the willing buyer/willing seller

standards set forth concerning interactive services, whereas webcasters argued the

benchmark should more look like the amount at issue in agreements between

performance rights organizations. The CRB chose SoundExchange’s benchmark, which

constituted a significant jump in per-performance rates. The CRB justified its decision

based on, among other things, its understanding that the interactive webcasting market

was similar in many ways to the non-interactive market. Digital Performance Right in

Sound Recordings and Ephemeral Recordings, 72 Fed. Reg. 24,084, 24,095–96 (May 1,

2007) (to be codified at 37 C.F.R. pt. 380).

118 Parks, supra note 40, at 49. The CRB adopted SoundExchange’s position for these

reasons:

(1) [P]er performance rates are directly tied to what is being licensed, (2) ease

of measurement, (3) difficulties in tying revenue fees to the value of the

licensed rights, (4) complexities in determining revenue from mixed format

webcasters, and (5) the basic notion that the more that licensed rights are

used, the more payments should increase in relation to use.

Duvall, supra note 67, at 279.

119 Parks, supra note 40, at 49.

120 Marc Fisher, Day of Silence: Internet Radio Goes Dark, RAW FISHER BLOG (June

26, 2007, 7:05 AM), http://voices.washingtonpost.com/rawfisher/2007/06/day_of_silence_

internet_radio.html. The reasoning behind the determination that many webcasters

would have gone out of business under these rates goes as follows:

[B]ased on a webcaster playing an average of 16 songs per hour, royalties are

1.28 cents per listener-hour (based on 2006 rates). A well-run webcaster might

have sold two radio advertising spots at a profit of 0.6 cents per listener-hour.

In addition to video gateway ads, banner ads, and other web-based advertising,

the total revenue for a well-run webcaster is still only between 1.0 and 1.2

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150 Chapman Law Review [Vol. 14:135

companies “like AOL may [have been] able to afford the new

rates, many smaller Internet radio stations [would have had] to

shut down. The new rates could [have] actually reduce[d] the

flow of royalties to musicians.”

121

For example, after the adoption

of these rates, Radio Paradise,

122

a smaller Internet radio site,

faced royalty costs of over 125% of its yearly revenue.

123

Even

Pandora—considered to be an Internet radio giant—was on the

verge of shutting down, with royalty fees constituting seventy

percent of its projected revenue of twenty-five million dollars for

2008.

124

The uproar over the royalty rates set by SoundExchange

even sparked a “day of silence”

125

for Internet radio stations and

channels on June 26, 2007, which was designed to draw attention

to what webcasters envisioned to be the government’s attempt to

kill Internet radio.

126

In the ensuing months, webcasters united behind various

legislative proposals to curb the effects of the SoundExchange

rates. These efforts included the Internet Radio Equality Act

127

and the Performance Rights Act,

128

both of which, however,

cents per listener-hour. Thus, if a webcaster (and this is a well-run webcaster)

must pay 1.28 cents per listener-hour, it is likely to go out of business.

Duvall, supra note 67, at 281; Daniel McSwain, Webcast Royalty Rate Decision

Announced, RADIO AND INTERNET NEWSL. (Mar. 2, 2007), http://www.kurthanson.com/

archive/news/030207/index.shtml.

121 Hiawatha Bray, Royalty Hike Could Mute Internet Radio: Smaller Stations Say

Rise Will Be Too Much, BOSTON GLOBE, Mar. 14, 2007, at F1, available at

http://www.boston.com/business/technology/articles/2007/03/14/royalty_hike_could_mute_i

nternet_radio/.

122 RADIO PARADISE, http://www.radioparadise.com (last visited Oct. 1, 2010).

123 Eliot Van Buskirk, Royalty Hike Panics Webcasters, WIRED (Mar. 6, 2007),

http://www.wired.com/entertainment/music/news/2007/03/72879.

124 Tim Bajarin, Saving Internet Radio, PC MAG. (Oct. 3, 2008),

http://www.pcmag.com/article2/0,2817,2331594,00.asp; Peter Whoriskey, Giant of Internet

Radio Nears Its ‘Last Stand:’ Pandora, Other Webcasters Struggle Under High Song Fees,

WASH. POST, Aug. 16, 2008, at D1, available at http://www.washingtonpost.com/wp-dyn/

content/article/2008/08/15/AR2008081503367.html.

125 On June 26, 2007, Internet radio stations including Yahoo!, Pandora and

Rhapsody stopped broadcasting for twenty-four hours. Kurt Hanson, A Guide to

Preparing for Tomorrow’s “Day of Silence,” RADIO AND INTERNET NEWSL., June 25, 2007,

http://www.kurthanson.com/archive/news/062507/index.shtml#Saga.

126 Id.

127 Internet Radio Equality Act, H. R. 2060, 110th Cong. (2007), available at

http://www.govtrack.us/congress/billtext.xpd?bill=h110-2060. The bill intended to nullify

the rate determinations set by the CRB in 2007 and replace them with the same revenue-

based royalty balancing test found in section 801(b)(1) of the Copyright Act, currently

used for satellite radio royalty determinations. Erich Carey, We Interrupt This Broadcast:

Will the Copyright Royalty Board’s March 2007 Rate Determination Proceedings Pull the

Plug on Internet Radio?, 19 FORDHAM INTELL. PROP. MEDIA & ENT. L.J. 257, 302 (2008).

128 Performance Rights Act, H. R. 4789, 100th Cong. (2007), available at

http://www.govtrack.us/congress/billtext.xpd?bill=h110-4789. This bill intended to

provide platform parity in radio performance rights, establishing a flat annual fee for

royalties and requiring terrestrial broadcasters to pay performance royalties just like

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2010] Internet Radio Disparity 151

currently seem to have been abandoned somewhere in the dusty

corners of Congress.

129

However, the idea behind the

Performance Rights Act—that terrestrial radio should also be

responsible for royalty payments to copyright holders—is still

being considered in Congress and may become a reality in the

months to come.

130

Webcasters have not given up, and since

2007, SoundExchange has continued to entertain other proposals

and negotiations.

131

One such negotiation, the Webcaster

Settlement Acts of 2008 and 2009, provided certain webcasters

relief from the exorbitant rates set by the CRB in 2007.

B. SoundExchange 2006–2015 Royalty Agreement Under the

Webcaster Settlement Act

Near the end of 2008, webcasters enjoyed renewed hope that

royalty conflicts would soon dissipate, or at least come to a

reasonable compromise. Congress passed the Webcaster

Settlement Act in October 2008,

132

which gave SoundExchange

and webcasters the opportunity to establish royalty rates for the

performance of sound recordings over the Internet in lieu of

compulsory license rates determined by the CRB.

133

Under this

Act, SoundExchange had until February 15, 2009 to reach

satellite and Internet radio sites. Id.; Ashton, supra note 19; Parks, supra note 37, at 51.

Under section 114, broadcast radio is exempt from paying performance royalties. See

supra Part I.C.

129 David Oxenford, Webcaster Settlement Act—What Does it Mean?, BROADCAST LAW

BLOG (Oct. 1, 2008), http://www.broadcastlawblog.com/2008/10/articles/internet-radio/

webcaster-settlement-act-what-does-it-mean/. However, the Performance Rights Act

enjoys significantly more support than the Internet Radio Equality Act. See infra Part

IV.A.

130 See infra Part IV.A; David Oxenford, The Broadcast Performance Royalty—Not

Dead Yet, as Senate Judiciary Committee to Hold Hearing on Tuesday, BROADCAST LAW

BLOG (Aug. 2, 2009), http://www.broadcastlawblog.com/2009/08/articles/broadcast-

performance-royalty/the-broadcast-performance-royalty-not-dead-yet-as-senate-judiciary-

committee-to-hold-hearing-on-tuesday/.

131 For example, in August 2007, SoundExchange entered into a settlement

agreement with the Digital Media Association (DiMA) that capped the minimum annual

fee at fifty thousand dollars. Flavin, supra note 79, at 465. Under the 2007 CRB rates,

webcasters had to pay a minimum of five-hundred dollars per year per channel offered,

plus royalties on top of that minimum fee. Id. For many webcasters like Pandora which

offer hundreds of custom channels, this minimum fee would likely be more expensive than

the royalty rates. Id.

132 Webcaster Settlement Act of 2008, Pub. L. No. 110-435, 122 Stat. 4974 (2008).

The original Webcaster Settlement Act amended the Small Webcaster Settlement Act of

2002, which allowed a settlement to bypass a CARP proceeding to set royalty rates

between private parties. Carey, supra note 127, at 308; Oxenford, supra note 129. The

Webcaster Settlement Act adopts the same procedure, except that now, the group settling

must submit the settlement to the CRB to publish it in the Federal Register. Carey, supra

note 127, at 308; Oxenford, supra note 129.

133 See supra Part II.A. See also Parks, supra note 40, at 53.

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152 Chapman Law Review [Vol. 14:135

agreements with webcasters or groups of webcasters,

134

and

webcasters were required to expressly opt out of the CRB royalty

rates set in 2007.

135

Although questions arose as to the likelihood

of such settlements actually happening,

136

webcasters were

mostly optimistic about this progress. However, SoundExchange

encountered logistical problems in meeting the February 15

deadline,

137

and webcasters quickly appealed to Congress for an

extension. The Webcaster Settlement Act of 2009

138

amended the

Webcaster Settlement Act of 2008 and gave SoundExchange

thirty additional days to “enter into settlement agreements with

webcasters that would be legally binding on all sound recording

139

The thirty-day extension seemed to provide just enough time

for successful negotiations to take place. Under the Webcaster

Settlement Act of 2009, SoundExchange and certain “pureplay”

140

webcasters reached an alternative agreement for royalty rates in

July 2009, for the period of 2006–2015 (2014 for small pureplay

webcasters).

141

Webcasters that run online music for larger

providers are not included.

142

This agreement splits pureplay

webcasters into three categories: (1) large, (2) small (defined as

134 Pub. L. No. 110-435.

135 Id. See also supra Part II.A.

136 Webcasters were concerned that negotiations with SoundExchange were unlikely,

because they had not entered into successful negotiations in years and voluntary

settlements may have become difficult to obtain. See Oxenford, supra note 129.

137 For example, negotiations between SoundExchange and DiMA fell through in

February 2009 and did not meet the deadline set by the Webcaster Settlement Act of

2008. Staci D. Kramer, Streaming Music Sites and SoundExchange Fail to Reach Royalty

Deal, PAID CONTENT (Feb. 18, 2009), http://paidcontent.org/article/419-streaming-music-

sites-soundexchange-fail-to-reach-roylaty-deal. Members of DiMA included Pandora,

RealNetworks, and MTV. Id. The main disagreement between the parties centered

around paying royalties for streaming music only, versus paying for streaming music as

well as game and software revenue. Id.

138 Webcaster Settlement Act of 2009, Pub. L. No. 111-36, 123 Stat. 1926 (2009).

139 Tune & Lockard, supra note 10, at 23.

140 “Pureplay” webcasters are those “that are willing to include their entire gross

revenue in a percentage of revenue calculation to determine their royalties.” David

Oxenford, Pureplay Webcasters and SoundExchange Enter Into Deal Under Webcaster

Settlement Act to Offer Internet Radio Royalty Rate Alternative for 2006–2015, BROADCAST

LAW BLOG (July 7, 2009), http://www.broadcastlawblog.com/2009/07/articles/internet-

radio/pureplay-webcasters-and-soundexchange-enter-into-deal-under-webcaster-

settlement-act-to-offer-internet-radio-royalty-rate-alternative-for-20062015/.

141 Notification of Agreements Under the Webcaster Settlement Act of 2009, 74 Fed.

Reg. 34,796, 34,799 (July 17, 2009). Pureplay webcasters privy to this agreement

included AccuRadio, Digitally Imported, and radioIO. Michael Schmitt, SoundExchange

and “Pureplay” Webcasters Announce 2006–2015 Royalty Agreement, RADIO AND INTERNET

NEWSL. (July 7, 2009, 12:17 PM), http://textpattern.kurthanson.com/articles/719/rain-77-

soundexchange-and-pure-play-webcasters-reach-royalty-agreement. However, other Inter-

net webcasters like Pandora are eligible to elect the substitute license arrangement. Id.

142 For example, CBS Radio runs online music services for both AOL and Yahoo! and

therefore is not subject to this agreement. Miller, supra note 14.

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2010] Internet Radio Disparity 153

those that earn $1.25 million or less), and (3) others that offer

bundled, syndicated, or subscription services.

143

Large webcasters are required to pay either a per-

performance rate or twenty-five percent of their total revenue,

whichever is higher.

144

However, larger webcasters are more

likely to pay royalties on a per-performance basis than a

percentage of revenue, since large webcasters have significantly

higher numbers of users than smaller webcasters.

145

Also, large

webcasters must pay a minimum royalty per year of $25,000.

146

The deal offers a discounted royalty rate—a nearly fifty percent

discount—compared with the CRB rates of 2007, with the

maximum per-performance rate reaching only $0.0014 by

2015.

147

In exchange for this discounted rate, the agreement

requires more stringent reporting requirements

148

as well as

revenue sharing.

149

Small pureplay webcasters pay the greater of either a

percentage of revenues or a percentage of expenses, ranging

between ten and fourteen percent for the period from 2006 to

2014,

150

and “in certain circumstances have less stringent play

list reporting requirements in return for payment of an

additional ‘proxy fee.’”

151

Although the Executive Director of

SoundExchange, John Simson, still considers the CRB royalty

rates fair and reasonable,

152

he expressed hope that this

experimental revenue sharing model would benefit artists, rights

holders, and webcasters simultaneously.

153

Pureplay webcasters

seem satisfied as well and consider this royalty agreement to be a

significant milestone as the first “reasonably viable [deal

143 Schmitt, supra note 141.

144 Id.

145 Id.

146 74 Fed. Reg. 34,796, 34,799.

147 Id. This works out to be a dramatic difference in cost compared to the maximum

for the CRB royalty rates, reaching $0.0019 per performance by 2010. See supra Part II.A.

148 The new deal requires webcasters to “provide SoundExchange with census reports

(‘actual recordings played and total listenership’) and retain server logs for at least [four]

years.” Schmitt, supra note 141.

149 This agreement helps pureplay webcasters “grow their businesses and develop

business models while allowing artists and labels to share in the upside potential of

webcasting that is driven by their recordings.” Brian Calhoun, SoundExchange and

“PurePlay” Webcasters Reach Unprecedented Experimental Rate Agreement,

SOUNDEXCHANGE (July 7, 2009), http://soundexchange.com/2009/07/07/soundexchange-

and-“pureplay”-webcasters-reach-unprecedented-experimental-rate-agreement/.

150 Schmitt, supra note 141.

151 Calhoun, supra note 149.

152 Id.

153 Id.

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154 Chapman Law Review [Vol. 14:135

which] . . . extends for a reasonably-long period of time.”

154

However, the new system still contains elements of fundamental

unfairness toward Internet radio that must be addressed before

Internet radio will be able to flourish.

III. DIFFERENT STANDARDS FOR DIFFERENT MEDIUMS:

A CONTINUING PROBLEM

Although the Webcaster Settlement Act of 2009 gave relief to

many webcasters and represents one of the first positive

settlements between SoundExchange and pureplay webcasters,

terrestrial radio still pays nothing in sound recording

performance royalties.

155

Internet radio continues to rise in

popularity and will soon infiltrate every aspect of everyday life,

including vehicles and homes. An exemption in royalty

payments for terrestrial radio is unfair when one considers the

current state of Internet radio and its future.

156

Because

terrestrial radio is a continued presence in the transmission of

performances, it should not be treated more favorably than

Internet transmissions.

A. Looking Into the Future

According to Bridge Ratings,

157

the number of Internet radio

listeners accessing wirelessly—using a personal computer or cell

phone—will increase to seventy-seven million by 2010.

158

Pandora claims to already have thirty percent of its users

connected via broadband cell phones, and the number of

broadband subscribers continues to grow.

159

Pandora and other

154 Paul Resnikoff, Pure-Play Webcasters, SoundExchange Work it Out, DIGITAL

MUSIC NEWS (July 7, 2009), http://www.digitalmusicnews.com/stories/070709webcaster/

?searchterm=webcaster%20settlement%20act (quoting Kurt Hanson, founder of RAIN

and rate negotiator for AccuRadio). However, everyone was satisfied. See, e.g., Bob Bellin,

Webcasters—Don’t Be Fooled by the New Deal for Performance Royalty, RADIO-INFO.COM

(July 14, 2009), http://www.radio-info.com/sections/1-features/columns/13-on-the-mic/

essays/493-webcasters-dont-be-fooled-by-the-new-deal-for-performance-royalty.

155 See infra Part III.B.

156 This section does not discuss the accompanying issues of satellite radio, which

pays much less in royalties than Internet radio. The debate, in this author’s view, centers

on Internet and terrestrial radio because they are both non-subscription services offered

to the public for free.

157 Bridge Ratings is a media research company that tracks consumer behavior

relating specifically to all types of radio, MP3 players, and even Podcasting. Bridging the

Gap, BRIDGE RATINGS, http://www.bridgeratings.com/about.htm (last visited Oct. 6, 2010).

158 The Bridge Ratings Report—The Impact of Wireless Internet, BRIDGE RATINGS

(Mar. 21, 2007), http://www.bridgeratings.com/press_03.21.07-WiFi%20Impact.htm

[hereinafter Impact of Wireless Internet].

159 Stone & Miller, supra note 13, at B1.

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2010] Internet Radio Disparity 155

webcasters

160

provide Internet radio applications (apps) for

broadband phones that are so advanced that they replace

listening to customized radio stations at a computer.

161

The

Apple iPad also provides a free, downloadable Pandora app,

which provides extensive information and advertising for a

musical artist with the touch of a finger.

162

Similarly, new vehicles will soon be equipped with digital

and HD radio, which will include Internet radio options.

163

New

cars will have Pandora—or other webcasting companies—built

into the car and “bundled with either the price of the car or

services associated with the car.”

164

Even if a vehicle does not

have digital or HD radio, an iPhone or other broadband phone

with Internet radio apps can hook into the vehicle’s stereo

system, and the user can listen to Pandora while driving.

165

The

adoption of in-car Internet radio seemingly would threaten

traditional, terrestrial radio as well as satellite radio as stable

competition in the years to come.

166

However, statistics also show that terrestrial radio listening

has actually increased since 2008, and according to Bridge

Ratings, such growth will continue into 2012.

167

Since 2006,

160 Webcasters like Slacker, Imeem, and Last.fm also have similarly advanced cell

phone apps. See, e.g., Paul Bonanos, Imeem’s iPhone App Cometes with Apple on its Own

Hardware, GIGAOM (May 14, 2009, 11:53 AM), http://gigaom.com/2009/05/14/imeems-

iphone-app-competes-with-apple-on-its-own-hardware/ (discussing Imeem’s new app that

offers its users radio streaming as well as a “My Music” section that offers access to a

user’s own library of uploaded songs).

161 Eliot Van Buskirk, 5 Ways the Cellphone Will Change How You Listen to Music,

WIRED (Jan. 16, 2009), http://www.wired.com/epicenter/2009/01/six-ways-cellph/.

162 The iPad has a large High Definition viewing screen, on which a user can read a

large amount of biographical or stylistic information about an artist. It goes further than

other mobile devices have in the past—it provides “more real estate for display

advertising.” Emily Bryson York, Pandora: The iPad is Going to be Better than the iPhone

for Ads, BUS. INSIDER (June 14, 2010, 9:47 AM), http://www.businessinsider.com/

pandora-ipad-2010-6.

163 W. David Gardner, Ford Vehicles to Get iTunes Tagging, INFORMATIONWEEK (Dec.

29, 2009, 12:18 PM), http://www.informationweek.com/news/services/data/showArticle.

jhtml?articleID=222100216; Antuan Goodwin, 2010 Car Tech and GPS Preview,

CNET.COM (Dec. 14, 2009, 10:30 AM), http://ces.cnet.com/8301-31045_1-10414355-

269.html?tag=mncol%3bmlt_related.

164 Stephen Williams, Pandora by the Dashboard Light, WHEELS BLOG (Dec. 11, 2009,

4:05 PM), http://wheels.blogs.nytimes.com/2009/12/11/pandora-by-the-dashboard-light/.

165 The iPhone has allowed personalized Internet radio to become “fully mobile.”

Jennifer Maerz, The Decade in Ideas: Local Artists, DJs, Studio Heads, and Tech Geeks

Discuss the Past and Present in Music, S. F. WEEKLY (Dec. 23, 2009),

http://www.sfweekly.com/2009-12-23/music/the-decade-in-ideas-local-artists-djs-studio-

heads-and-tech-geeks-discuss-the-past-and-present-in-music/.

166 Impact of Wireless Internet, supra note 158.

167 The Bridge Ratings First Look: The Future of Radio 2010, BRIDGE RATINGS

(Nov. 20, 2009), http://www.bridgeratings.com/press.11.20.09.2012%20Listening%

20Trends.htm.

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156 Chapman Law Review [Vol. 14:135

traditional terrestrial radio has been considered the most

influential media source for consumers.

168

It is clear that

Internet radio is driving the future of the radio broadcasting

industry, and although terrestrial radio will face new challenges

in competitive technology, it is certainly surviving as an

industry. If the purpose of copyright regulation is to encourage

innovation and “promote the Progress of Science and useful

Arts,”

169

Internet radio is disproportionately burdened with

royalty payments, and other broadcasting forms pay minimal

royalties for the music they play. Traditional terrestrial radio

has never and will never, in this author’s view, be sophisticated

enough to provide musical artists with any advertising perks able

to compete with the advanced advertising capabilities of

webcasting, and yet Internet radio continues to pay astronomical

royalty rates that are completely disproportionate to what

terrestrial broadcasters pay.

B. Terrestrial Radio Exemption: Unfair and Illogical

The current royalty rate system favors satellite and

terrestrial radio to the detriment of Internet radio. Although in

theory the structure is efficient and fair when considering the

differing levels of user interaction, “the standards used to derive

the royalties differ among classes of broadcasters, creating

ongoing controversy.”

170

Webcasters pay royalties set according

to the willing buyer/willing seller standard,

171

while satellite

radio services pay rates determined under a multifactor test set

forth in section 801(b) of the Copyright Act,

172

and terrestrial

168 Id.

169 U. S. CONST. art. I, § 8, cl. 8.

170 Parks, supra note 40, at 49.

171 See Duvall, supra note 67.

172 For satellite radio determinations, Copyright Royalty Judges must consider the

following objectives:

(A) To maximize the availability of creative works to the public;

(B) to afford the copyright owner a fair return for his or her creative work and

the copyright user a fair income under existing economic conditions;

the product made available to the public with respect to relative creative

contribution, technological contribution, capital investment, cost, risk, and

contribution to the opening of new markets for creative expression and media

for their communication;

(D) to minimize any disruptive impact on the structure of the industries

involved and on generally prevailing industry practices.

17 U.S.C. § 801(b)(1) (2006). Additionally, the rates set may be adjusted to reflect

monetary inflation and other rate changes. § 801(b)(2).

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2010] Internet Radio Disparity 157

radio stations pay no sound recording performance right at all.

173

In fact, terrestrial broadcasters only pay about 3.5% of revenue to

the American Society of Composers, Authors and Publishers.

174

And, as of 2008, terrestrial radio still constituted a sixteen billion

dollar market.

175

Scholars and webcasters have supported

platform parity,

176

which is the notion that “all music services

subject to the sound recording performance royalty should pay a

royalty determined by the same standard, or perhaps even the

same royalty.”

177

SoundExchange established the musicFIRST

Coalition in 2007,

178

which has strongly advocated for broader

performance rights in the form of platform parity.

179

Both the

House of Representatives and the Senate are considering current

versions of the original Performance Rights Act to establish

platform parity between radio broadcasters.

180

An exemption for terrestrial broadcast radio to the detriment

of Internet radio no longer makes sense, especially when Internet

radio advances the interests of musical artists in ways that

terrestrial radio cannot. Although the exposure of new artists

and public access to music should never trump proper

compensation for copyright holders, “Internet radio is not the old

Napster.”

181

File sharing constitutes the major cause for the

recent decline in CD sales, not Internet radio.

182

In fact, Internet

radio has helped to increase artist’s revenues from digital

173 Parks, supra note 40, at 49; Tim Westergren, Important Update on Royalties,

PANDORA RADIO BLOG (July 7, 2009), http://blog.pandora.com/pandora/archives/2009/

07/important_updat_1.html; Alex Nesbitt, Future of Internet Radio, DIGITAL PODCAST

(Oct. 8, 2009), http://www.digitalpodcast.com/podcastnews/2009/10/08/future-of-internet-

radio-dmf.

174 Ty McMahan, Royalty Deal with Music Labels Renews Internet Radio, VENTURE

CAPITAL DISPATCH BLOG (July 7, 2009), http://blogs.wsj.com/venturecapital/2009/07/07/

royalty-deal-with-music-labels-renews-internet-radio.

175 SNL Kagan Forecasts Advertising Revenue Recovery for TV and Radio Stations in

2010, ALLRADIONEWS.COM (June 14, 2010), http://allradionews.com/2010/06/14/snl-kagan-

forecasts-advertising-revenue-recovery-for-tv-and-radio-stations-in-2010/. The $16 billion

figure for 2008 represented a 17.7% drop from 2007, but radio revenue is projected to

recover to $17.1 billion in 2010. Id.

176 Platform parity has also been described as the “full performance right” in sound

recordings. See Parks, supra note 40, at 49.

177 David Oxenford, Senate Judiciary Committee Hearing on Radio Performance

Royalty and Platform Parity for Webcaster Royalties, BROADCAST LAW BLOG (Aug. 6, 2009,

8:45 PM), http://www.broadcastlawblog.com/2009/08/articles/broadcast-performance-

royalty/senate-judiciary-committee-hearing-on-radio-performance-royalty-and-platform-

parity-for-webcaster-royalties/. This was the idea behind the Performance Rights Act. See

supra note 128.

178 MUSICFIRST COALITION, http://www.musicfirstcoalition.org (last visited Oct. 6,

2010). “FIRST” is an acronym for “Fairness in Radio Starting Today.” Id.

179 Id.

180 See infra Part IV.A.

181 Spektor, supra note 12, at 87.

182 Castro, supra note 112, at 7.

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158 Chapman Law Review [Vol. 14:135

downloads in ways that terrestrial radio cannot.

183

In 2006,

RadioParadise

184

generated over $260,000 in sales of CDs and

other music through Amazon and $28,000 in iTunes

downloads.

185

In part, these sales can be attributed to the fact

that on most webcasting stations, the artist’s name, song name,

and album name are displayed next to a purchase option, a

feature not available on terrestrial radio stations.

186

In addition,

Internet radio gives airtime to lesser-known artists that are not

played on AM/FM radio, and therefore incentivizes artists to

create more music.

187

With the numerous benefits Internet radio

provides to both the public and to musical artists, the unbalanced

royalty structure should be improved to include platform parity.

To compensate broadcasters for increased royalty payments

resulting from platform parity, it should be balanced with options

to reduce royalty fees.

IV. PROPOSED SOLUTION: THE PERFORMANCE RIGHTS ACT WITH

AN OPT-OUT DATABASE PROVISION

To address the unfairness of the current royalty structure,

which continues to favor terrestrial and satellite radio over

Internet radio, Congress should pass the new and revised

Performance Rights Act.

188

However, the Act should be amended

to include an option for artists to opt-out of royalty payments by

registering with a government-run database. This way, artists

will be compensated no matter how their music is broadcasted,

and broadcasters can enjoy an efficient and streamlined way to

reduce royalty payments owed to owners of sound recording

copyrights.

A. The Full Performance Right Revisited

On February 4, 2009, a revived version of the original

Performance Rights Act

189

was introduced into the Senate by

Senator Patrick Leahy.

190

Known as “S. 379,” or the

183 See supra notes 14 & 16 and accompanying text.

184 See supra note 122.

185 Castro, supra note 112, at 8.

186 Devices like the iPad, which have large interactive screens, have been

revolutionary for music advertising. See supra note 162 and accompanying text.

187 Spektor, supra note 12, at 81.

188 Performance Rights Act of 2009, S. 379, 111th Cong. (Feb. 4, 2009), 2009 CONG

US S 379 (Westlaw).

189 See supra note 128.

190 S. 379. There is also a version in the House of Representatives, introduced by

Representative Conyers. See H.R. 848, 111th Cong. (Feb. 4, 2009), 2009 CONG US HR

848 (Westlaw). As of October 2010, the Act is still pending before Congress. S. 379:

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2010] Internet Radio Disparity 159

“Performance Rights Act,” it would amend the Copyright Act to

grant performers of sound recordings rights to compensation

from terrestrial broadcasters, but would establish a flat annual

fee in lieu of royalty payments for terrestrial broadcast stations

making less than $1.25 million in yearly revenue, a similar

standard to the Webcaster Settlement Act of 2009.

191

Because

the economy is currently in a downturn, the legislation will not

impose royalty payments until three years after enactment.

192

On May 13, 2009, the House of Representatives Judiciary

Committee approved the bill,

193

and the Senate Judiciary

Committee approved the same legislation in October of 2009.

194

Next, the Senate must consider and vote on the legislation.

This new Performance Rights Act enjoys a considerable

amount of support,

195

and should be adopted into law by

Congress. Although both Internet radio and terrestrial radio are

free to the consumer, Internet radio compensates performing

artists in the form of advertising in ways terrestrial radio does

not. These individuals should be compensated for their work,

regardless of the medium in which it is performed.

196

Not

surprisingly, the National Association of Broadcasters (NAB)

197

has vehemently opposed this legislation, calling it a “tax” on local

radio stations.

198

The NAB claims that this tax would reduce the

variety that music radio stations play,

199

but when one considers

Performance Rights Act, OPENCONGRESS, http://www.opencongress.org/bill/111-s379/show

(last visited Oct. 4, 2010) [hereinafter S. 379 Performance Rights Act].

191 See supra Part II.B.

192 S. 379.

193 David Oxenford, Broadcast Performance Royalty Passes House Judiciary

Committee–—A Work in Progress, BROADCAST LAW BLOG (May 13, 2009),

http://www.broadcastlawblog.com/2009/05/articles/broadcast-performance-royalty/

broadcast-performance-royalty-passes-house-judiciary-committee-a-work-in-progress/.

194 See S. 379: Performance Rights Act, supra note 190; Juliana Gruenwald, More

Support for Royalty Bill, NAT’L J. (Jan. 6, 2010, 10:09 AM), http://techdailydose.

nationaljournal.com/2010/01/more-support-for-royalty-bill.php.

195 Seventeen labor and civil rights organizations, including the AFL-CIO and the

NAACP, urged Congress to adopt the bill. See AFL-CIO, NAACP, Others Back

Performance Rights Act, MUSICFIRST (Dec. 7, 2009), http://www.musicfirstcoalition.org/

node/728. Even the Intellectual Property division of the American Bar Association has

come out in support of the bill. See Gruenwald, supra note 194. However, there is

significant opposition to the bill as well, mainly from commercial television and radio

stations. See H.R. 848 – Performance Rights Act, MAPLIGHT.ORG, http://maplight.org/us-

congress/bill/111-hr-848/358578/total-contributions (last visited Oct. 18, 2010) (comparing

the interest groups in support of and in opposition to the bill, as well as the relative

financial contributions made by those groups to House members).

196 Castro, supra note 112, at 1.

197 NAT’L ASS’N OF BROADCASTERS, http://www.nab.org (last visited Oct. 5, 2010).

198 See No Performance Tax, http://www.noperformancetax.org (last visited Oct. 5,

2010). This website is operated by the NAB. Id.

199 Radio at Risk, NO PERFORMANCE TAX, http://www.noperformancetax.com/Radio%

20at%20Risk (last visited Oct. 5, 2010).

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160 Chapman Law Review [Vol. 14:135

the imminent rise of in-car Internet radio,

200

these concerns may

not be so terrifying. Although terrestrial radio provides artists

with exposure to new audiences,

201

this alone should not justify

an exemption when Internet radio gives similar—even better—

exposure.

The Performance Rights Act may have some negative

impacts on musicians and record companies,

202

but it would at

least level the playing field of who pays royalties and create a

more balanced royalty structure. Moreover, “the proposed act

would result in additional revenue for record companies,

musicians, and performers . . . [who] would receive an additional

income stream. . . . [R]ecord companies could use the additional

revenue to invest more heavily in the creative process of music.

203

The Act itself, however, does not address the issue of high royalty

rates. Therefore, the Performance Rights Act should carry with

it a simple way for webcasters and radio stations alike to reduce

their royalty payments.

B. An Opt-Out Database for SoundExchange

Since the CRB determination of royalty rates in 2007,

204

has been assumed that artists could waive the collection of

royalties if they felt it would be in their best interest to allow

webcasters to play their music.

205

SoundExchange currently

allows sound recording copyright owners to negotiate directly

200 See supra Part III.

201 At a House Judiciary Committee in 2007, congressmen on either side of the issue

of full performance rights agreed that terrestrial broadcasts have been positive for

musical artists. David Oxenford, House Judiciary Committee Hearing on Broadcast

Performance Right—No Breaks for the Broadcasters, BROADCAST LAW BLOG (July 31,

2007), http://www.broadcastlawblog.com/2007/07/articles/broadcast-performance-royalty/

house-judiciary-committee-hearing-on-broadcast-performance-right-no-breaks-for-the-

broadcasters/#more.

202 Matthew Lasar, Performance Rights Act Might Shut Down Some Radio Stations,

ARS TECHNICA (June 8, 2010, 11:08 AM), http://arstechnica.com/tech-policy/news/2010/

06/gao-report-performance-rights-act-might-shut-down-some-radio-stations.ars (stating

that the act “could prompt some stations to make ‘adjustments’ . . . such as reducing staff

levels, switching to a nonmusic format, and ceasing operation”) (citing U.S. GOV’T

ACCOUNTABILITY OFFICE, GAO-10-428R, PRELIMINARY OBSERVATIONS ON THE POTENTIAL

EFFECTS OF THE PROPOSED PERFORMANCE RIGHTS ACT ON THE RECORDING AND

BROADCAST RADIO INDUSTRIES 12 (2010)).

203 U.S. GOV’T ACCOUNTABILITY OFFICE, GAO-10-428R, PRELIMINARY OBSERVATIONS

ON THE POTENTIAL EFFECTS OF THE PROPOSED PERFORMANCE RIGHTS ACT ON THE

RECORDING AND BROADCAST RADIO INDUSTRIES 4 (2010).

204 See supra Part II.A.

205 See David Oxenford, Music Waivers Dropped Amid Payola Allegations—What’s the

Impact for Future Waivers for Webcasters?, BROADCAST LAW BLOG (July 22, 2007),

http://www.broadcastlawblog.com/2007/07/articles/payola-and-sponsorship-identif/music-

waivers-dropped-amid-payola-allegations-whats-the-impact-for-future-waivers-for-

webcasters/.

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2010] Internet Radio Disparity 161

with webcasters, provided they give proper notice to the CRB and

to SoundExchange.

206

Also, if an artist does not collect the

royalties owed to him after three years, SoundExchange keeps

the money and adds it back into the general revenue pool.

207

SoundExchange needs its own streamlined system for efficient

use of royalty payments without requiring cumbersome

individual negotiations between webcasters and copyright

holders.

At a recent Senate Judiciary Committee hearing concerning

performance royalties for radio, Texas Senator Cornyn suggested

that, “rather than compelling a performance royalty, Congress

should set up a ‘Do Not Play’ list, similar to a do not call list.”

208

Such a list would be kept by SoundExchange—which already has

a list of most copyright holders

209

—and would consist of those

artists who do not consent to their music being played without

the payment of a royalty.

210

If webcasters and radio stations

wanted to play music from artists on the Do Not Play list, they

would have to negotiate individually, but stations could play

music from any other artists without a royalty.

211

This idea,

however, was dismissed quickly during the hearing for legitimate

fears that such a system would tend to force less well-known

musical artists and groups into a race to the bottom—giving up

their copyrights in order to be heard—and that it would

simultaneously prove difficult for smaller radio stations to carry

major music stars, thus infringing on smaller sites’ ability to

compete with larger ones.

212

However, the idea of creating a pool of royalty-free music is

interesting and might prove a successful method for lowering

royalty payments, which continue to cripple online radio stations.

Instead of the system allowing royalty-free music by default, as

Senator Comyn suggested, SoundExchange should create its own

206 Eliot Van Buskirk, Polka Players Want to Fold SoundExchange Royalties, WIRED

(July 19, 2007, 3:37 PM), http://www.wired.com/listening_post/2007/07/polka-players-w/.

207 Eliot Van Buskirk, Webcasting Royalties: A Modest Proposal, WIRED (July 23,

2007), http://www.wired.com/entertainment/music/commentary/listeningpost/2007/07/

listeningpost_0723?currentPage=3. Van Buskirk suggests that, “[i]f SoundExchange is

going to collect royalties without being asked to, it should make it easy to opt out of that

system on a song-by-song basis.” Id.

208 Oxenford, supra note 177.

209 Performers and/or copyright owners must register with SoundExchange in order

to “get paid when [they] get played.” Register, SOUNDEXCHANGE,

http://soundexchange.com/performer-owner/register-update-my-info/ (last visited Oct. 6,

2010).

210 Oxenford, supra note 177.

211 Id.

212 Id.

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162 Chapman Law Review [Vol. 14:135

“Please Play” or “opt out” list, where artists could waive the

payment of royalties and consent to webcasters and radio

broadcasters playing their music for free. This opt-out provision

could easily be attached to the Performance Rights Act as an

amendment and simply provide a method for broadcasters to

mitigate the impact of platform parity. Such a system, operated

by SoundExchange, would provide more artists with more

security and discretion in choosing how to market themselves,

and it would also create more revenue as users are prompted

with a “Purchase” option next to the song played. Instead of

requiring individual negotiations, artists could simply join the

opt-out list, which would allow radio stations of all types to play

the music without paying royalties.

Some artist communities, like the Polka America

Corporation (PAC),

213

have already given Internet radio stations

the right to play their music without royalties.

214

However, PAC

had to create its own artist database without the help of

SoundExchange.

215

Requiring webcasters to negotiate indi-

vidually with music and recording organizations is as inefficient

as requiring them to negotiate with individual music artists.

With the right governmental protections in place, a system,

operated by SoundExchange, would streamline negotiations

between webcasters and sound recording copyright holders, as

well as create an efficient way for webcasters to play free music

to lessen their royalty obligations under the Copyright Act. This,

coupled with a full performance right granted to holders of sound

recording copyrights in the Performance Rights Act, seems to

produce a fairer and more balanced structure that equally

considers the interests of all parties involved: musical artists, the

recording industry, webcasters, and terrestrial broadcasters.

CONCLUSION

The radio industry has changed dramatically over the past

decade, and continued adaptation and flexibility will be needed to

address future technological advances and evolving consumer

habits. As the actions of Radiohead demonstrated in 2007, the

market is changing, and everyone—musicians, music publishers,

213 POLKA AMERICA CORPORATION, http://www.polkaamericacorporation.org/ (last

visited Oct. 1, 2010).

214 Van Buskirk, supra note 206. Polka artists interested in joining the opt-out

database must register with the Polka America Corporation, and then their music will be

played for free on any webcaster or terrestrial radio broadcaster that plays more than

fifty percent polka music. Id.

215 Id.

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2010] Internet Radio Disparity 163

performers, etc.—will need to get creative to stay in business.

Internet radio represents the innovative forefront of the

broadcasting industry. Therefore, a royalty regulation system

that hinders technological advancement and ignores current

consumer values is detrimental to the health of the music

industry as a whole. It is not appropriate to allow terrestrial

radio stations to pay nothing in royalties while webcasters must

pay at least twenty-five percent in revenue. Indeed, “[c]opyright

may be property, but like all property, it is also a form of

regulation. It is a regulation that benefits some and harms

others. When done right, it benefits creators and harms leeches.

When done wrong, it is regulation the powerful use to defeat

competitors.”

216

Congress should pass the Performance Rights

Act, but should amend it slightly so that it includes an opt-out

database requirement for SoundExchange in order to balance the

interests of all parties.

The “great irony” of the debates among these groups—

webcasters, the recording industry, musical artists, etc.—is that

“most new devices only become popular because buyers really

want them, which means they open whole new markets that can

then be monetized by rightsholders.”

217

been forced to accept industry-altering technology before, and

have successfully met the challenge. Consider the gramophone,

the VCR, and analog cassette tapes. Each time these

technologies were introduced into the market, copyright holders

feared that it would be the death of music.

218

Each time the

industry survived. The recording industry will survive into the

digital age, but only if it accepts change once again and adapts

with new business and finance models.

216 LAWRENCE LESSIG, FREE CULTURE: HOW BIG MEDIA USES TECHNOLOGY AND THE

LAW TO LOCK DOWN CULTURE AND CONTROL CREATIVITY 194 (2004). This book measures

the effect of the Internet on various aspects of our culture, including film, performance,

radio, and television. Examining the relationship between what Professor Lessig calls

“piracy” and “property,” he argues that, by bowing to the demands of media

conglomerates, the government has allowed the law to hamper the innovations of the

Internet and thus hinder culture’s ability to respond to change as we have always done—

using “common sense.” Id. at 13.

217 Nate Anderson, 100 Years of Big Content Fearing Technology—In Its Own Words,

ARS TECHNICA (Oct. 11, 2009, 11:00 PM), http://arstechnica.com/tech-policy/news/2009/10/

100-years-of-big-content-fearing-technologyin-its-own-words.ars/2.

218 Id.