Copyright Royalty Board Urged to Hike and Re-Set Commercial Streaming Rates

We expanded (or numbed, depending on your perspective) your mind last month about the myriad of proposals for 2016-2020 streaming rates for non-commercial broadcasters and now it is time for the commercial side of the house to get the same treatment. The good news is that there are fewer separate plans. The bad news is that SoundExchange and music streamers have very different ideas about what constitutes a fair price for the right to stream.

Commercial streamers are usually held to a higher rate than their non-commercial counterparts for the simple reason that due to their for-profit nature, they can afford to pay more to stream and simply cover it by increased revenues. Based upon that assumption and thousands of pages of testimony from its experts, SoundExchange is asking the Copyright Royalty Board (CRB) to raise the rates for commercial webcasters from $.0023 per performance (i.e. per song per listener) to $.0025 in 2016 up to $.0029 in 2020.

Lest you should think it to be this straightforward, think again. SoundExchange has also proposed a new method of extracting the most amount of money possible from streamers by urging the CRB to adopt a “greater of” formulation for royalties where by streamers would pay the greater of either the regular rates or 55% of revenue related to streaming. In support of its proposal, SoundExchange essentially argued that the ‘greater of’ formulations are common in deals negotiated directly between SoundExchange and service providers (i.e. iHeart Media) and since everyone else is doing it, so should the CRB.

Not surprisingly, the remaining music streamers who have not reached separate agreements with SoundExchange argue that a rate re-set is what is needed most now. They point out that even Pandora, the largest music streaming service in the nation, is not able to be profitable under the current rates that it pays – which are actually half the current CRB rates – and so no one else can be either, particularly under the new proposed rates. Pandora, in fact, is also beating a path away from SoundExchange by negotiating directly with record labels and cutting out SoundExchange’s middle-man inflation to get rights to stream new music. It isn’t clear if this back maneuvering will convince the CRB that SoundExchange’s rates are simply too high for any service to be a successful, profitable business venture.

Pandora proposed rates starting at $.0010 in 2016 up to $.0018 in 2020. Pandora also offered to use a ‘greater of’ formulation, except that it would be the greater of the (lower proposed) performance rate or 25% of revenue. Broadcasters, including iHeartMedia and NAB, argue for a flat $.0005 per performance rate for all five years. NAB also wants a flat fee royalty of $500 a year for broadcasters who do not exceed 876,000 aggregate tuning hours per year which is roughly equivalent to 100 average listeners.

The next step in the proceeding is for a trial with witnesses (!) and cross-examination (!) that will likely be as scintillating for the non-copyright aficionado as watching paint dry. After that, it will be up to the CRB to wade through the dissonant positions to settle on a “willing buyer, willing seller” rate for commercial streaming for 2016 – 2020. They will hopefully make a decision by the end of 2015.