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Music Business News, December 20, 2017

The Copyright Royalty Board raised SiriusXM’s royalty rate. And a court of appeals determined that the consent decree permits fractionalized licensing. Also, Pandora unveiled a free on-demand streaming option.

 

Copyright Royalty Board Raising Rate for SiriusXM

The Copyright Royalty Board (CRB) decided that Satellite Audio Radio Services like SiriusXM and others will pay 15.5-percent of their revenue for the next five years. Billboard reported that this will take effect in 2018 and last until 2022.

 

SoundExchange CEO Michael Huppe said, “It is long past time for Congress to change the standard that currently forces music creators to subsidize flourishing companies.”

 

The new rate is a 41-percent increase from the 11-percent the service paid in 2017, but still less than the 23-percent SoundExchange requested from the CRB judges. The state is still more than the static rate Sirius requested.

 

SoundExchange released a statement saying, “Yesterday’s decision confirms the need to change the so-called Section 801(b) rate standards under which satellite radio and the ‘grandfathered’ cable radio services operate, and which permit the CRB to adopt rates different than what the market would provide … As a result of that rate standard, SiriusXM has paid below-market rates for years, and the recording artists and rights owners SoundExchange represents have subsidized the company’s growth.”

 

In the first nine months of 2017, Sirius’ net income was $691.3 million – 14-cents per share – on revenues of $4.02 billion.

 

Huppe added, “There’s no reason recording artists and record labels should subsidize a company as profitable as Sirius XM … Everyone should play by the same rules, and it is long past time for Congress to change the standard that currently forces music creators to subsidize flourishing companies whose success is built on top of the music.”

 

In other news that will likely provide frustration to artists and labels, the CRB also ruled that pre-existing subscription services like Music Choice and MUZAK will get a reduced rate – 7.5-percent of revenue for the next five years. Their previous royalty rate was 8.5-percent of revenue.

According to official remarks from SoundExchange, “Music Choice and Muzak pay significantly lower rates than their non-grandfathered competitors offering the same service.” The statement also asked Congress to establish a rate standard that made all digital services beholden to a “willing buyer/willing seller” standard.

 

Huppe said, “SoundExchange is dedicated to our mission of ensuring that creators are properly recognized and compensated for the use of their work … And while the Copyright Royalty Board did not adopt the rates we proposed for SiriusXM, its ruling demonstrates an important step in the right direction toward valuing the contributions of the music creators represented by SoundExchange.”

 

SoundExchange was created by Congress as a non-profit meant to collect and distribute artist and label royalties for music played on SiriusXM, Music Choice and other programmed digital music services.

 

Other organizations also shared their thoughts on the CRB’s decision. The RIAA said the decision is a positive move, but that rates are still not appropriate compensation for music creators: “For more than a decade, SiriusXM pocketed billions of dollars on the backs of music creators by paying below-market rates while the company crowed about record profits and boasted a market cap about the size of the entire recorded music market … At the same time, SiriusXM continues to go out of its way to file lawsuits to deny fair compensation to legacy pre-1972 artists who depend on that income for their living. That’s no record to be proud of.”

 

The American Federation of Musicians of the U.S. and Canada was also excited about the rate increase, but president Ray Hair indicated that the copyright system is still faulty because it “allows this wildly profitable company to underpay for recorded music based on a below-market standard.”

 

musicFIRST expressed disappointment. Executive director Chris Israel said, “The rate SiriusXM will pay the artist may have changed but the facts surrounding the company’s sweetheart deal have not … This decision virtually guarantees the company will pay an unfair, below market royalty rate for the music that it plays well into the future.”

 

He also said that SiriusXM has paid a below-market rate that penalizes music creators for almost 20 years and has “dragged legacy artists through the courts rather than pay them what they deserve.” He advocated for the Fair Play Fair Pay Act that would enforce “willing buyer, willing seller” across all music licensing platforms.

 

SiriusXM had not yet commented on the CRB’s decision officially at the time of initial reports, but in a filing, a statement from the company read, “We are in the process of studying and evaluating the rates and terms announced by the Copyright Royalty Board.  We also expect to evaluate changes in our pricing, including the amount of our U.S. Music Royalty Fee.”

 

Court of Appeals Ruling on Fractionalized Licensing for Songwriters and Publishers

 

The U.S. Second Circuit Court of Appeals decided the consent decree allows for fractionalized licensing, a big win for songwriters and publishers.

 

Billboard explained that “fractionalized licensing means that in cases of songs written by multiple songwriters music users need to get a license from all of the songwriters or their representatives.”

 

The U.S. Department of Justice (DOJ) said the consent decree had long been misinterpreted by the music industry, carrying out fractionalized licensing and granting full-works licensing, meaning they were granting licenses based on permission from only one of the songwriters.

 

The DOJ told the industry about the full-works licensing requirement, and BMI sued the DOJ in the BMI rate court. Judge Louis Stanton ruled that the consent decree does not bar fractional licensing and also does not require full-work licensing. The DOJ appealed it to the Second Circuit in the Souther District of New York. After verbal arguments heard on December 1, they issued their ruling on December 19.

 

Circuit Judges Dennis Jacobs, Reena Raggi and Christopher Droney backed up Judge Stanton’s ruling: “This appeal begins and ends with the language of the consent decree … It is a well-established principle that the language of a consent decree must dictate what a party is required to do and what it must refrain from doing.”

 

However, the Judges added, “The decree does not address the issue of fractional versus full work licensing, and the parties agree that the issue did not arise at the time of the 1966 and 1994 amendments.”

 

The Circuit Judges pointed to current case law and said, “The scope of a consent decree must be discerned within its four corners” and that the courts “must abide by the express terms of a consent decree and may not impose additional requirements or supplementary obligations on the parties … to fulfill the purposes of the decree more effectively.”

 

President of BMI Mike O’Neill issued a statement on the ruling: “This is a massive victory for songwriters, composers, music publishers and the entire industry … We have said from the very beginning that BMI’s consent decree allowed for fractional licensing, and we are incredibly gratified that Judge Stanton and the Second Circuit agreed with our position. We thank all the songwriters, composers, publishers and organizations who supported us throughout this process, which unfortunately, has been a nearly two-year distraction from our original intent which was to update our outdated consent decree and modernize music licensing. We look forward to our continued efforts to protect and grow the value of music.”

 

ASCAP has been lobbying for U.S. legislation that addresses issues for publishers and songwriters across the board and also celebrated the decision. ASCAP CEO Elizabeth Matthews said, “The Second Circuit’s ruling today is an important victory for music creators across the country … The Court affirms what we have known all along, that the right of public performance allows for the fractional licensing of musical works in our repertories, and the consent decrees do not limit that right. ASCAP and BMI can now continue to offer blanket licenses to our hundreds of thousands of licensees that contain all the shares of works that are in our repertories and the livelihoods of our 650,000 ASCAP songwriter, composer and publisher members can continue to depend on a strong collective licensing system. ASCAP remains committed to making music licensing more efficient, effective and transparent for today’s digital music marketplace.”

 

NMPA president and CEO David Israelite added, “Today’s affirmation of Judge Stanton’s decision is vindication for all songwriters and music publishers that the Justice Department overreached when it wrongly claimed that split works should be licensed on a 100 percent basis … DOJ’s disastrous interpretation was an attack on songwriters and we congratulate BMI and the industry effort on successfully fighting against this massive government overreach.”

 

Peermusic CEO Ralph Peer echoed others’ excitement: “BMI’s resounding victory today over the DOJ (in United States v. Broadcast Music, Inc.) which affirms Judge Stanton’s ruling that that the consent decree neither requires full-work licensing nor prohibits fractional licensing of BMI’s affiliates’ compositions, is an important win for songwriters and publishers worldwide which we warmly welcome.”

 

However, those in the music licensees market expressed frustration over the ruling. A statement released by the MIC Coalition read: “Today’s decision by the Court of Appeals for the Second Circuit will have devastating consequences for the future of music licensing … If left unchallenged, this decision will fundamentally alter decades of business practices while destroying the value of collective licensing and threatening to throw the entire music marketplace into chaos.”

 

The radio sector was equally displeased. The NAB VP of communications Dennis Wharton released a statement: “NAB is extremely disappointed with the court’s decision… If sustained, this decision could disrupt the music licensing marketplace and impede the delivery of music to listeners and viewers, resulting in less airplay of their favorite songs.” But Wharton added that they are committed to “finding common ground with our songwriter friends to continue [its] partnership.”

 

O’Neill said that the Circuit Judges’ decision “gives a definitive answer to the question that has been raised. The question was asked, it was answered and it was answered again today and we like the answers.”

 

Pandora On-Demand Unveiling Free Version

 

Pandora revealed its own on-demand, ad-supported “free” music service, reported Music Business Worldwide.

 

The platform is meant to compete with Spotify and Deezer. However, users of Pandora’s free on-demand service can only access it by watching a 15-second video ad.

 

Once listeners search for a specific song, album or playlist, they are offered the option to view the ad in order to unlock a free “Pandora Premium” listening session. Pandora Premium is Pandora’s $9.99-per-month premium subscription offering.

 

President and CEO of Pandora Roger Lynch explained, “Our ad-supported listeners’ top request has consistently been the ability to directly play the specific songs, albums or playlists they want … These new features address that need by marrying rewards-based advertising with the best-in-class on-demand experience we’ve created with Pandora Premium.”

 

He added, “This unrivaled experience will drive listeners to Pandora and drive awareness for Premium, while also creating new opportunities for artists, labels, publishers and advertisers.”

 

Chris Phillips, Pandora’s Chief Product Officer said, “Pandora continues to deliver product enhancements that create the ultimate music streaming destination for listeners, giving them more of what they want, when they want it … The ability for our ad-supported users to search and play songs in our Premium product is game-changing not only for listeners, but also for artists and advertisers. For artists, it creates new avenues of promotion by providing fans with direct links to play their music.”

 

Pandora spokespeople also indicated that the new ad-supported platform is a way for brands to “build trust and create value for their audience.”

 

In early 2017, Spotify was allowed to continue to provide ad-supported, free on-demand listening to users thanks to signing new global licensing deals with Universal, Sony and Warner. Those labels now have the option of providing new music on Spotify’s Premium tier exclusively for the first two weeks after release.