Yet Another Royalties Tier for Internet Radio?

While Congress continues to back-burner the debate over whether it's fair for streaming radio services to be charged as much as ten times their revenue in performance royalties, the US Copyright Royalty Board last week met for a roundtable discussion about whether yet another class of royalties that are already part of copyright law, should apply to Internet radio as well.

The class being discussed is the "mechanical royalty" - a fee collected for the right to make a reproduction of a recording, or what the law calls a phonorecord. The basic meaning of the royalty is quite sensible: When you have a record, and you want to make records off of that master for reproduction and possible sale, you owe a mechanical royalty fee for each reproduction. Historically, that fee has been set at a flat rate of $0.09 cents per copy.

A 2001 agreement between the RIAA, royalties agencies, and music publishers established that streaming services where the music isn't specifically selected by the listener by song, do not count as phonorecords as described by US law, and thus no mechanical royalties apply. This is why you can't pick your own tunes from any of these services. That agreement is not under dispute. What the CRB has brought to the table, according to an insider's report on the blog of broadcast law attorney David Oxenford, is the issue of whether a webcaster such as Last.fm or Pandora actually makes a phonorecord for itself in the process of streaming a copy of that to the listener.

The debate partially stems from the findings of a US District Court in New York last April, which ruled in favor of AOL, Yahoo, and RealNetworks.

Their contention was that they did not have to pay performance royalties to ASCAP and other performance rights organizations (PROs) for music which their customers download directly from them, as opposed to services which are streamed to them. In its defense, ASCAP cited laws which appeared to state otherwise, though the Court found flaws in those laws that created what it decided were unintentional overlaps, the effect of which might have been that PROs could have been paid twice for essentially the same rights.

Ironically, it was an amicus brief filed by the RIAA itself which swayed the court's opinion. The RIAA has frequently this section of US Code: "A 'digital phonorecord delivery' is each individual delivery of a phonorecord by digital transmission of a sound recording which results in a specifically identifiable reproduction by or for any transmission recipient of a phonorecord of that sound recording."

US Code goes on to cite an exception: "A digital phonorecord delivery does not result from a real-time, non-interactive subscription transmission of a sound recording where no reproduction of the sound recording or the musical work embodied therein is made." That part pretty much made the judge's decision quite easy, deciding, "Although...the streaming of a musical work does constitute a public performance, we conclude that the downloading of a digital music file, in and of itself, does not."

That deduction was reached by virtue of having decided that the delivery of digital music cannot be considered both a public performance and a mechanical reproduction. From the law's standpoint, it should only be one or the other. The fact that a streaming performance is liable for performance copyright helped seal the deal that a reproduction was not.

The RIAA has urged the CRB to come up with a hard and fast rule as to what constitutes a digital phonorecord with respect to streaming services, and this is the purpose of the roundtable having convened. But an examination of this and other rulings got members of the Board to start thinking this way: Maybe the act of delivering music can't be treated as performance and reproduction simultaneously, but what about what happens in the act of preparing that performance? Doesn't a streaming service provider have to make a mechanical reproduction then? And does that reproduction fit US Code's current description?

Already, the distributors of ringtones based on existing popular music recordings pay mechanical royalties to a group called the Harry Fox Agency (HFA), and those fees are most certainly passed on to their customers. So there is precedent for the concept of digital mechanical reproduction. And certainly the topic must be broached in some way, shape, or form, before it can be decided that mechanical copyright does or does not apply.

But it makes the debate over royalties for digital works all the more difficult for a Congress that may only have a month left to decide this issue, and which the district court mildly pointed out may not really understand the topic anyway.

Credit:
By Scott M. Fulton, III, BetaNews

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