SoundExchange Royalties Case Against Muzak Reinstated By Appellate Court

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SoundExchange v. Muzak, No. 16-7041 (D.C. Cir. Apr. 25, 2017).

The D.C. Court of Appeals reversed the dismissal of SoundExchange's complaint against Muzak, which alleges that Muzak underpaid royalties.  SoundExchange is a nonprofit entity charged with the responsibility of collecting royalties for performing artists and copyright owners of music; Muzak is a company that supplies digital music channels to satellite television networks who, in turn, sell to subscribers.  Muzak argued that it was permitted to pay lower, "grandfathered," rates that had been set by a copyright royalties board even after certain corporate changes.  There had been a statutory change in the 1990s as part of the DMCA-compromise, and the case turned on the statutory definition of a "preexisting subscription service."  The Court concluded:

The grandfather provisions were intended to protect prior investments the three business entities had made during a more favorable pre-1998 rate-setting regulatory climate. “Muzak was [a] pioneer music service that incurred both the benefits and risks that came with its investment,” specifically its investment in DishCD. 71 Fed. Reg. at 64,646. But when Muzak expands its operations and provides additional transmissions to subscribers to a different “service,” (i.e., SonicTap), this is an entirely new investment. * * * We conclude, therefore, that the better interpretation of the statute is that the term “service” contemplates a double limitation; both the business and the program offering must qualify before the transmissions are eligible for the favorable rate.

Copyright Royalty Board Royalty Rates For Performance Of Sound Recordings Affirmed

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Music Choice v. Copyright Royalty Board, No. 13-1174/13-1183 (D.C. Cir. Dec. 19, 2014).

In 2013, the Judges of the Copyright Royalty Board (CRB) issued a determination setting royalty rates and defining terms for statutorily defined satellite digital audio radio services and preexisting subscription services.  SoundExchange, which collects and distributes royalties, argued that the CRB arbitrarily set rates too low and that the CRB erred in defining "Gross Revenue" and eligible deductions.  Music Choice, which provides music-only television channels, also appealed arguing that the Judges set the rates too high.

The Court of Appeals held that the CRB acted within its broad discretion to set rates for compulsory licenses of the digital performance of sound recordings, and therefore affirmed the determination of royalty rates.  The appellate court found that the CRB did not exercise its broad discretion in an arbitrary or capricious manner when setting royalty rates for satellite digital audio radio services and preexisting subscription services.

For satellite digital audio radio services, the rate was set at 11%; in order to avoid disruption, the CRB adopted a staggered schedule beginning at 9% in 2013 and increasing by 0.5% annually until achievement of 11% in 2017.

For preexisting subscription services, the rate was set at 8.5% with an upward adjustment for Music Choice's planned channel expansion.  The rate would start at 8% in 2013 and increase to 8.5% for 2014 through 2017.

Apple and "Subscription" - In the Same Sentence?

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The Financial Times reports:

Apple is in discussions with the big music companies about a radical new business model that would give customers unlimited access to its entire iTunes music library in exchange for paying a premium for its iPod and iPhone devices.

Called an "all you can eat" model. Who knew the record industry was turning into an Old Country Buffet?

CBS wants Last.fm to be First on Your Dial

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CBS is adding on-demand, full-track streaming to its music social-networking site Last.fm. Free on-demands streams will be limited to three times per track, and cannot be downloaded to a portable player (e.g., an iPod).

Forbes notes that this is a "sign of the recording industry's growing interest in free, advertising-supported access to music". Yet, Last.fm plans to ultimately offer users a chance to purchase a monthly subscription allowing them to listen to songs as many times as they want.

Rolling Stone notes that the Last.fm deal with major record labels is heating up "the arms race" between Amazon and Apple iTunes.

Napster Caves; Drops DRM

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The Wall Street Journal reports that Napster -- the company once synonymous with illegal on-line file sharing -- has dropped its software which limits the way users can listen to music.

Napster offered a subscription streaming service, which prevented subscribers from downloading a permanent copy of a sound recording to their hard-drive. With the termination of its digital rights management (DRM) program, it appears that Napster will now be an on-line music distributor modeled after traditional brick-and-mortar record stores (e.g., iTunes). In other words, users will be able to purchase their music and take it to-go, available on a whim.

Does this signal the death of subscription-based model of on-line content distribution? OTCS never believed this model would work - users, OTCS believes, prefer paying a la carte, rather than a monthly subscription fee.