13026 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

1The two prior webcasting proceedings often 

have been referred to informally as ‘‘Webcaster I’’ 

and ‘‘Webcaster II,’’ respectively, as opposed to the 

formal caption ‘‘DTRA’’ (which stands for ‘‘Digital 

Transmissions Rate Adjustment’’). In the current 

proceeding, we use the caption ‘‘Webcasting III’’ and 

intend to caption future webcasting proceedings 

using the term ‘‘Webcasting’’ followed by the 

appropriate Roman numeral. 

2 In the pleadings filed and during the testimony, 

Live365 attempted to introduce evidence about 

agreements that contained provisions that they were 

not to be considered as precedential under the 

Webcaster Settlement Acts. Following the clear 

language of the statute that these agreements were 

not ‘‘admissible as evidence or otherwise taken into 

account,’’ 17 U.S.C. 114(f)(5)(C), these attempts were 

rejected. See, e.g., 4/19/10 Tr. at 210:9–10 

(sustaining objection to Live365’s motion to enter 

into evidence the ‘‘Pure Play Agreement’’). 

3References to the proposed findings of fact and 

conclusions of law shall be cited as ‘‘PFF’’ or ‘‘PCL,’’ 

respectively, and reply findings and conclusions of 

law shall be cited as ‘‘RFF’’ or ‘‘RCL,’’ respectively, 

preceded by the name of the party that submitted 

same and followed by the paragraph number. 

Similarly, references to the written direct testimony 

shall be cited as ‘‘WDT’’ preceded by the last name 

of the witness and followed by the page number. 

Likewise, references to the written rebuttal 

testimony shall be cited as ‘‘WRT’’ preceded by the 

last name of the witness followed by the page 

number. References to the transcript shall be cited 

as ‘‘Tr.’’ preceded by the date and followed by the 

page number and the name of the witness. 

LIBRARY OF CONGRESS 

Copyright Royalty Board 

37 CFR Part 380 

[Docket No. 2009–1 CRB Webcasting III] 

Digital Performance Right in Sound 

Recordings and Ephemeral 

Recordings 

AGENCY: Copyright Royalty Board, 

Library of Congress. 

ACTION: Final rule and order. 

SUMMARY: The Copyright Royalty Judges 

are announcing their final 

determination of the rates and terms for 

two statutory licenses, permitting 

certain digital performances of sound 

recordings and the making of ephemeral 

recordings, for the period beginning 

January 1, 2011, and ending on 

December 31, 2015. 

DATES: Effective Date: March 9, 2011. 

Applicability Dates: These rates and 

terms are applicable to the period 

January 1, 2011, through December 31, 

2015. 

FOR FURTHER INFORMATION CONTACT: 

Richard Strasser, Senior Attorney, or 

Gina Giuffreda, Attorney Advisor. 

Telephone: (202) 707–7658. E-mail: 

crb@loc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

A. Subject of the Proceeding 

This is a rate determination 

proceeding convened under 17 U.S.C. 

803(b) et seq. and 37 CFR part 351 et 

seq., in accord with the Copyright 

Royalty Judges’ Notice announcing 

commencement of proceeding, with a 

request for Petitions to Participate in a 

proceeding to determine the rates and 

terms for the digital public performance 

of sound recordings by means of an 

eligible nonsubscription transmission or 

a transmission made by a new 

subscription service under section 114 

of the Copyright Act, as amended by the 

Digital Millennium Copyright Act 

(‘‘DMCA’’), and for the making of 

ephemeral copies in furtherance of these 

digital public performances under 

section 112, as created by the DMCA, 

published at 74 FR 318 (January 5, 

2009). The rates and terms set in this 

proceeding apply to the period of 

January 1, 2011 through December 31, 

2015. 17 U.S.C. 804(b)(3)(A). 

B. Statutory Background 

A lengthy review of the history of the 

sound recordings compulsory license is 

contained in the Final Determination for 

Rates and Terms in Docket No. 2005–1 

CRB DTRA, 72 FR 24084 (May 1, 2007) 

(‘‘Webcaster II’’).1 This history was 

summarized by the United States Court 

of Appeals for the District of Columbia 

Circuit in Intercollegiate Broadcast 

System, Inc. v. Copyright Royalty Board, 

574 F.3d 748, 753–54 (DC Cir. 2009), as 

follows: 

[Since the nineteenth century, the 

Copyright Act protected the performance 

right of ‘‘musical works’’ (the notes and lyrics 

of a song), but not the ‘‘sound recording.’’ 

Writers were protected but not performers.] 

In 1995, Congress passed the Digital 

Performance Right in Sound Recordings Act. 

Pub. L. No. 104–39, granting the owners of 

sound recordings an exclusive right in 

performance ‘‘by means of a digital 

transmission.’’ 17 U.S.C. § 106(6); see 

Beethoven.com LLC v. Librarian of Cong., 394 

F.3d 939, 942 (D.C. Cir. 2005). The Digital 

Millennium Copyright Act of 1998, Pub. L. 

No. 105–304, ‘‘created a statutory license in 

performances by webcast,’’ to serve Internet 

broadcasters and to provide a means of 

paying copyright owners. Beethoven.com, 

394 F.3d at 942; see 17 U.S.C. § 114(d)(2), 

(f)(2). To govern the broadcast of sound 

recordings, Congress also created a licensing 

scheme for so-called ‘‘ephemeral’’ recordings, 

‘‘the temporary copies necessary to facilitate 

the transmission of sound recordings during 

internet broadcasting.’’ Beethoven.com, 394 

F.3d at 942–43; see 17 U.S.C. § 112(e)(4). 

Congress has delegated authority to set 

rates for these rights and licenses under 

several statutory schemes. The most recent, 

passed in 2005 [sic], directed the Librarian of 

Congress to appoint three Copyright Royalty 

Judges who serve staggered, six-year terms. 

See 17 U.S.C. § 801, et seq. These Judges 

conduct complex, adversarial proceedings, 

described in 17 U.S.C. § 803 and 37 CFR 

§ 351, et seq., and ultimately set ‘‘reasonable 

rates and terms’’ for royalty payments from 

digital performances. 17 U.S.C. § 114(f). 

* * * Rates should ‘‘most clearly represent 

the rates and terms that would have been 

negotiated in the marketplace between a 

willing buyer and a willing seller.’’ Id. [17 

U.S.C. § 114(f)(2)(B)] ‘‘In determining such 

rates and terms,’’ the Judges must ‘‘base 

[their] decision on economic, competitive 

and programming information presented by 

the parties.’’ Id. Specifically, they must 

consider whether ‘‘the service may substitute 

for or may promote the sales of 

phonorecords’’ or otherwise affect the 

‘‘copyright owner’s other streams of revenue.’’ 

Id. § 114(f)(2)(B)(i). The Judges must also 

consider ‘‘the relative roles of the copyright 

owner and the transmitting entity’’ with 

respect to ‘‘relative creative contribution, 

technological contribution, capital 

investment, cost, and risk.’’ Id. § 114 

(f)(2)(B)(ii). Finally, ‘‘[i]n establishing such 

rates and terms,’’ the Judges ‘‘may consider 

the rates and terms for comparable types of 

digital audio transmission services and 

comparable circumstances under voluntary 

license agreements described in 

subparagraph (A).’’ Id. § 114(f)(2)(B). 

Intercollegiate Broadcast System, Inc. v. 

Copyright Royalty Board, 574 F.3d 748, 

753–54 (DC Cir. 2009). 

Forty petitions to participate were 

filed in response to the January 5, 2009, 

notice of commencement of the 

proceeding. The great majority of the 

petitioners were webcasters. During the 

subsequent period of voluntary 

negotiations, settlements were reached 

among many of the parties. In addition 

to the negotiation phase required in this 

proceeding, 17 U.S.C. 803(b)(3), 

Congress enacted the Webcaster 

Settlement Acts of 2008 and 2009, 

which expanded the opportunities to 

resolve the issues in this proceeding, as 

well as the issues in Webcaster II. This 

legislation further impacted Webcasting 

III by permitting the settling parties to 

determine if the settlements could be 

considered as evidence before the 

Copyright Royalty Judges (‘‘Judges’’).2

Eight settlements were resolved under 

the Webcaster Settlement Acts. 74 FR 

9293 (March 3, 2009) (three 

agreements); 74 FR 34796 (July 17, 

2009) (one agreement); 74 FR 40614 

(August 12, 2009) (four agreements). 

The rates and terms under these 

settlements were the basis of 

approximately 95 percent of webcasting 

royalties paid to SoundExchange in 

2008 and 2009. SX PFF at ¶¶ 50, 51.3

Evidence was presented in this 

proceeding by SoundExchange, Inc. 

(‘‘SX’’), representing the owners, and 

three webcasters, College Broadcasters, 

Inc. (‘‘CBI’’), Live365, Inc. (‘‘Live365’’), 

and Intercollegiate Broadcasting System, 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13027 

4After filing Written Direct Statements, 

RealNetworks, Inc. withdrew from the proceedings, 

and Royalty Logic, LLC, did not participate further. 

5 In addition, Live365 seeks a 20% discount 

applicable to this commercial webcasting per 

performance rate for certain ‘‘qualified webcast 

aggregation services.’’ This proposal is discussed 

infra at Section II.B.5. 

Inc. (‘‘IBS’’).4 CBI only presented 

evidence to support adoption of its 

settlement with SoundExchange for 

noncommercial educational webcasters. 

SoundExchange and Live365 presented 

evidence related to commercial 

webcasters. The webcasting royalties 

paid by Live365 to SoundExchange for 

2008 and 2009 were less than 3 percent 

of total webcasting royalties paid to 

SoundExchange. SX PFF at ¶ 53. 

SoundExchange presented evidence 

related to noncommercial webcasters, 

and IBS presented evidence for small 

noncommercial webcasters. Written 

statements, discovery and testimony for 

both direct case and rebuttal case were 

filed on these issues. 

On December 14, 2010, the Judges 

issued their Initial Determination of 

Rates and Terms. Pursuant to 17 U.S.C. 

803(c)(2)(B) and 37 CFR 353.4, motions 

for rehearing were due to be filed no 

later than December 29, 2010. No 

motions were received. 

II. Commercial Webcasters 

A. Commercial Webcasters 

Encompassed by the National 

Association of BroadcastersSoundExchange Agreement 

On June 1, 2009, the National 

Association of Broadcasters (‘‘NAB’’) and 

SoundExchange filed a settlement of all 

issues between them in the proceeding, 

including the proposed rates and terms. 

This was one of the Webcaster 

Settlement Act agreements, published 

by the Copyright Office in the Federal 

Register, and was filed in this 

proceeding, pursuant to 17 U.S.C. 

801(b)(7)(A), to be adopted as rates and 

terms for some services of commercial 

broadcasters for the period 2011 through 

2015. It applies to statutory webcasting 

activities of commercial terrestrial 

broadcasters, including digital 

simulcasts of analog broadcasts and 

separate digital programming. The 

settlement includes per performance 

royalty rates, a minimum fee and 

reporting requirements that are more 

comprehensive than those in the current 

regulations. Section 801(b)(7)(A) allows 

for the adoption of rates and terms 

negotiated by ‘‘some or all of the 

participants in a proceeding at any time 

during the proceeding’’ provided they 

are submitted to the Copyright Royalty 

Judges for approval. This section 

provides that in such event: 

(i) The Copyright Royalty Judges shall 

provide to those that would be bound by the 

terms, rates, or other determination set by 

any agreement in a proceeding to determine 

royalty rates an opportunity to comment on 

the agreement and shall provide to 

participants in the proceeding under section 

803(b)(2) that would be bound by the terms, 

rates, or other determination set by the 

agreement an opportunity to comment on the 

agreement and object to its adoption as a 

basis for statutory terms and rates; and 

(ii) The Copyright Royalty Judges may 

decline to adopt the agreement as a basis for 

statutory terms and rates for participants that 

are not parties to the agreement, if any 

participant described in clause (i) objects to 

the agreement and the Copyright Royalty 

Judges conclude, based on the record before 

them if one exists, that the agreement does 

not provide a reasonable basis for setting 

statutory terms or rates. 

17 U.S.C. 801(b)(7)(A). 

The Judges published the settlement 

(with minor modifications) in the 

Federal Register on April 1, 2010, and 

provided an opportunity to comment 

and object by April 22, 2010. 75 FR 

16377 (April 1, 2010). No comments or 

objections were submitted, so the 

provisions of 17 U.S.C. 801(b)(7)(A)(ii) 

do not apply. Absent objection from a 

party that would be bound by the 

proposed rates and terms and that 

would be willing to participate in 

further proceedings, the Copyright 

Royalty Judges adopt the rates and terms 

in the settlement for certain digital 

transmissions of commercial 

broadcasters for the period of 2011– 

2015. 17 U.S.C. 801(b)(7)(A). Cf. Review 

of the Copyright Royalty Judges 

Determination, Docket No. 2009–1, 74 

FR 4537, 4540 (January 26, 2009) 

(review of settlement adoption). 

B. All Other Commercial Webcasters 

1. Stipulation Concerning the Section 

112 Minimum Fee and Royalty Rate and 

Stipulation Concerning the Section 114 

Minimum Fee 

In between the direct and rebuttal 

phases, SoundExchange and Live365 

presented two settlements of issues for 

all remaining commercial webcasters 

not encompassed by the NABSoundExchange agreement: (1) The 

minimum fee and royalty rates for the 

section 112 license and (2) the 

minimum fee for the section 114 

license. These two settlements were 

included in one stipulation. The terms 

of the settlement are the same as the 

agreement reached and included as a 

final rule in Webcaster II, following 

remand. See Digital Performance Right 

in Sound Recordings and Ephemeral 

Recordings (Final rule), 75 FR 6097 

(February 8, 2010). The minimum fee 

for commercial webcasters is an annual, 

nonrefundable fee of $500 for each 

individual channel and each individual 

station (including any side channel), 

subject to an annual cap of $50,000. The 

royalty rate for the section 112 license 

is bundled with the fee for the section 

114 license. There is one additional 

term in the stipulation that was not 

included in Webcaster II. The royalty 

rate for the section 112 license is 

attributed to be 5% of the bundled 

royalties. There was no objection to the 

stipulation. There was evidence 

presented to support the minimum fee 

for commercial webcasters and the 

bundled royalty rates. SX PFF at 

¶¶ 459–468, 472. No evidence disputed 

it. These provisions are supported by 

the parties and the evidence. The Judges 

accept and adopt these two stipulations 

as settling these issues. 

2. Rate Proposals for the Section 114 

License for Commercial Webcasters 

The contending parties propose vastly 

different rate amounts for the use of the 

section 114 license for commercial 

webcasters. In its second revised rate 

proposal, SoundExchange argues in 

favor of a performance rate beginning at 

$.0021 per performance in 2011 and 

increasing annually by .0002 to a level 

of $.0029 by 2015. SX PFF at ¶ 118. 

Live365 also proposes a per 

performance fee structure. By contrast, 

under the Live365 proposal, commercial 

webcasters would pay $.0009 per 

performance throughout the period 

2011–2015. Rate Proposal For Live365, 

Inc., Appendix A, Proposed Regulations 

at § 380.3(a)(1).5

Notwithstanding the gulf between the 

SoundExchange and Live365 proposed 

royalty amounts, there is no difference 

between the parties with respect to the 

basic structure of their proposed 

compensation schemes. Both 

SoundExchange and Live365 propose 

that per performance rates (typically 

stated as a fraction of a penny) be 

applicable in the case of the section 114 

license. Furthermore, the per 

performance usage structure was 

adopted in Webcaster II. Webcaster II, 

72 FR 24090 (May 1, 2007). It remains 

the best structure for the reasons stated 

therein. Id. at 24089–90. Therefore, the 

only issues we are left to decide are the 

applicable amount of the webcaster 

royalty rate and whether any discount to 

that rate should be made on those 

occasions when certain types of 

webcasters are aggregated. 

The starting point for our 

determination is the applicable amount 

of the section 114 performance rate. 

mstockstill on DSKH9S0YB1PROD with RULES2

13028 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

6See, for example, Varian, Hal, Intermediate 

Microeconomics: A Modern Approach, (W.W. 

Norton & Company, 2009) at 350, 401. Mansfield, 

Edwin and Yohe, Gary Wynn, Microeconomics: 

Theory and Applications, (W.W. Norton & 

Company, 2004) at 296, 407; see also 7/28/10 Tr. 

at 54:2–14 (Salinger). 

7 In the long-run, all short-run fixed costs become 

variable. 

3. The Parties’ Disparate Approaches To 

Rate Setting for the Section 114 License 

for Commercial Webcasters 

Both Live365 and SoundExchange 

agree that the willing buyer/willing 

seller standard should be applied by the 

Copyright Royalty Judges in 

determining the rates for the section 114 

license. Both recognize that those rates 

should reflect the rates that would 

prevail in a hypothetical marketplace 

that was not constrained by a 

compulsory license. 

However, in contrast to the positions 

of the copyright owners and commercial 

services in Webcaster II, in the instant 

case SoundExchange and Live365 do 

not agree that the best approach to 

determining rates is to look to 

comparable marketplace agreements as 

‘‘benchmarks’’ indicative of the prices to 

which willing buyers and willing sellers 

would agree in the hypothetical 

marketplace. On the one hand, Live365 

primarily seeks to support its rate 

proposal by means of a modeling 

analysis that aims to determine the 

amount of any residue that may remain 

for compensating the sound recording 

input a commercial webcaster uses, after 

reducing webcaster revenues by an 

amount equal to the cost of all other 

inputs utilized by the webcaster in 

providing its service and also by an 

assumed amount of webcaster profits. 

By contrast, SoundExchange puts 

forward a benchmark approach in 

support of its rate proposal, similar to 

the primary argument it made in 

Webcaster II and an approach adopted 

by the Judges therein. 

a. The Live365 Approach 

Live365 relies primarily on a 

modeling analysis provided by Dr. Mark 

Fratrik that seeks to identify the rate 

that commercial webcasters ‘‘would 

have been willing to pay in a negotiated 

settlement between a willing buyer and 

a willing seller.’’ Fratrik Corrected and 

Amended WDT at 5. We find that Dr. 

Fratrik presumes behavioral constraints 

not found in the statutory standard and, 

that even if we were to ignore the 

distortions created by such added 

constraints, his analysis suffers from so 

many other unwarranted explicit 

assumptions and data defects as to make 

his analysis untenable. 

i. Dr. Fratrik’s Model and the 

Hypothetical Market 

The terms ‘‘willing buyer’’ and 

‘‘willing seller’’ in the statutory standard 

simply refer to buyers and sellers who 

are unconstrained in their marketplace 

dealings. In other words, the buyers and 

sellers operate in a free market 

unconstrained by government regulation 

or interference. (See, for example, 

Noncommercial Educational 

Broadcasting Compulsory License (Final 

rule and order), 63 FR 49823, 49834 

(September 18, 1998). (‘‘[I]t is difficult to 

understand how a license negotiated 

under the constraints of a compulsory 

license, where the licensor has no 

choice to license, could truly reflect ‘fair 

market value.’ ’’). Moreover, neither the 

buyers nor the sellers exercise such 

monopoly power as to establish them as 

price-makers and, thus, make 

negotiations between the parties 

superfluous. Webcaster II, 72 FR 24091 

(May 1, 2007). (‘‘In other words, neither 

sellers nor buyers can be said to be 

‘willing’ partners to an agreement if they 

are coerced to agree to a price through 

the exercise of overwhelming market 

power.’’) 

Dr. Fratrik and Live365 either 

misperceive the plain meaning of the 

terms of the statute or deliberately seek 

to expand the meaning of a ‘‘willing 

buyer’’ as articulated in the willing 

buyer-willing seller standard that 

governs this proceeding. For them, a 

‘‘willing buyer’’ is viewed through the 

lens of an additional policy 

consideration nowhere articulated in 

the statute—i.e., that a buyer can only 

be considered ‘‘willing’’ if that buyer is 

able to obtain the sound recording input 

at a price that allows the buyer to earn 

at least a 20 percent operating profit 

margin from the use of that input. Thus, 

in Dr. Fratrik’s analysis, a 

‘‘representative’’ single buyer is deemed 

to be constrained in its behavior from 

participating in the input market for 

sound recordings unless its operating 

profit margin expectations in the output 

market for webcasting services are 

guaranteed at a level consistent with an 

industry-wide average profit margin for 

a purportedly comparable industry such 

as terrestrial radio. Fratrik Corrected 

and Amended WDT at 21–22. 

Nothing in the statute supports 

reading such a behavioral constraint 

into the hypothetical marketplace to be 

derived by the Judges in this 

proceeding. Indeed, a similar argument 

that economic viability based on the 

sufficiency of revenue streams to cover 

costs determines any individual buyer’s 

‘‘willingness’’ to pay for an input raised 

by Live365 in Webcaster I, was rejected 

in that proceeding. Determination of 

Reasonable Rates and Terms for the 

Digital Performance of Sound 

Recordings and Ephemeral Recordings 

(Final rule and order) (‘‘Webcaster I’’), 67 

FR 45240, 45254 (July 8, 2002) (‘‘Thus, 

the Panel had no obligation to consider 

the financial health of any particular 

service when it proposed the rates.’’). 

Dr. Fratrik’s notion of a representative 

entity adds an operating condition that 

distinguishes his conceptual 

formulation from that of a statistically 

average firm in an industry. His 

representative firm must reach one 

specified minimum profit margin and, 

therefore, can only be satisfied with a 

royalty rate sufficient to allow it to 

reach that profit margin. Any lower 

assumed profit margin would, ceterus 

paribus, necessarily result in a lower 

recommended royalty rate. Thus, Dr. 

Fratrik effectively assumes that his 

representative firm will never have a 

reason to operate at less than a 

particular operating profit margin (i.e., 

20%). 

But there is no a priori reason to 

believe that a representative webcaster 

would not accept a lesser profit margin, 

so long as it earns a profit and/or finds 

no risk-adjusted rate of return that could 

be earned by an alternative investment. 

Indeed, basic microeconomic analysis 

recognizes that, in the short-run, it is in 

the interest of a firm to continue to 

produce even at an operating loss, so 

long as its variable costs are covered and 

some contribution can be made toward 

fixed costs—otherwise, the loss incurred 

by the firm will be even greater (i.e., full 

fixed costs if no production takes 

place).6 In short, Dr. Fratrik’s 

assumption of a 20% profit margin 

totally ignores the possibility of 

webcasters with a whole range of 

potential acceptable operating profit 

margins—whether lesser or greater— 

that would be dependent on such things 

as varying capital investment costs 

among webcasters, changing market 

conditions in output markets, and the 

applicable time horizon.7

Still another difficulty with Dr. 

Fratrik’s conceptual framework is that 

his single ‘‘representative’’ buyer is 

treated as tantamount to an industry. 

But no single firm is typically the 

equivalent of an industry on the 

demand side of the market, although 

there is the obvious exception where a 

single monopsonistic buyer constitutes 

the entire demand side of the market for 

a particular input. While Dr. Fratrik 

does not make the claim that his 

representative commercial webcaster is 

a monopsonist, his analysis effectively 

produces that result. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13029 

8 Dr. Fratrik implies that because the record 

companies supplying the sound recordings will 

incur something near zero incremental costs, the 

supply side of the market may be largely ignored. 

4/27/10 Tr. at 1131:12–1133:19 (Fratrik). But Dr. 

Fratrik offers no empirical support for his assertion 

as to actual incremental costs. We have clearly 

rejected a similar contention put forward in 

Webcaster II on both empirical and theoretical 

grounds. Webcaster II, 72 FR 24094 (May 1, 2007). 

9 In addition to the flat royalty rate growth 

recommended by Dr. Fratrik over the 2011–2015 

term, his recommended royalty rate of $0.0009 per 

performance would return the statutory rate to near 

its 2006 statutory level. 

10 Dr. Fratrik uses the term ‘‘economic model’’ to 

broadly describe his analysis. It is more closely akin 

to a type of pro forma income statement that 

attempts to demonstrate the expected effect of 

varying royalty rates on a firm’s financial viability. 

In other words, it is an accounting model that, 

relying on historical cost and revenue data for all 

but royalty costs, endeavors to demonstrate the 

anticipated results of alternative royalty rates on 

projected net revenues. 

11For example, Dr. Fratrik notes that, in 

connection with its aggregation services, ‘‘Live365 

has spent a considerable amount of time and 

investment establishing its software systems to 

accurately measure and document listening for each 

copyrighted work that is streamed.’’ Fratrik 

Corrected and Amended WDT at 38 n.62. 

For example, Dr. Fratrik explains that 

he chose to wed a 20% operating profit 

margin assumption to his cost and 

revenue estimates to ‘‘derive a resulting 

value for the copyrighted work.’’ Fratrik 

Corrected and Amended WDT at 15, 23. 

In other words, Dr. Fratrik and Live365 

effectively claim that no buyer would 

ever be a ‘‘willing buyer’’ unless the 

price of only the one input here 

analyzed (i.e., the royalty rate for sound 

recordings) is low enough to provide all 

buyers with sufficient revenue after the 

royalty payment to cover all other input 

costs and yield an operating profit 

margin of 20%. It is a claim that, rather 

than resulting from any careful analysis 

of the market demand and supply 

schedules, blithely ignores such 

analysis in favor of a single price point 

wholly determined by a single actor on 

the demand side of the market without 

any reference to the supply side of the 

market.8

In other words, Dr. Fratrik’s single 

‘‘representative’’ buyer’s business model 

is to be treated as if it is the only 

webcasting production model in the 

whole webcasting industry. Instead of a 

market demand curve, Dr. Fratrik puts 

forward the implicit assumption that the 

amount of sound recording 

performances demanded must be 

whatever his representative firm deems 

best for its particular technological and 

organizational structure. But no one 

firm’s demand curve is equivalent to the 

market’s demand curve, unless that firm 

is a monopsonist. Rather, as we have 

noted in Webcaster II and the CARP 

noted in Webcaster I before us, in the 

hypothetical marketplace we attempt to 

replicate, there would be significant 

variations, among both buyers and 

sellers, in terms of sophistication, 

economic resources, business 

exigencies, and myriad other factors. 

Webcaster II, 72 FR 24087 (May 1, 

2007); In the Matter of Rate Setting for 

the Digital Performance of Sound 

Recordings and Ephemeral Recordings, 

Report of the Copyright Arbitration 

Panel to the Librarian of Congress, 

Docket No. 2000–9 CARP DTRA 1&2 

(‘‘Webcaster I CARP Report’’) at 24. 

Finally, even assuming the absence of 

the additional errors catalogued below, 

Dr. Fratrik’s analysis, which focuses on 

past operating income statements to 

determine a royalty rate for all 

commercial webcasters in the future, 

fails to establish any behavioral 

information that would help to 

delineate the hypothetical marketplace 

we must replicate. Instead, Dr. Fratrik’s 

analysis is largely mechanical and leads 

to an unsupported conclusion that past 

revenues and non-royalty costs, coupled 

with a webcaster operating profit margin 

not demonstrated to be related to past 

operating revenue and cost 

considerations (see infra at Section 

II.B.3.a.ii.), will repeatedly recur at the 

same levels in each year over the fiveyear period of the license going forward. 

Having tightly constrained the 

possibilities of market behavior in this 

manner, Dr. Fratrik’s model then 

automatically produces an unchanging 

residue and, hence, an unchanging 

royalty rate for the whole period.9 This 

is a dubious result that flows from the 

unwarranted assumption of what 

amounts to a behavioral straitjacket. 

Moreover, even if Dr. Fratrik’s 

problematic behavioral constraints and 

implicit assumptions somehow could be 

ignored, his analysis suffers from so 

many other unwarranted explicit 

assumptions and data defects as to make 

it untenable. 

ii. The Specific Elements of Dr. Fratrik’s 

Model 

Dr. Fratrik’s assumptions regarding 

webcasting industry costs, revenues and 

profit margins are seriously flawed 

when viewed individually. Moreover, 

these flaws are compounded by merging 

revenue, costs and profit margin 

information gathered from disparate 

data sources into a single ‘‘economic 

model.’’ 10

Dr. Fratrik begins by assuming that 

‘‘Live365’s cost structure will serve as a 

good conservative proxy for the industry 

as it is a mature operator.’’ Fratrik 

Corrected and Amended WDT at 16 

(emphasis added). This assumption is 

not supported by the record of evidence 

in this proceeding which points to a 

wide variety of existing webcasting 

services and business models. SX PFF at 

¶ 323. It defies credulity to claim, as 

does Live365, that all these disparate 

business models may be experiencing 

essentially the same unit costs. Indeed, 

Dr. Fratrik makes this assertion while 

recognizing that, unlike for many other 

participants in the market, at least two 

separate lines of business can be 

distinguished for Live365 (broadcasting 

services and webcasting) and, further, 

that Live365 acts as an aggregator with 

respect to webcasting. Dr. Fratrik offers 

no example of a comparable analogous 

participant in the industry who is 

structured in this manner. Furthermore, 

when he attempts to adjust Live365’s 

costs to reflect only webcasting 

operations, he fails to adequately do so 

and he ignores the synergistic nature of 

Live365’s various lines of business. SX 

PFF at ¶¶ 355, 357, 358. Finally, even 

though he argues for an additional 

aggregator discount to be applied to 

Live365’s webcasting royalty rates based 

on monitoring and reporting savings 

purportedly provided to the collective 

(i.e., SoundExchange), he nowhere 

appears to adjust Live365’s webcasting 

cost estimates to account for any 

resulting differences in costs that 

Live365 may incur as compared to other 

webcasters who are not aggregators. He 

makes no such adjustment despite the 

fact that it is the typical webcaster’s unit 

costs he is seeking to model rather than 

the typical aggregator’s unit costs. While 

any additional reporting and monitoring 

costs incurred by aggregators 11 may be 

offset by fees charged to the aggregated 

webcasters or by the reduced costs of 

programming that Live365 would 

otherwise have to undertake in order to 

make comparable channel offerings as a 

multi-channel broadcaster, such salient 

differences between the typical 

webcaster’s unit costs and the typical 

aggregator’s unit costs are not addressed 

by Dr. Fratrik’s analysis. For all these 

reasons, the unit cost estimation for 

webcasting which Dr. Fratrik offers is 

seriously flawed. 

On the revenue side of his analysis, 

Dr. Fratrik assumes that: (1) Webcaster 

revenue comes from advertising revenue 

and subscription revenue; (2) ‘‘publicly 

available industry reports from 

AccuStream and ZenithOptimedia serve 

as the lower and upper bounds, 

respectively, on advertising revenue 

measurements for the past period;’’ and 

(3) Live365’s subscription revenue per 

listening hour can be utilized as a proxy 

for gauging subscription revenues in the 

webcasting industry. Fratrik Corrected 

and Amended WDT at 16–17, 24–25. 

mstockstill on DSKH9S0YB1PROD with RULES2

13030 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

Live365’s rate proposal in this 

proceeding (i.e., $.0009 per performance 

throughout the period 2011–2015), 

however, is apparently based only on 

Dr. Fratrik’s analysis of revenues using 

the ZenithOptimedia data. Indeed, use 

of the Accustream revenue data 

alternative produces the anomalous 

result that copyright owners would have 

to pay webcasters each time the owners’ 

sound recordings were performed, no 

matter how low a profit margin Dr. 

Fratrik assumed for webcasters in his 

analysis. Fratrik Corrected and 

Amended WDT at 26, Table 4; 4/27/10 

Tr. at 1157:1–1158:6 (Fratrik). 

Undaunted by this anomalous result, 

Dr. Fratrik simply repeats his analysis, 

substituting, in part, the 

ZenithOptimedia advertising revenue 

data for the Accustream advertising 

revenue data and, in concert with a 20% 

assumed profit margin, obtains the 

$.0009 per performance royalty rate that 

has been proposed by Live365 to be 

applied without change throughout the 

period 2011–2015. Yet Dr. Fratrik’s 

alternative ZenithOptimedia-based 

analysis does not completely divorce 

itself from the Accustream data; instead, 

because ZenithOptimedia did not 

provide the Aggregate Tuning Hours 

(‘‘ATH’’) numbers associated with its 

total advertising revenue estimate, Dr. 

Fratrik fell back on the Accustream data 

for a total ATH number and calculated 

advertising revenue per ATH by 

dividing the ZenithOptimedia revenue 

data by the Accustream ATH data. In 

short, Dr. Fratrik combines advertising 

revenue data based on two separate data 

sources without making a determination 

that the data was capable of being 

combined in this manner. 

Moreover, even Dr. Fratrik admitted 

that the ZenithOptimedia and 

Accustream advertising revenue 

estimates are ‘‘challenging’’ or difficult 

to produce because a vast number of 

webcasters do not report their revenues 

publicly. 4/27/10 Tr. at 1220:1–20 

(Fratrik). Thus, these databases have 

clear limitations and the uncritical 

manner in which Dr. Fratrik mixes and 

matches data from these two separate 

advertising revenue databases and then 

further combines subscription revenue 

data from a third separate source (i.e., 

the Live365 subscription revenue data) 

plainly suggests a less than rigorous 

approach to his analysis. 

Finally, with respect to revenues, Dr. 

Fratrik’s analysis reports, but neither 

takes into account nor provides an 

adequate explanation for, the growth in 

the ZenithOptimedia advertising 

revenues forecast from his 2008 base 

through 2011 (i.e., growth from $200 

million to $291 million). Fratrik 

Corrected and Amended WDT, Ex. 8 at 

187. It may be argued that growth in the 

level of revenues does not necessarily 

translate into growth in unit revenues. 

However, we find that it is difficult to 

accept Dr. Fratrik’s unsupported 

assertion that he expects little 

improvement in such revenues on a unit 

basis (see Fratrik Corrected and 

Amended WDT at 5). Dr. Fratrik fails to 

provide any adequate empirical support 

for the implied assumption necessary to 

reach this conclusion—an assumption 

that the growth in performances will 

take place at precisely the pace 

necessary to assure that the anticipated 

growth in revenues over the relevant 

period will not alter the unit revenue 

ratio. Moreover, without such an 

implied assumption, it is difficult to 

avoid the conclusion that Dr. Fratrik’s 

constant royalty rate should have been 

adjusted each year based on the 

implications of growing revenues for his 

own model. Yet, he offers no such 

adjusted royalty rate. At the very least, 

these changing advertising revenue 

totals call into question the reliability of 

the unchanging royalty rate derived by 

Dr. Fratrik from the lowest of the 

revenue totals available from the same 

data source (i.e., $200 million instead of 

$291 million). 

Dr. Fratrik’s assumption of a 20% 

operating margin for webcasters in his 

analysis is not solidly supported. That 

operating profit margin is not put 

forward as either a historical profit 

margin or a forecasted profit margin for 

webcasters, but rather as a profit margin 

derived from the over-the-air 

broadcasting industry. SX PFF at 

¶¶ 328, 330. The record of evidence in 

this proceeding does not support the 

notion that profit margins for webcasters 

are likely to be similar to the more 

capital intensive terrestrial radio 

industry. SX PFF at ¶¶ 332–5. 

Furthermore, we find that Dr. Fratrik 

failed to establish a solid basis for 

concluding that the minimum operating 

profit margin for his representative 

webcaster was comparable to the 

average firm experience from firms that 

operate on a different platform (overthe-air radio). 

Live365 argues in its proposed reply 

findings at ¶ 327 that Dr. Fratrik’s 20% 

profit margin assumption is further 

corroborated by the recording industry’s 

own expert testimony in Webcaster I 

(offered by Dr. Thomas Nagle, 

Chairman, Strategic Pricing Group, Inc.) 

which purportedly ‘‘recommended that 

webcasters should be able to achieve 

margins between 13.2% and 21.8%.’’ 

However, although the Nagle exhibit 

referred to by Live365 was appended to 

Dr. Salinger’s written rebuttal 

testimony, the exhibit was only 

mentioned briefly in a footnote to the 

Salinger testimony and then only to 

make a different argument. Dr. Salinger, 

in fact, made no specific reference to 

any of the varying operating profitmargin figures utilized in that 2001 

Recording Industry Association of 

America (‘‘RIAA’’) study. In other words, 

it can hardly be said that the figures in 

question were offered as ‘‘corroborative’’ 

evidence to support Dr. Fratrik’s 

assumptions. Moreover, the point of this 

2001 study appears to have been to 

recommend a royalty rate based on the 

operating profit margins necessary to 

generate an assumed range of rates of 

return on investment for webcasters. In 

fact, the Nagle study utilized an 

operating profit margin in the range of 

8.43% to 17.05% in order to ‘‘arrive at 

the appropriate range for the statutory 

license royalty fee.’’ See Salinger WRT, 

Exhibit 3 at 16 and Appendix 3 at 1. Dr. 

Fratrik’s 20% assumption for webcaster 

operating profit margins lies 

substantially outside this range. 

Moreover, the CARP rejected Dr. Nagle’s 

analysis as corroborating evidence in 

Webcaster I. [‘‘Dr. Nagle’s analysis 

necessarily relies upon a myriad of 

highly questionable assumptions that 

appear inconsistent with foreseeable 

market conditions.’’] Webcaster I CARP 

Report at 73; [‘‘We conclude that Dr. 

Nagle’s analysis does not support any 

particular rate level.’’] Id. at 74. We find 

it provides no corroborative support for 

Dr. Fratrik’s assumed 20% webcaster 

operating profit margin in this 

proceeding. 

Thus, we find that Dr. Fratrik’s 

‘‘model’’ is based upon a series of 

assumptions and analogies that, taken 

individually, add such a degree of 

uncertainty or inexactitude to the 

resulting model as to make it 

unsatisfactory for the purpose of 

portraying the likely outcome of 

negotiations between willing buyers and 

willing sellers in the market for sound 

recording inputs that are used in 

webcasting services. Indeed, Dr. 

Fratrik’s model does not even 

adequately address some of the modest 

considerations for a modeling approach 

laid out by Live365’s rebuttal expert, Dr. 

Salinger. SX PFF at ¶ 307. Questionable 

assumptions, reservations about the 

methodological appropriateness of 

mixing disparate data sources, and 

concerns over the resulting reliability of 

the data used in the Fratrik model lead 

us to find that this theoretical construct 

suffers serious deficiencies that do not 

lend themselves to remediation. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13031 

iii. Other Factors Put forward for 

Consideration 

Live365 offers several other 

arguments to buttress its request for a 

royalty rate that would effectively return 

the statutory rates to near their 2006 

statutory level. 

First, Dr. Fratrik maintains that ‘‘[a]s 

industry projections for more robust 

growth in the Internet radio advertising 

market have clearly not materialized 

over the past few years,’’ his valuation 

model must give rise to the conclusion 

that a ‘‘reduction in royalty rates from 

the prescribed rates covering 2006– 

2010’’ is warranted. Fratrik Corrected 

and Amended WDT at 31. In so doing, 

he incorrectly attributes the annual 

increase in rates established in 

Webcaster II to projections of growth 

primarily provided by Dr. Erik 

Brynjolffson and Mr. James Griffin in 

that proceeding. Fratrik Corrected and 

Amended WDT at 12–14. Similarly, 

Live365 argues that ‘‘[g]iven that the 

lofty expectations from the Webcasting 

II proceeding have not been fulfilled, it 

follows that the rates for the next five 

years should be set lower than the rates 

determined by the CRB [Judges] in 

Webcasting II.’’ See Live365 PFF at ¶ 38. 

But, quite to the contrary, the Judges’ 

determination in Webcaster II did not 

rely on those particular predictions in 

setting rates. Indeed, the Judges 

expressly rejected Dr. Brynjolfsson’s 

modeling attempt and specifically cited 

the flaws in his effort ‘‘to project future 

growth rates’’ as a basis for not relying 

on them. Webcaster II, 72 FR 24093. 

Moreover, the evidence in the record on 

industry growth over the 2006–2010 

period which shows increased 

advertising revenues, increased 

performances, and increased listening 

does not support a rate reduction. It 

more likely would support at least some 

modest rate increase. See SX PFF at 

¶¶ 390–395, 398–401. While some 

Live365 data may show a flattening or 

decline for a particular pair of years, the 

overall trend of that same data does not 

show a decrease. For example, data 

presented by Live365 shows a year-toyear decline in listenership from 2006 to 

2007, but this is followed by substantial 

increases in 2008 and 2009 and 

maintenance of 2009 levels in 2010. 

Overall, the trend in such listenership 

recorded since 2000 has been decidedly 

upward, even though the growth has 

occurred unevenly from year to year. 

See Smallens Corrected WRT at 7, 

Table 1. 

Second, Live365 also contends that a 

downward adjustment of the current 

royalty rate is appropriate based on (1) 

The promotional value of statutory 

webcasting relative to its nonsubstitutional effect on other sales of 

music, including the promotional value 

to copyright owners stemming from the 

wide array of music and artists played 

on statutory webcasting services; (2) the 

relative creative contributions, technical 

contributions, investments, costs and 

risks made or borne by commercial 

webcasters compared to copyright 

owners; and (3) the relative disparate 

impact of certain competitive factors on 

webcasters as compared to copyright 

owners. After careful consideration, we 

find that the evidence submitted by 

Live365 on each of these claims is weak 

at best and, most certainly, too weak to 

establish the basis for a decrease in 

webcaster royalty rates. SX PFF at 

¶¶ 415, 419–21, 426, 431, 446–9; SX 

RFF at ¶¶ 176, 179–180. Then too, 

Live365 does not present an acceptable 

empirical basis for quantifying the 

individual asserted effects of these 

various factors and/or for deriving a 

method for translating such magnitudes 

into a rate adjustment. Moreover, to the 

extent that Live365 claims that the 

Fratrik valuation model makes such a 

quantifiable translation, we need not 

further address these issues separate 

from our examination of that model 

which we have found seriously flawed 

and an inadequate representation of the 

market. 

b. The SoundExchange Benchmark 

Approach 

i. The Interactive Webcasting Market 

Benchmark 

As in Webcaster II, SoundExchange 

maintains that one set of benchmark 

agreements with clear relevance for this 

proceeding as shown by an analysis 

prepared by its expert economist, Dr. 

Michael Pelcovits, consists of those 

agreements found in the market for 

interactive webcasting covering the 

digital performance of sound recordings. 

That is because the interactive 

webcasting market has characteristics 

reasonably similar to non-interactive 

webcasting, particularly after Dr. 

Pelcovits’ final adjustment for the 

difference in interactivity. 

Both markets have similar buyers and 

sellers and a similar set of rights to be 

licensed (a blanket license in sound 

recordings). Both markets are input 

markets and demand for these inputs is 

driven by or derived from the ultimate 

consumer markets in which these inputs 

are put to use. In these ultimate 

consumer markets, music is delivered to 

consumers in a similar fashion, except 

that in the interactive case the choice of 

music that is delivered is usually 

influenced by the ultimate consumer, 

while in the non-interactive case the 

consumer usually plays a more passive 

role. This difference is accounted for in 

the Pelcovits analysis. In order to make 

the benchmark interactive market more 

comparable to the non-interactive 

market, Dr. Pelcovits adjusts the 

benchmark by the added value 

associated with the interactivity 

characteristic. Pelcovits Amended and 

Corrected WDT at 23. This results in a 

rate of $0.0036 per play for a statutory 

non-interactive webcaster as a possible 

outcome in the target market. Pelcovits 

Amended and Corrected WDT at 4, 33. 

The Judges find the interactive 

webcasting benchmark to be of the 

comparable type that the Copyright Act 

invites us to consider. 17 U.S.C. 

114(f)(2)(B). (‘‘In establishing such rates 

and terms, the Copyright Royalty Judges 

may consider the rates and terms for 

comparable types of digital audio 

transmission services and comparable 

circumstances under voluntary license 

agreements negotiated under 

subparagraph (A).’’) Nevertheless, as we 

indicated in Webcaster II, this particular 

Pelcovits benchmark analysis is not 

without warts. Webcaster II, 72 FR 

24094 (May 1, 2007). 

In Webcaster II we recognized the 

potential implications of a benchmark 

analysis that focuses on only 

subscription services as does the 

interactive benchmark presented by Dr. 

Pelcovits. That is, ad-supported noninteractive services might pay less than 

subscription-based interactive services 

to use the same music if their 

advertising revenues failed to evolve to 

the point where ad-supported noninteractive services were just as 

lucrative as subscription-based 

interactive services on a per-listener 

hour basis. In that proceeding the Judges 

indicated that to the extent that adsupported revenues did not come to 

match subscription revenues on a perlistener hour basis during the 2006– 

2010 term and, absent clear information 

on the substitutability of the 

subscription and non-subscription 

options among consumers, any resulting 

shortfall related to ad-supported 

webcasting revenues would likely be 

adequately mitigated by a phase-in of 

the per performance rates to the level 

indicated by the benchmark analysis, 

such that the benchmark recommended 

rate for 2006 would not become 

effective until the last year of the term. 

Webcaster II, 72 FR 24094 (May 1, 

2007). 

Here, unlike the absence of data 

supporting this critique which we noted 

in Webcaster II, Dr. Salinger provides 

some empirical data to support the 

position that a benchmark which 

mstockstill on DSKH9S0YB1PROD with RULES2

13032 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

12The 0.8737 multiplier represents the value of 

a ratio where the numerator consists of the effective 

per play rate for 2009 (i.e., 0.01917) and the 

denominator consists of the average effective play 

rate over the three years in question (i.e., 0.02194). 

reflects a weighted average of revenues 

obtained from subscribers and nonsubscribers may result in a lower 

estimated royalty rate than Dr. Pelcovits’ 

benchmark which focuses on only 

subscription rates. Salinger WRT at 10– 

11. Therefore, we are not persuaded that 

Dr. Pelcovits’ benchmark estimates are 

sufficiently reflective of the 

hypothetical target market as to support 

the immediate implementation of a 

royalty rate equivalent to the $0.0036 

outcome estimated by Dr. Pelcovits. 

Some further downward adjustment to 

his recommendation to adequately 

address the subscription/nonsubscription revenue level differences 

may well be in order, although the 

magnitude of such an adjustment is not 

clear. 

While Dr. Salinger shows that there is 

likely some ‘‘upward bias’’ introduced 

into the Pelcovits analysis through its 

focus on only subscription-based 

services in the benchmark market, the 

amount of such upward bias is not 

persuasively determined. Noninteractive webcasters in the market like 

Live365 often provide both subscription 

and non-subscription offerings. 7/28/10 

Tr. at 40:10–15 (Salinger). Therefore, 

subscription-based revenues clearly 

must be considered. Moreover, the data 

used by Dr. Salinger to support his 

criticism, as Dr. Salinger admits, is not 

without its shortcomings. 7/28/10 Tr. at 

98:2–104:6 (Salinger). Similarly, Dr. 

Fratrik admitted that the 

ZenithOptimedia and Accustream 

advertising revenue estimates are 

‘‘challenging’’ or difficult to produce 

because a vast number of webcasters do 

not report their revenues publicly. 4/27/ 

10 Tr. at 1220:1–20 (Fratrik). There is 

also the difficulty of segmenting 

intermingled revenues from webcasting 

business models that may often directly 

and/or indirectly depend on both 

subscription and nonsubscription lines 

of business, as well as potentially on 

other sources of revenue. 7/28/10 Tr. at 

40:10–15, 92:1–19 (Salinger); Ordover 

WRT at 10–11. Nevertheless, Dr. 

Salinger’s critique is sufficiently 

supported to raise legitimate concerns 

about the potential for upward bias in 

the Pelcovits estimates. It is only the 

magnitude of the potential upward bias 

that is not clearly quantified. What is 

clear from the record of evidence in this 

proceeding is that $0.0036 can be no 

more than the upper bounds of the 

range of possible rates reasonably 

applicable to the target market and that 

the most likely prevailing rate in that 

market is currently lower than $0.0036. 

Dr. Salinger also criticizes the 

Pelcovits interactive webcasting 

benchmark analysis for: (1) Relying only 

on contracts with the four major record 

companies to the exclusion of the 

independent record labels; (2) ignoring 

the downward trend in the effective 

play rates paid by interactive services by 

utilizing the average rate in his 

calculations; and (3) inappropriately 

constructing the hedonic regression 

model that is used as one alternative 

measure of interactivity in the analysis. 

Salinger WRT at 15–21. 

The first of these criticisms fails for 

lack of persuasive evidence in the 

record that the use of independent 

record contracts would have made a 

material difference. SX RFF at ¶¶ 101– 

103. 

Although the second and third 

criticisms have some merit, the Judges 

find that these criticisms indicate that 

the Pelcovits interactive webcasting 

benchmark may overstate the likely 

prevailing market rate in the target 

market without necessarily rendering 

the Pelcovits analysis fatally flawed. 

With respect to the second criticism, Dr. 

Salinger acknowledged that this concern 

could be addressed by multiplying the 

recommended rate by 0.8737.12 SX PFF 

at ¶ 209. Such an adjustment, of course, 

would reduce the recommended rate. 

SoundExchange offers no evidence that 

such an adjustment is unwarranted and 

even appears to endorse such an 

approach by performing this exact 

calculation with respect to the $0.0036 

rate and reducing it to $0.0031. See SX 

PFF at ¶ 210. But SoundExchange’s 

calculation was applied to the highest 

possible outcome Dr. Pelcovits lists for 

his benchmark analysis (i.e., $0.0036), 

when in fact, Dr. Pelcovits indicates that 

his rate after substitution adjustment 

would result in a ‘‘range of 

recommended rates’’ with a ‘‘simple 

average of $0.0033.’’ Thus, it appears 

that this $0.0033 average also requires 

adjustment to meet Dr. Salinger’s 

criticism (e.g., to approximately 

$0.0029). This is not a trivial 

consideration in light of the fact that in 

Webcaster II, it was Dr. Pelcovits’ 

recommended rates after the 

substitution adjustment that formed the 

basis for SoundExchange’s rate proposal 

and that formed the basis for the 

determination by the Judges of a royalty 

rate to be achieved by the end of the 

term in 2010 (i.e., a per play rate of 

$0.19). See Webcaster II, 72 FR 24096 

(May 1, 2007). In any event, the validity 

of this criticism of the Pelcovits 

approach regarding the effective per 

play rate clearly erodes the weight to be 

accorded to the $0.0036 figure. 

Dr. Salinger also criticizes the 

Pelcovits hedonic regression analysis 

that formed the basis for one of the 

alternative measures of interactivity in 

the interactive webcasting benchmark 

approach. Dr. Salinger expressed 

concerns about the use of certain fixed 

effects variables (alternatively described 

as dummy variables) in the specification 

of the regression model and about the 

broad confidence interval surrounding 

the estimated interactivity coefficient in 

the hedonic regression. Salinger WRT at 

20; 21 n.31 and Exhibit 6; 7/28/10 Tr. 

at 66:4–69:22 (Salinger). These 

criticisms have some merit, especially 

in light of Dr. Pelcovits’ admitted lack 

of familiarity with some of the relevant 

economic literature, including recent 

literature cautioning against the 

indiscriminant use of dummy variables 

in certain hedonic estimations. 4/20/10 

Tr. at 373:18–376:15 (Pelcovits). 

SoundExchange, in response to this 

criticism, claims that any problem 

associated with the hedonic regression 

is negated by Dr. Pelcovits’ use of other 

methods that result in rates almost 

identical to the $0.0036 average. See, for 

example, SX RFF at ¶ 107. However, 

this does not wholly obviate the impact 

of any resulting overstatement. The rate 

associated with the hedonic regression 

is the highest of the three values that are 

used to calculate the $0.0036 average. 

Removing the rate associated with the 

hedonic regression from the average 

would, in this case, reduce the average. 

Thus, this criticism of the Pelcovits 

approach additionally erodes the weight 

that the Judges accord to the $0.0036 

figure. 

In short, the potential for upward bias 

or actual demonstrated upward bias in 

the Pelcovits estimates persuade us that 

$0.0036 can be no more than the upper 

bounds of the range of possible rates 

reasonably applicable to the target 

market and that the most likely 

prevailing rate at the present time in 

that market is significantly lower than 

$0.0036. 

ii. The National Association of 

Broadcasters and SiriusXM Agreements 

In addition to the interactive 

webcasting benchmark, Dr. Pelcovits 

offers a second benchmark based on the 

average of rates established for the 

2011–2015 term in precedential 

Webcaster Settlement Act Agreements 

(‘‘WSA agreements’’) between 

SoundExchange and the National 

Association of Broadcasters and 

between SoundExchange and SiriusXM 

(‘‘SiriusXM agreement’’ or ‘‘Commercial 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13033 

Webcasters agreement’’). Pelcovits 

Amended and Corrected WDT at 22. 

While these precedential WSA 

agreements certainly pertain to rates to 

be paid by non-interactive webcasters in 

the commercial webcasting market at 

issue in this proceeding, the buyers’ and 

sellers’ circumstances are not 

comparable to those that would prevail 

in the absence of the Webcaster 

Settlement Act. Rather than a single 

seller, the sellers in the hypothetical 

market we are to consider consist of 

multiple record companies. Webcaster 

II, 72 FR 24087, 24091 (May 1, 2007); 

Webcaster I, 67 FR 45244 (July 8, 2002). 

Thus, in Webcaster II we found that the 

fact that there were multiple buyers and 

multiple sellers in the benchmark 

market as well as in the target market 

supported a benchmark analysis. 

Webcaster II, 72 FR 24093 (May 1, 

2007). While the applicable law does 

not require a perfectly competitive 

benchmark market, the market must be 

at least ‘‘competitive’’ in the sense that 

buyers and sellers have comparable 

resources and market power. Webcaster 

II, 72 FR 24093 (May 1, 2007); 

Webcaster I, 67 FR 45245 (July 8, 2002). 

This would be generally consistent with 

free market principles. Yet, the buyers’ 

and sellers’ circumstances underlying 

the WSA agreements were not 

comparable to market conditions that 

would prevail in the absence of the 

WSA. That legislation permitted a single 

seller representative to enter into 

negotiations with buyers in the market 

with respect to rates that would be 

permitted to supplant the statutory rates 

previously established in the 2006–2010 

period, as well as with respect to rates 

applicable to the 2011–2015 period. 

Even Dr. Pelcovits admits that ‘‘[e]ach of 

these contracts, of course, was 

negotiated in the shadow of the 

regulatory scheme and against the 

background of statutory rates previously 

set by this Court. To that extent, they 

may or may not represent the same 

outcome that would result in a pure 

market negotiation with no regulatory 

overtones.’’ Pelcovits Amended and 

Corrected WDT at 15. Therefore, we find 

that these precedential WSA 

agreements, which may be fairly 

characterized as single-seller agreements 

reached under atypical marketplace 

conditions, cannot satisfy the 

comparability requirements for an 

appropriate benchmark. 

However, we further find that, 

because the NAB-SoundExchange and 

SiriusXM-SoundExchange agreements 

clearly govern the rates for a substantial 

number of commercial webcasters over 

the relevant 2011–2015 period 

(Pelcovits Amended and Corrected WDT 

at 15) and the commercial webcasters 

covered by these agreements are 

competitors with the other commercial 

webcasters who comprise the remainder 

of the non-interactive webcasting 

services (Salinger WRT at 24; Smallens 

Corrected WRT at 21), these agreements 

are a useful gauge of the weight to be 

assigned to the rates suggested by the 

interactive webcasting benchmark 

discussed supra at Section II.B.3.b.i. 

Moreover, nothing in the Webcaster 

Settlement Act constrains us from using 

these agreements for that purpose. See 

17 U.S.C. 114(f)(5)(C). 

The NAB-SoundExchange and 

SiriusXM agreements provide for 

royalty rates on a per performance basis. 

For the five-year period beginning 2011, 

the NAB-SoundExchange agreement sets 

the following rates: $0.0017 for 2011, 

$0.0020 for 2012, $0.0022 for 2013, 

$0.0023 for 2014 and $0.0025 for 2015. 

For the same period, the SiriusXM 

agreement sets the following rates: 

$0.0018 for 2011, $0.0020 for 2012, 

$0.0021 for 2013, $0.0022 for 2014 and 

$0.0024 for 2015. Pelcovits Amended 

and Corrected WDT at 15. Two 

characteristics of these rates are 

noteworthy. First, the 2011 rate is 

slightly less than the current 2010 

statutory rate of $0.0019 and the rates in 

the precedential WSA agreements 

covering the years 2009 and 2010 were 

somewhat lower than the corresponding 

statutory rate for those years. Pelcovits 

Amended and Corrected WDT at 15. 

Second, the rates in the NABSoundExchange and SiriusXM 

agreements over their entire term are 

substantially lower than the range of 

annual rate possibilities suggested for 

implementation pursuant to the 

proposed interactive benchmark 

($0.0036) or the interactive benchmark 

after Dr. Pelcovits’ substitution 

adjustment ($0.0033) or the interactive 

benchmark adjusted to give a more 

likely reading of the impact of 

downward trend in the effective play 

rates paid by interactive services 

($0.0031). 

Thus, we find that these negotiated 

rates indicate that the interactive 

benchmark may likely overstate the 

prevailing market rate in the target 

market even when subjected to Dr. 

Pelcovits’ substitution adjustment or Dr. 

Salinger’s adjustment to mitigate the 

impact of downward trend in the 

effective play rates paid by interactive 

services. As a consequence, we further 

find that the interactive benchmark, 

even when subjected to these alternative 

adjustments, provides for rates near the 

upper bounds of the range of possible 

rates reasonably applicable to the target 

market, when the most likely prevailing 

rate in that market appears to be lower 

than the interactive benchmark rates. In 

other words, the NAB-SoundExchange 

and SiriusXM agreements lend weight 

to the need for a further downward 

adjustment in the benchmark rate to 

reflect a prevailing rate in the target 

market closer to the current statutory 

rate. 

Dr. Fratrik contends that the royalty 

rates in the NAB-SoundExchange 

agreement must overvalue the input in 

question, because the NAB received a 

particularly valuable concession with 

respect to the waiver of performance 

complement rules as part of the rate 

agreement. See Fratrik Corrected and 

Amended WDT at 43–44. 

[‘‘Consequently, these terrestrial 

broadcasters, already with the 

programming established to webcast, 

should be willing to pay more than 

other webcasters in order to relieve 

themselves of these provisions.’’ 

(emphasis added)]. This claim of a onesided benefit to broadcasters is not 

adequately supported in the record. The 

testimony of Dr. Pelcovits, Dr. Ordover 

and Mr. McCrady indicates that the 

waivers had value to both the NAB and 

to the record companies. Pelcovits 

Amended and Corrected WDT at 20 

n.21; Ordover WRT at 5, 18; McCrady 

WDT at 5–6. There is no clear evidence 

in the record to support either the 

notion that the limited performance 

complement waiver in the NABSoundExchange agreement was a largely 

one-sided benefit accruing only to the 

broadcasters or that broadcasters did, in 

fact, pay more than other webcasters to 

obtain these provisions. 

Dr. Fratrik also contends that 

terrestrial broadcasters were willing to 

pay more because they have fewer other 

costs to cover than pure webcasters. But 

Dr. Fratrik offers less than persuasive 

evidence of major cost differences 

between pure webcasters and 

broadcasters who engage in webcasting 

generally or between pure webcasters 

and the more limiting case of those 

broadcasters who exclusively simulcast. 

Dr. Fratrik appears to center his analysis 

on the latter case. Of course, focusing on 

this latter comparison simplifies from 

the reality of the market by assuming 

that all the webcasting performed by 

broadcasters consists of simulcasting 

when, in fact, the NAB-SoundExchange 

agreement provides for other types of 

webcasting (e.g., through side channels). 

See SX Ex. 102–DP at Article 1.1(d), 4.2. 

In addition to that analytical 

shortcoming, Dr. Fratrik’s analysis 

suffers from other unsupported 

conclusions. Dr. Fratrik’s cost-based 

contention appears to largely rest on the 

notion that simulcasters, unlike other 

mstockstill on DSKH9S0YB1PROD with RULES2

13034 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

13 In Webcaster II, a similar assumption that a 

viable streaming service requires the repertoire of 

all four major labels was rejected by the Judges. See 

Webcaster II, 72 FR 24091 (May 1, 2007). 

commercial webcasters, have no 

additional programming costs as those 

costs have already been paid in 

connection with their over-the-air 

operations. See Fratrik Corrected and 

Amended WDT at 41. But no specific 

empirical data in the record 

unambiguously supports this asserted 

relative difference. For example, Dr. 

Fratrik’s conclusion ignores the wide 

range of business models utilized by 

commercial webcasters, including that 

of Live365, a webcaster that is 

apparently paid to put on programming 

designed by its clients as opposed to 

incurring a cost for originating such 

programming itself. Floater Corrected 

WDT at 4–8; 4/27/10 Tr. at 1274:5–16; 

1301:1–4 (Fratrik). 

Several other theories are offered by 

the contending parties to suggest that 

the precedential WSA agreements are 

either higher or lower than the likely 

prevailing rate in the target market. 

For example, the possibility is raised 

that since the rates in the NABSoundExchange agreement were 

negotiated collectively on behalf of the 

record companies by SoundExchange, 

the rates might reflect some additional 

bargaining power exercised by 

SoundExchange as a single seller, 

relative to the bargaining power that 

would have otherwise been exercised by 

the individual record companies, 

leading to higher than free marketdetermined royalty rates. See Ordover 

WRT at 22, Salinger WRT at 27. While, 

at first blush, this contention appears to 

be consistent with economic theory, the 

facts surrounding the SoundExchangeNAB negotiation and the rates resulting 

from the negotiation cast serious doubt 

on the operation of normal economic 

theory in this case. 

These negotiations took place in the 

context of the WSA legislation 

specifically providing for 

SoundExchange to engage in such 

negotiations as a collective in order to 

reach agreements that would exempt 

webcasters from the 2006–2010 

statutory rates, as well as allow for 

2011–2015 negotiated rates in lieu of 

any statutory rates that might be 

determined by the Judges for that term 

of the applicable license pursuant to a 

statutory proceeding. 17 U.S.C. 

114(f)(5)(A). That is, the rates were to be 

negotiated in response to a specifically 

legislated, post-determination, secondchance opportunity afforded the parties 

to voluntarily reshape applicable 

webcasting rates. Thus, the rates could 

be said to have been negotiated both in 

the shadow of a specific regulatory 

scheme, as well as against the 

background of previously set statutory 

rates, which influenced the outcomes 

available to the parties and, in 

particular, constrained the exercise of 

monopoly power. Failing to reach an 

agreement for the 2011–2015 period, the 

buyers could still avail themselves of 

the statutory rate-setting procedure. 

That is, the buyers retained their rights 

to reject a settlement with 

SoundExchange and resort to the 

statutory rate-setting procedure for the 

2011–2015 term of the license. Pelcovits 

Amended and Corrected WDT at 17; 

Ordover WRT at 23; Salinger WRT at 27. 

In other words, the buyers in this case 

maintained some leverage that 

otherwise would be absent if they faced 

a monopolist seller without any such 

recourse. 

Additionally, here, the NAB, which 

negotiated on behalf of broadcasters, 

effectively served as a single buyer and, 

thus, may be said to have exercised 

countervailing market power relative to 

SoundExchange. Ordover WRT at 23. At 

the same time, the SoundExchangeSiriusXM agreement certainly offers the 

example of a non-NAB webcasting 

buyer for whom negotiations produced 

rates very similar to the NABSoundExchange agreement, indicating 

that the NAB-SoundExchange 

agreement, on its face, did not result in 

the price discrimination sometimes 

associated with monopoly power. 

In short, the NAB-SoundExchange 

negotiated royalty rates do not appear to 

have been pushed above what might 

prevail in a multi-seller market as a 

result of SoundExchange’s legislatively 

permitted role as a single seller in these 

negotiations because, under the 

circumstances, it was unlikely to have 

the ability to exercise the equivalent of 

the unchecked bargaining power of an 

unregulated monopolist. 

On the other hand, Dr. Ordover’s 

attempt to cast the NAB-SoundExchange 

agreement as producing royalty rates 

below what might prevail in a free 

market is also not supported by the 

record of evidence in this proceeding. 

Dr. Ordover suggests that, if certain 

circumstances can be assumed to be 

present, the NAB-SoundExchange 

agreement may represent a situation 

where SoundExchange, acting as a 

single seller, nevertheless would agree 

to lower royalty rates as compared to 

those that would occur in a free market 

in which individual record companies 

function as sellers. But Dr. Ordover’s 

analysis is predicated on, among other 

assumptions, the key notion that the 

repertoire of all four major labels is 

necessary for simulcasters to operate a 

viable streaming service. That is, the 

sound recordings of record companies 

must be perceived as complementary 

inputs rather than as substitutes. Here, 

there is no evidence in the record which 

establishes that to be the case for any of 

the particular broadcasters who have 

opted into the NAB-SoundExchange 

agreement, let alone that it is the case 

generally for all broadcasters.13 For 

example, Dr. Ordover offers no evidence 

that these sound recording inputs are 

complements based on standard 

measures such as the cross-elasticity of 

demand. Moreover, the proffered notion 

that the NAB-SoundExchange 

agreement for broadcasters represents 

lower than average webcasting royalty 

rates based on some assumed unique 

requirement associated with 

simulcasting, is not borne out by the 

agreement itself which provides for no 

distinction between the royalty rate 

applicable to simulcasting and the 

royalty rate applicable to broadcasters 

who engage in other types of webcasting 

(e.g., side channels). See SX Ex. 102–DP 

at Article 1.1(d), 4.2. Nor is there a 

substantial difference between the 

royalty rates applicable to simulcasting 

in the NAB-SoundExchange agreement 

and the royalty rates applicable to 

commercial webcasting in the 

SiriusXM-SoundExchange agreement. In 

short, while Dr. Ordover’s proposed 

explanation may be a plausible theory 

under certain circumstances, here it 

suffers from a lack of sufficient 

empirical support to demonstrate the 

presence of those circumstances. 

Finally, Dr. Salinger claims that the 

rates in both the NAB-SoundExchange 

and SiriusXM agreements are higher 

than average webcasting royalty rates in 

the period 2011–2015 based on a theory 

that the NAB and SiriusXM structured 

their agreements with SoundExchange 

to provide for lower-than-statutory-rates 

for the years 2009–2010, but abovemarket rates for the 2011–2015 period, 

in anticipation that such a restructuring 

would adversely affect their rivals’ costs 

in the latter period. 

Yet, this is also a theory without 

sufficient facts to support it in the 

instant case. There is no evidence in the 

record to suggest any coordination 

between the NAB and SiriusXM to reach 

their separate agreements with 

SoundExchange. Indeed, as NAB 

broadcasters and SiriusXM are 

competitors not only with respect to 

webcasting but also for listeners more 

generally, it would appear such 

coordination is unlikely. In addition, for 

the strategy of raising rivals’ costs to 

work, SoundExchange would have to 

agree to go along with the NAB and 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13035 

SiriusXM. 7/28/10 Tr. at 132:1–10 

(Salinger). There is no evidence in the 

record to support this additional 

coordination. A further condition 

necessary to the success of the strategy 

is that the NAB and SiriusXM would 

have to feel assured that a rate setting 

proceeding would not result in a lower 

rate than those in their agreements with 

SoundExchange. There is no evidence 

in the record to suggest that any 

protection against a lower statutory rate 

was embodied in their agreements with 

SoundExchange. SX PFF at ¶ 270. 

Dr. Salinger suggests that one of the 

possible benefits to SoundExchange 

from cooperating with a NAB-SiriusXM 

raising rivals’ costs strategy is that 

copyright owners may ‘‘get a rate that’s 

so high but then they get to practice 

price discrimination by negotiating 

lower.’’ 7/28/10 Tr. at 133:18–22 

(Salinger). However, as Dr. Fratrik 

acknowledged, in order to price 

discriminate the seller must ‘‘be able to 

segment out customers.’’ 4/27/10 Tr. at 

1249:8–13 (Fratrik). No such market 

segmentation is supported by the record 

of evidence in this proceeding. On the 

contrary, simulcasting and other 

commercial webcasting compete for the 

same ultimate consumers who may 

easily substitute one service for the 

other as their listening choice. SX PFF 

at ¶¶ 277, 278. In Webcaster II, similarly 

noting that the balance of the evidence 

in the record did not persuade us that 

these simulcasters operate in a 

submarket separate from and 

noncompetitive with other commercial 

webcasters, we declined to set a 

differentiated rate for commercial 

broadcasters. By contrast, where we did 

find sufficient evidence in the record 

that supported a finding that certain 

noncommercial webcasters constituted a 

distinct segment of the market, we did 

set a differentiated rate. Webcaster II, 72 

FR 24095, 24097 (May 1, 2007). In 

Webcaster II we noted that ‘‘[a] 

segmented marketplace may have 

multiple equilibrium prices because it 

has multiple demand curves for the 

same commodity relative to a single 

supply curve’’ and further, that ‘‘[t]he 

multiple demand curves represent 

distinct classes of buyers and each 

demand curve exhibits a different price 

elasticity of demand.’’ Webcaster II, 72 

FR 24097. Price discrimination is a 

feature of such markets. Id. Dr. Salinger 

offers no persuasive empirical evidence 

of price discrimination related to 

different price elasticities of demand 

associated with distinct classes of 

buyers in the market. 

Dr. Salinger’s analysis also fails to 

address other important features of the 

‘‘raising rivals’ costs’’ construct. For 

example, he does not empirically 

examine whether it would make 

economic sense for NAB and SiriusXM 

in terms of profitability, to effectively 

shift up their respective average cost 

curves at the original output’s average 

cost. In other words, by agreeing to a 

higher price for the sound recording 

input, NAB and SiriusXM may sacrifice 

some of their profitability, depending on 

the demand for their output. Dr. 

Salinger does not empirically address 

the extent to which that may or may not 

occur. Nor does he examine how the 

results of such a profitability analysis 

might support or undermine the 

incentives behind the ‘‘raising rivals’ 

costs’’ strategy that he opines was 

operative in motivating NAB and 

SiriusXM negotiating behavior. For all 

these reasons, we do not find Dr. 

Salinger’s ‘‘raising rivals’ costs’’ theory 

persuasive. 

However, it cannot be disputed that 

the 2009 and 2010 rates negotiated in 

these settlements were lower than the 

statutory rates otherwise applicable to 

commercial webcasters. Dr. Pelcovits 

offers another possible adjustment to 

mitigate the effects of the lower 2009– 

2010 rates enjoyed by the NAB and 

SiriusXM as compared to those 

commercial webcasters that remained 

subject to the statutory rate. The rates 

resulting from Dr. Pelcovits’ calculation 

‘‘would give webcasters that are not part 

of the WSA settlements the same 

effective rate over the eight-year period 

[2009–2015] as the NAB and SiriusXM, 

assuming they all experience the same 

level of growth in performances.’’ 

Pelcovits Amended and Corrected WDT 

at Appendix II. This calculation results 

in rates equal to the current statutory 

rate for the first year of the 2011–2015 

term and only somewhat higher 

thereafter. For the five-year period 

beginning 2011, these adjusted NAB/ 

SiriusXM agreement rates are as follows: 

$0.0019 for 2011, $0.0020 for 2012, 

$0.0020 for 2013, $0.0020 for 2014 and 

$0.0021 for 2015. Pelcovits Amended 

and Corrected WDT at Appendix II. 

After a careful consideration of the 

evidence presented on the various 

suggested sources of potential 

overvaluation and undervaluation of the 

market rates by the NABSoundExchange and SiriusXM 

agreements, we find that the rates in 

these agreements do not appear to 

seriously overvalue or undervalue input 

prices likely to prevail in the market. 

Therefore, because the NABSoundExchange and SiriusXM 

agreements clearly govern the rates for 

a substantial number of commercial 

webcasters over the relevant 2011–2015 

period and the commercial webcasters 

covered by these agreements are 

competitors with the other commercial 

webcasters who comprise the remainder 

of the non-interactive webcasting 

services, we find these agreements are a 

useful gauge of the weight to be 

assigned to the rates suggested by the 

interactive webcasting benchmark. See 

supra at Section II.B.3.b.ii. 

Inasmuch as there are only small 

differences between the 2011, 2012 and 

2013 rates in the NAB and SiriusXM 

agreements and the 2010 statutory rate, 

we decline to assign a weight to the 

interactive webcasting benchmark that 

results in a rate at great variance with 

the current statutory rate. In other 

words, the rates in these negotiated 

agreements serve as a caution to us not 

to depart radically from past rates where 

we cannot be confident, based on the 

quality of the benchmark evidence in 

the record, that the magnitude of such 

a departure is fully supported in the 

target market. Here, the NAB and 

SirusXM agreements serve as a means of 

roughly correcting the interactive 

benchmark for any overvaluation not 

captured by the variables directly 

considered in the analysis. As a 

consequence, we find that the current 

statutory rate ($0.0019) sets the lower 

bounds for a range of rates reasonably 

applicable to the target market and that 

the most likely prevailing rate in that 

market is closer to this lower boundary 

than to the upper boundary identified 

hereinabove. 

4. The Section 114 Commercial 

Webcaster Rates Determined by the 

Judges 

As previously indicated, supra at 

Section II.B.3.b.i., the Judges find the 

interactive webcasting benchmark to be 

of the comparable type that the 

Copyright Act invites us to consider. It 

is a benchmark with characteristics 

reasonably similar to non-interactive 

webcasting, particularly after some 

adjustment to account for the 

differences attributable to interactivity. 

Id. However, we cannot find sufficient 

evidence in the record to support an 

increase that fully implements the rates 

proposed on the basis of the interactive 

benchmark. Rather, we find that a rate 

of $0.0036, derived from the interactive 

market and adjusted for interactivity 

differences, can be no more than the 

upper bounds of a range of possible 

rates reasonably applicable to the target 

market. That is because: (1) There is 

likely some ‘‘upward bias’’ introduced 

into the interactive benchmark analysis 

through its focus on only subscriptionbased services in the benchmark market 

(see supra at Section II.B.3.b.i.) and (2) 

there is some merit to Dr. Salinger’s 

mstockstill on DSKH9S0YB1PROD with RULES2

13036 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

identification of some additional 

sources of upward bias in the Pelcovits 

interactive benchmark analysis. Id. 

Two measures available to test the 

magnitude of such upward bias are the 

NAB-SoundExchange and SiriusXM– 

SoundExchange agreements. That is, we 

find that these agreements are a useful 

gauge of the weights to be assigned to 

the rates suggested by the interactive 

webcasting benchmark, because the 

NAB-SoundExchange and SiriusXM– 

SoundExchange agreements clearly 

govern the rates for a substantial 

number of commercial webcasters over 

the relevant 2011–2015 period and the 

commercial webcasters covered by these 

agreements are competitors with the 

other commercial webcasters who 

comprise the remainder of the noninteractive webcasting services (see 

supra at Section II.B.3.b.ii.). These 

negotiated rates indicate that the 

interactive benchmark may likely 

overstate the prevailing market rate in 

the target market even when subjected 

to Dr. Pelcovits’ substitution adjustment 

or Dr. Salinger’s adjustment to mitigate 

the impact of downward trend in the 

effective play rates paid by interactive 

services. Id. Indeed, the NABSoundExchange and SiriusXM 

agreements lend weight to the need for 

a further downward adjustment in the 

benchmark rate to reflect a prevailing 

rate in the target market closer to the 

current statutory rate. Id. In this way, 

the NAB-SoundExchange and SirusXM 

agreements serve as a means of roughly 

correcting the interactive benchmark for 

any overvaluation not captured by the 

variables directly considered in the 

analysis. Therefore, inasmuch as there 

appears to be only a small difference 

between the 2011 rate in the NABSoundExchange and SiriusXM 

agreements and the 2010 statutory rate, 

we find that the current statutory rate 

($0.0019) sets the lower bounds for a 

range of rates reasonably applicable to 

the target market and that the most 

likely prevailing rate in that market is 

closer to this lower boundary than to the 

interactive benchmark rates 

recommended by Dr. Pelcovits. 

In other words, while we accept the 

interactive benchmark as suggesting an 

increase in royalty rates for noninteractive webcasting over or by the 

end of the period 2011–2015, we find 

that the weight of the evidence does not 

allow us to accept the full amount of the 

increases suggested by either the 

unadjusted or the various adjusted 

versions of the interactive benchmark. 

Rather having identified the $0.0036 

rate as the upper boundary for a zone of 

reasonableness for potential 

marketplace benchmarks and the 

$0.0019 rate as the lower boundary for 

a zone of reasonableness for potential 

marketplace benchmarks, we find that 

the most likely prevailing rate in the 

target market is closer to the lower 

boundary than to the upper boundary of 

this zone of reasonableness (see supra at 

Section II.B.3.b.ii.). 

However, the most likely prevailing 

rate at the present time is also likely to 

shift upward over the 2011–2015 term. 

We recognize that the interactive 

benchmark derived in this proceeding 

after adjusting for interactivity and 

accounting for substitution (i.e., 

$0.0033) itself indicates an increase 

when compared to a similarly adjusted 

interactive benchmark derived in 

Webcaster II (i.e., $0.0019). See supra at 

Section II.B.3.b.i.; Webcaster II, 72 FR 

24094, 24096. Similarly, the NABSoundExchange and SiriusXMSoundExchange agreements exhibit an 

increase in rates over the 2011–2015 

term for competing webcasters. See 

supra at Section II.B.3.b.ii. Moreover, 

we also find that the evidence in the 

record on industry growth in increased 

advertising revenues, increased 

performances, and increased listening 

likely support at least a modest increase 

over the 2011–2015 term. See supra at 

Section II.B.3.a.iii. However, we 

recognize that while the trend in 

industry growth, as captured by some 

measures such as listenership, has been 

decidedly upward, that growth has 

occurred unevenly from year to year, 

with two-year plateaus succeeded by 

large jumps in growth. Id. 

Our findings suggest three criteria for 

an appropriate rate based on the 

marketplace evidence we have been 

presented. These criteria are: (1) A rate 

structure that reflects our finding that 

the most likely prevailing rate in the 

target market is closer to the lower 

boundary than to the upper boundary of 

the zone of reasonableness for potential 

marketplace benchmarks; (2) a rate 

structure that accommodates some 

modest growth in rates over the term of 

the license period; and (3) a rate 

structure that provides for longer 

periods of stable rates during the term 

of the license period. We find that the 

following rate structure for commercial 

webcasters, based on our downward 

adjustment of the interactive 

benchmark, meets these three criteria: 

For the five-year period beginning 2011, 

the per play rate applicable to each year 

of the license for Commercial 

Webcasters is: $0.0019 for 2011, $0.0021 

for 2012, $0.0021 for 2013, $0.0023 for 

2014 and $0.0023 for 2015. 

The willing buyer/willing seller 

standard in the Copyright Act 

encompasses consideration of 

economic, competitive and 

programming information presented by 

the parties, including (1) the 

promotional or substitution effects of 

the use of webcasting services by the 

public on the sales of phonorecords or 

other effects of the use of webcasting 

that may interfere with or enhance the 

sound recording copyright owner’s 

other streams of revenue from its sound 

recordings; and (2) the relative 

contributions made by the copyright 

owner and the webcasting service with 

respect to creativity, technology, capital 

investment, cost and risk in bringing the 

copyrighted work and the service to the 

public. Because we adopt an adjusted 

benchmark approach to determining the 

rates, we agree with Webcaster II and 

Webcaster I that such considerations 

would have already been factored into 

the negotiated price in the benchmark 

agreements. 72 FR 24095 (May 1, 2007); 

67 FR 45244 (July 8, 2002). Therefore, 

such considerations have been reviewed 

by the Copyright Royalty Judges in our 

determination of the most appropriate 

benchmark from which to set rates. 

Similar considerations would have been 

factored into the negotiated price of the 

NAB-SoundExchange and SiriusXMSoundExchange agreements which we 

utilized to roughly gauge the further 

downward adjustment necessary to 

assure that the interactive benchmark 

rates reasonably reflected likely rates in 

the target market. 

Nevertheless, we have also further 

separately reviewed the evidence 

bearing on these considerations. We 

find that no further upward or 

downward adjustment is indicated. We 

have previously noted that the evidence 

submitted by Live365 on each of these 

considerations is too weak to establish 

a basis for a decrease in webcaster 

royalty rates from the current statutory 

rate (see supra at Section II.B.3.a.iii.). 

Nor does Live365 present an acceptable 

empirical basis for quantifying the 

individual asserted effects of these 

various factors and/or for deriving a 

method for translating such magnitudes 

into a rate adjustment. Id. Similarly, to 

the extent that SoundExchange treats 

each of these factors separate from its 

proffered benchmark analysis, it also 

does not present an acceptable 

empirical basis for quantifying the 

individual asserted effects of these 

various factors and/or for deriving a 

method for translating such magnitudes 

into a rate adjustment. Moreover, 

SoundExchange explicitly relies on Dr. 

Pelcovits’ interactive services 

benchmark analysis to encompass these 

considerations. SX RCL at ¶ 20. 

Therefore, our further consideration of 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13037 

14For example, it is obvious that if the full 

amount of any purported administrative savings 

were to flow to the aggregator, then no benefit 

accrues to anyone else. In such a formulation, the 

aggregator proposal would seem to reduce to a mere 

stalking horse for obtaining a less than competitive 

market rate that advantages Live365 as compared to 

other commercial webcasters and simulcasters. 

15Under the May 14, 2010 Stipulation executed 

by SoundExchange and Live365, the $50,000 cap on 

minimum fees was also agreed to by the parties for 

the 2011–2015 term. See supra at Section II.B.1. 

these factors leads us to find no need for 

any further adjustment to the rates 

determined hereinabove. 

5. The Proposed Aggregator Discount to 

the Section 114 Commercial Webcaster 

Rates 

Live365 seeks a further 20% discount 

applicable to the commercial 

webcasting per performance rate for 

certain ‘‘qualified webcast aggregation 

services’’ who operate a network of at 

least 100 independently operated 

‘‘aggregated webcasters’’ that 

individually ‘‘stream less than 100,000 

ATH per month of royalty-bearing 

performances.’’ Rate Proposal For 

Live365, Inc., Appendix A, Proposed 

Regulations at § 380.2 and § 380.3(a)(2). 

This ‘‘discount’’ proposal may be more 

properly understood as a proposed term 

rather than an additional rate proposal. 

It is conditional; that is, it is applicable 

only to the extent that certain defined 

conditions are met (e.g., minimum 

number of 100 aggregated webcasters 

and each individual aggregated 

webcaster streaming less than 100,000 

ATH per month). It proposes to 

establish a mechanism whereby a group 

of commercial webcasters under certain 

qualifying conditions may utilize a 

‘‘webcast aggregation service’’ to 

aggregate their monitoring and reporting 

functions. Rate Proposal For Live365, 

Inc., Appendix A, Proposed Regulations 

at § 380.2(m). Monitoring and reporting 

are compliance-related functions that 

are currently required of all individual 

webcaster licensees. 

We find no persuasive evidence in the 

record to support the imposition of an 

aggregator discount that would apply to 

the statutory rate for commercial 

webcasters. Live365 submitted 

testimony from Dr. Fratrik and Mr. 

Floater to support this request. The 

testimony of the latter witness does not, 

in any meaningful way, address the 

purported rationale behind this 

request—namely, that an administrative 

benefit accrues to the collective which, 

by implication, reduces transactions 

costs. Rather Mr. Floater’s testimony 

speaks largely about the asserted 

benefits of using an aggregation service 

that flow to ‘‘individual webcasters’’ 

who make use of the service and to 

copyright owners of having multiple 

webcaster stations assembled on a single 

platform. [‘‘* * * a streaming 

architecture that can aggregate tens of 

thousands of individual webcasters 

* * * Live365’s broadcast tools and 

services enable broadcasters to 

economically and efficiently stream 

their programming * * * Live365’s 

aggregation helps broadcasters contain 

their costs * * * Live365 allows small 

webcasters to broadcast content * * * 

while generating increased 

performances, sales, royalties and 

promotional benefits for a wide range of 

artists and copyright holders.’’] Floater 

Corrected WDT at 11–14. These asserted 

benefits to individual webcasters and 

copyright owners, which are not 

quantified sufficiently to ascertain their 

value, are benefits that are largely 

indistinguishable from those that might 

be asserted by any multi-channel 

webcaster. Nor do these benefits address 

the issues at heart of the proposal; that 

is, whether an aggregator like Live365 

provides any administrative benefit that 

could be shown to reduce transactions 

costs, whether any administrative 

benefit provided by the aggregator can 

be measured and translated into a 

discount applicable to the commercial 

webcasting royalty rate, and whether the 

full amount of the purported 

administrative benefit should properly 

flow to the aggregator, to the individual 

webcasters so aggregated, to the 

copyright owners or to some 

combination thereof.14 We do not find 

Mr. Floater’s testimony helpful in 

resolving any of these issues. 

Live365 also submitted testimony 

from Dr. Fratrik to support its request 

for an aggregator discount that attempts, 

in part, to address the administrative 

savings issue. Dr. Fratrik opines that 

aggregators are entitled to this discount 

because they ‘‘collect and compile all of 

the necessary documentation of the 

actual copyrighted works that are 

streamed and the number of total 

listening levels for each of these 

copyrighted works’’ and because 

‘‘aggregators make royalty payments to 

the appropriate parties.’’ Fratrik 

Corrected and Amended WDT at 38. But 

again these functions are part of the 

same sort of compliance activities for 

which any multi-channel webcaster 

would necessarily be responsible on 

behalf of the multiplicity of channels it 

offered. They do not appear to be 

unique to an ‘‘aggregator.’’ Indeed, when 

questioned about his description of the 

aggregator discount, Dr. Fratrik offered 

no practical distinction between an 

‘‘aggregator’’ and any commercial 

webcaster or simulcaster who offered 

100 or more channels. 4/27/10 Tr. at 

1265:9–1266:22; 1267:7–1270:15 

(Fratrik). We find that Dr. Fratrik’s claim 

of administrative cost savings provided 

by aggregators describes a benefit that is 

largely indistinguishable from those that 

might be asserted by any multi-channel 

webcaster. Therefore, inasmuch as 

multi-channel webcasters already 

receive a benefit under current 

regulations 15 (37 CFR 380.3(b)(1)) by 

way of a $50,000 cap on the minimum 

fee for services with 100 or more 

stations or channels, the proposed 

additional discount for 

indistinguishable administrative 

services provided by an ‘‘aggregator’’ is 

unwarrantedly cumulative. SX PFF at 

¶ 597. 

Furthermore, Dr. Fratrik admitted that 

the choice of 100 channels or stations as 

the threshold for triggering the proposed 

aggregator discount was not supported 

by any examination of administrative 

costs to see what relative administrative 

cost savings specifically demarcated the 

boundaries of the discount’s 

applicability. 4/27/10 Tr. at 1270:12– 

1271:3 (Fratrik). In other words, Dr. 

Fratrik establishes no cost savings basis 

in the record for a distinction between 

the administrative cost savings that 

might accrue from aggregating 100 

stations as compared to 50 or 300 

stations where each such station meets 

the additional condition of accounting 

for streaming of less than 100,000 ATH 

per month. 

At the same time, Dr. Fratrik reaches 

his estimated 20% discount rate through 

the offer of a kind of benchmark 

analysis that uses purported aggregator 

discounts provided to Live365 in its 

agreements with the Performance Rights 

Organizations (‘‘PROs’’) pertaining to 

musical works royalties. But Dr. Fratrik 

indicated in his testimony that the 

Live365–BMI agreement he utilized to 

support this benchmark does not 

provide a discount to Live365 for 

aggregating webcasters. Instead, the 

agreement apparently provides a 

discount more directly to very small 

webcasters that utilize Live365 for 

certain administrative functions related 

to compliance. 4/27/10 Tr. 1261:18– 

1262:19 (Fratrik). That is not 

comparable to the proposal before us 

which calls for the aggregator to receive 

the full benefits of any discount. 

In any case, even if Live365 were to 

receive the full benefits of any 

aggregator discount in the BMI 

agreement, such PRO agreements do not 

constitute a benchmark that inspires 

sufficient confidence to be useful. Dr. 

Fratrik asserts that Live365 provides 

centralized administration for the 

mstockstill on DSKH9S0YB1PROD with RULES2

13038 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

16The United States Court of Appeals for the 

District of Columbia Circuit remanded the $500 

minimum fee for lack of evidence. Intercollegiate 

Broadcast System, Inc. v. Copyright Royalty Board, 

574 F.3d 748, 767 (DC Cir. 2009). After taking 

evidence, we adopted a $500 minimum fee. Digital 

Performance Right in Sound Recordings and 

Ephemeral Recordings (Remand order), 75 FR 

56873, 56784 (September 17, 2010). 

benefit of the PROs, including 

centralized collection, reporting and 

compliance. But he offers no evidence 

to suggest that the types and level of 

centralized administrative services 

provided to the PROs are comparable to 

the administrative services to be 

provided by the aggregator to 

SoundExchange. In Webcaster II, we 

found that another benchmark offered in 

that proceeding based on the musical 

works market was flawed because the 

sellers in that market are different and 

they are selling different rights. 72 FR 

24094 (May 1, 2007). Yet, in the instant 

proceeding, Dr. Fratrik fails to show that 

these different sellers and different 

rights give rise to comparably valued 

‘‘centralized’’ administrative services 

provided by a third party in the target 

sound recordings market. Nor does Dr. 

Fratrik address the issue of whether any 

adjustments to the data from the 

benchmark musical works market are 

required that could make it more 

comparable to the target sound 

recordings market. 

In short, we find that Live365 makes 

no sufficient showing that an aggregator 

discount can be justified in general, or 

adequately measured in particular, on 

the basis of the evidence in the record. 

To the extent that Live365’s proposed 

aggregator discount is viewed strictly as 

a rate proposal rather than a term, 

Live365 also fails to delineate a basis for 

a different royalty rate applicable to a 

distinct submarket of the larger 

commercial webcasting market. 

Webcasting II determined that a key 

factor in differentiating between classes 

of webcasters for rate purposes is 

whether the webcasters operate in a 

distinct market segment or submarket 

that does not directly compete with the 

remainder of all webcasters. Webcaster 

II, 72 FR 24095, 24097 (May 1, 2007); 

see also supra at Section II.B.3.b.ii. 

Live365 as the aggregator does not 

appear to meet this standard. The record 

clearly establishes that Live365 

competes directly with other 

commercial webcasters. SX PFF at 

¶ 280. And, of course, whether 

considered as a proposed rate for a new 

category of commercial webcasters or, as 

noted hereinabove as a proposed term, 

we are not persuaded by the record of 

evidence in this proceeding of a 

particular market value provided by an 

aggregator in terms of reduced 

transactions costs that can, or should, be 

translated into a discount applicable to 

the commercial webcasting royalty rate. 

In addition, some aspects of the 

Live365 proposal appear likely to 

engender confusion. For example, 

Live365 proposes definitions for a 

‘‘webcast aggregation service,’’ 

‘‘aggregated webcasters,’’ ‘‘commercial 

webcaster,’’ and ‘‘licensee.’’ Taken 

together, these definitions fail to 

explicitly delineate that Live365 intends 

the webcast aggregation service to serve 

as the licensee in its proposed 

arrangement and that the webcasters 

whose programming is transmitted are 

not the licensees. The proposed 

regulations, by contrast, identify 

webcasters specifically as licensees and, 

therefore, suggest that any commercial 

webcaster, whether aggregated or 

unaggregated, remains responsible for 

payment of the applicable statutory 

license fee. See Rate Proposal For 

Live365, Inc., Appendix A, Proposed 

Regulations at § 380.2(b), § 380.2(e), 

§ 380.2(h), § 380.2(o); 9/30/10 Tr. at 

622:14–22, 669:18–677:12 (Closing 

Arguments, Oxenford). Such confusion 

has practical consequences. Given that 

the aggregator, as the licensee, is not 

obligated to provide a list of webcasters 

for whom it purports to pay 

SoundExchange and the aggregator, as 

licensee, may not voluntarily provide 

such a list to SoundExchange, it may 

result in more time-consuming 

administrative effort for SoundExchange 

to determine whether a particular 

webcaster is subject to or properly 

complying with the statutory licenses. 

This burden was pointed out by Mr. 

Funn in the context of SoundExchange’s 

specific experience with Live365. Funn 

WRT at 2; 8/2/10 Tr. at 445:13–446:2 

(Funn). 

For all the above reasons, we decline 

to adopt Live365’s proposal for a 20% 

aggregator discount, applicable under 

certain conditions to the commercial 

webcasting royalty rate. 

III. Noncommercial Webcasters 

Having determined the rates for 

commercial webcasters, the Judges now 

turn to the noncommercial category. As 

previously mentioned, certain services 

argued in Webcaster II that they were 

distinguishable from commercial 

webcasters and, as a result, deserved a 

lower royalty rate. We observed: 

Based on the available evidence, we find 

that, up to a point, certain ‘‘noncommercial’’ 

webcasters may constitute a distinct segment 

of the noninteractive webcasting market that 

in a willing buyer/willing seller hypothetical 

marketplace would produce different, lower 

rates than we have determined hereinabove 

for Commercial Webcasters. A segmented 

marketplace may have multiple equilibrium 

prices because it has multiple demand curves 

for the same commodity relative to a single 

supply curve. An example of a segmented 

market is a market for electricity with 

different prices for commercial users and 

residential users. In other words, price 

differentiation or price discrimination is a 

feature of such markets. The multiple 

demand curves represent distinct classes of 

buyers and each demand curve exhibits a 

different price elasticity of demand. By 

definition, if the commodity in question 

derives its demand from its ultimate use, 

then the marketplace can remain segmented 

only if buyers are unable to transfer the 

commodity easily among ultimate uses. Put 

another way, each type of ultimate use must 

be different. 

Webcaster II, 72 FR 24097 (footnote 

omitted). We found that the evidence 

supported a submarket for 

noncommercial webcasting, but 

included safeguards to assure that the 

submarket did not converge or overlap 

with the submarket for commercial 

webcasting. A cap of 159,140 ATH per 

month marked the boundary between 

noncommercial and commercial 

webcasting, and we adopted a $500 per 

station or channel rate which included 

the annual, non-refundable, but 

recoupable, $500 minimum fee payable 

in advance.16

In this proceeding, certain 

participants have once again asked us 

for adoption of lower rates for 

noncommercial webcasting. Greater 

refinements to the category are also 

sought; namely, separate rates for 

distinct ‘‘types’’ of services (all still 

under the general rubric of 

noncommercial). SoundExchange and 

CBI have submitted an agreement, 

pursuant to 17 U.S.C. 801(b)(7)(A), for 

rates and terms for a type of service that 

they identify as ‘‘noncommercial 

educational webcasters.’’ SX PFF at ¶ 65; 

CBI PFF at ¶ 5. IBS urges us to recognize 

and set rates for two types of services: 

small noncommercial webcasters, 

defined as those whose ATH does not 

exceed 15,914 per month, and very 

small noncommercial webcasters, 

defined as those whose ATH does not 

exceed 6,365 per month. IBS PFF 

(Reformatted) at ¶ 26. We address these 

requests beginning with the 

SoundExchange-CBI agreement. 

A. Noncommercial Educational 

Webcasters 

On August 13, 2009, slightly more 

than eight months into the cycle of this 

proceeding, SoundExchange and CBI 

submitted a joint motion to adopt a 

partial settlement ‘‘for certain internet 

transmissions by college radio stations 

and other noncommercial educational 

webcasters.’’ Joint Motion to Adopt 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13039 

17At the hearing to consider the SoundExchange/ 

CBI motion, there was significant discussion as to 

whether SoundExchange and CBI were asking the 

Judges to adopt the agreement as an option for 

noncommercial educational webcasters or whether 

the agreement would be binding on all 

noncommercial educational webcasters. See 5/5/10 

Tr. at 5:8–51:11 (Hearing on Joint Motion To Adopt 

Partial Settlement). The confusion was created by 

the last two sentences of proposed § 380.20(b) to the 

Judges’ rules, 37 CFR, which provided: 

However, if a Noncommercial Educational 

Webcaster is also eligible for any other rates and 

terms for its Eligible Transmissions during the 

period January 1, 2011, through December 31, 2015, 

it may by written notice to the Collective in a form 

to be provided by the Collective, elect to be subject 

to such other rates and terms rather than the rates 

and terms specified in this subpart. If a single 

educational institution has more than one station 

making Eligible Transmissions, each such station 

may determine individually whether it elects to be 

subject to this subpart. 

Digital Performance Right in Sound Recordings 

and Ephemeral Recordings (Proposed rule), 75 FR 

16377, 16383 (April 1, 2010). After deliberations, 

counsel for SoundExchange conceded that such 

language was confusing and unnecessary, since the 

purpose of the motion was to set the rates and terms 

for all services that met the definition of a 

noncommercial educational webcaster, and could 

be removed. 5/5/10 Tr. at 46:14–47:16, 50:12–51:11 

(Hearing on Joint Motion To Adopt Partial 

Settlement). In adopting The SoundExchange/CBI 

agreement today, we are accepting 

SoundExchange’s offer and are not adopting this 

language. 

18 IBS has asserted several times throughout the 

course of this proceeding that it represents more 

college and high school radio stations than CBI. 

See, e.g. 5/5/10 Tr. at 80:16–81:3 (Hearing on Joint 

Motion to Adopt Partial Settlement). However, it 

has never provided any evidence to demonstrate 

this is true. In fact, IBS has never revealed to the 

Judges how many members it has, let alone their 

identities. 

19 [THE JUDGES]: You’re not proposing a rate for 

noncommercial educational webcasters. Only CBI 

and SoundExchange are. 

MR. MALONE: Right. 

[THE JUDGES]: So why are you objecting to the 

adoption of that if you have a—two separate 

categories that you want adopted? 

MR. MALONE: Well, the judges can certainly say 

that—I mean, there’s nothing incompatible with 

them. The— 

[THE JUDGES]: But I’m asking you why are you 

still objecting to the adoption of a $500 minimum 

fee for noncommercial educational webcasters 

when you have proposed new fees for two new 

types of services and have not proposed a fee for 

something called a noncommercial educational 

webcaster? 

MR. MALONE: Well, our— 

[THE JUDGES]: Where is your dog in that fight? 

I don’t see it. 

MR. MALONE: All right. The dog in that fight 

is—and, again, excluding indirect effects that I 

understand to be the context of your question. 

We have no objection to the terms that are there 

as long as they don’t apply to our small stations. 

[THE JUDGES]: So you’re just objecting to it on 

the theory that you just hope that what’s ever in 

there doesn’t somehow get applied to your case, 

even though you’re asking for two completely 

different services? 

MR. MALONE: That’s essentially correct, Your 

Honor. 

9/30/10 Tr. at 660:13—661:22 (IBS Closing 

Argument). 

Partial Settlement at 1. The settlement 

was achieved under authorization 

granted by the Webcaster Settlement Act 

of 2009, Public Law 111–36, discussed 

supra at Section I.B., and was published 

by the Copyright Office in the Federal 

Register. See 74 FR 40616 (August 12, 

2009). By virtue of that publication, the 

SoundExchange-CBI agreement is now 

‘‘available, as an option, to any * * * 

noncommercial webcaster meeting the 

eligibility conditions of such 

agreement.’’ 17 U.S.C. 114(f)(5)(B). In 

submitting the agreement to the Judges, 

SoundExchange and CBI urged us to 

likewise publish it in the Federal 

Register and adopt it, under 17 U.S.C. 

801(b)(7)(A), as the rates and terms 

applicable to noncommercial 

educational webcasters for the period 

2011 through 2015.17

On April 1, 2010, the Judges did 

publish the SoundExchange/CBI 

agreement under the authority of section 

801(b)(7)(A). 75 FR 16377. With respect 

to rates, the agreement proposes an 

annual, nonrefundable minimum fee of 

$500 for each station or individual 

channel, including each of its 

individual side channels. Id. at 16384 

(April 1, 2010). For those 

noncommercial educational webcasters 

whose monthly ATH exceed 159,140, 

additional fees are paid on a perperformance basis. There is also an 

optional $100 proxy fee that may be 

paid by noncommercial educational 

webcasters in lieu of submitting reports 

of use of sound recordings. The 

agreement also contains a number of 

terms of payment. 

Our consideration of the 

SoundExchange-CBI agreement, as is the 

case with the NAB-SoundExchange 

agreement is governed by 17 U.S.C. 

801(b)(7)(A). The Judges received 24 

comments, from managers and 

representatives of terrestrial radio 

stations, favoring adoption of the 

SoundExchange-CBI agreement. Many 

of these comments asserted that the rate 

structure was compatible with their 

budget restraints, see, e.g., Comment of 

Bill Keith for WSDP Radio, PlymouthCanton Community Schools (‘‘The 

monetary amount was reasonable and 

most college or high school stations can 

live with the amounts charged for 

webcasting’’), and several expressed 

satisfaction with the $100 proxy fee in 

lieu of reports of use. See, e.g., 

Comments of Christopher Thuringer for 

WRFL, University of Kentucky; 

Comments of David Black, General 

Manager, WSUM–FM. We received one 

comment objecting to the settlement 

from IBS.18 We held a hearing on the 

motion on May 5, 2010. 

During the course of the hearing, it 

became clear that IBS’ arguments 

centered upon the proposed annual 

$500 minimum fee for stations with less 

than 159,140 ATH. Most significantly, 

IBS contended that if the Judges 

adopted the proposed minimum fee for 

noncommercial educational webcasters, 

it would be precluded from presenting 

its own minimum fee proposal and, 

effectively, its participation in this 

proceeding would be ended. 5/5/10 Tr. 

at 51:22–52:2 (‘‘I think Mr. DeSanctis’ 

[counsel for SoundExchange] last 

remarks indicate that this is an attempt 

to freeze IBS out of statutory rights to a 

decision from the Board on the record.’’) 

(Hearing on Joint Motion to Adopt 

Partial Settlement). After conclusion of 

the hearing, the Judges did not render a 

decision on the adoption of the 

settlement, preferring instead to let IBS 

present its case in the main and 

consider the matter after all testimony 

had been presented. 

It is now evident that IBS’ contention 

of a ‘‘freeze out’’ was erroneous from the 

start, for IBS never proposed any rates 

and terms for noncommercial 

educational webcasters. Rather, as noted 

above, IBS requested rates and terms 

only for certain noncommercial 

webcasters (defined by it as ‘‘small’’ and 

‘‘very small’’). The Judges pressed 

counsel for IBS at closing argument as 

to whether he still objected to adoption 

of the SoundExchange-CBI agreement as 

the basis for establishing rates and terms 

for noncommercial educational 

webcasters. After some dissembling, he 

concluded that he did to the extent that 

adoption of the agreement might 

influence or prejudice his rate 

proposal.19 We find that his response 

does not support a proper objection 

raised under section 801(b)(7)(A)(ii) 

which would require us to consider the 

reasonableness of the SoundExchange/ 

CBI agreement. Cf. 37 CFR 351.10 

(admissible evidence must be relevant); 

FRE 401. Even if we were to conclude 

otherwise, IBS has not presented any 

credible testimony that the agreement is 

unreasonable. Twenty-four 

noncommercial broadcasters that 

purportedly will operate their 

webcasting services under the 

agreement find it to be reasonable and 

affordable. IBS has not provided 

documented testimony to the contrary, 

despite an invitation to do so. 5/5/10 Tr. 

at 81:7–82:10 (Hearing on Joint Motion 

to Adopt Partial Settlement). Instead, it 

has relied upon the bald assertions of its 

counsel and its witnesses, arguing that 

some unidentified and unspecified 

number of its members cannot afford the 

fees contained in the agreement and will 

be driven from the webcasting business. 

mstockstill on DSKH9S0YB1PROD with RULES2

13040 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

20The joint petition was submitted to the 

Copyright Office as a settlement of rates and terms 

for the sections 112 and 114 licenses for the period 

2005 and 2006. It was not acted upon by the Office. 

21This fee is very roughly derived from an 

agreement negotiated between the RIAA and the 

Corporation for Public Broadcasting under the 

Small Webcaster Settlement Act of 2002, which was 

submitted by IBS in the Webcaster II proceeding. 

22 IBS does not define ‘‘noncommercial 

webcaster,’’ but the proposal suggests that it is a 

webcaster with no more than 159,140 ATH per 

month per station or channel, but no less than 

15,915 ATH. The endorsement of the 

SoundExchange per performance proposal would 

then apply to the overage of 159,140 ATH. 9/30/10 

Tr. at 651:11–652:21 (IBS Closing Argument). 

Without proper evidence, we could not 

find the agreement unreasonable, were 

we inclined to do so. 

Finding neither a proper nor a 

credible objection to the 

SoundExchange-CBI agreement, nor 

other grounds requiring rejection, we 

adopt the agreement (see supra n.17) as 

the basis for rates and terms for 

noncommercial educational webcasters 

for the period 2011–2015. See supra 

Section II.A. 

B. All Other Noncommercial Webcasters 

1. Rate Proposals for the Section 114 

License for Noncommercial Webcasters 

The Judges’ adoption of the 

SoundExchange-CBI agreement under 

section 801(b)(7)(A) does not resolve the 

matter of rates for the broader category 

of noncommercial webcasters that we 

recognized in Webcaster II. 

SoundExchange urges adoption of the 

same rates for noncommercial 

webcasters as noncommercial 

educational webcasters. IBS agrees, but 

proposes that we recognize two new 

types of services: small and very small 

noncommercial webcasters. We address 

these proposals separately. 

For noncommercial webcasters 

operating under the sections 112 and 

114 licenses, SoundExchange proposes 

a royalty of $500 per station or channel 

per year, subject to the 159,140 ATH 

limit. The base royalty would be paid in 

the form of a $500 per station or channel 

annual minimum fee, with no cap. If a 

station or channel exceeds the ATH 

limit, then the noncommercial 

webcaster would pay at the commercial 

usage rates for any overage. SX PFF at 

¶¶ 489, 471. In support of its proposal, 

SoundExchange points to the fact that 

363 noncommercial webcasters paid 

royalties in 2009 similar to its current 

proposal, with 305 of those webcasters 

paying only the $500 minimum fee. Id. 

at ¶ 493. This, in its view, demonstrates 

noncommercial webcasters’ ability and 

willingness to pay the requested fees. 

SoundExchange also submits that the 

reasonableness of the $500 minimum 

fee is confirmed by the testimony of 

Barrie Kessler, its chief operating 

officer. While SoundExchange does not 

track its administrative costs on a 

service-by-service basis, Ms. Kessler 

presented a ‘‘reasonableness check’’ by 

estimating its administrative cost per 

service and per channel. First, she 

divided SoundExchange’s total 

expenses for 2008 by the number of 

licensees, and then divided that number 

by the average number of stations or 

channels per licensee (seven). The result 

was an approximate average 

administrative cost of $825 per station 

or channel. Kessler Corrected WDT at 

25. 

Finally, SoundExchange offers its 

agreement with CBI, discussed above, as 

support for its rate proposal. The fees 

are the same, along with the 159,140 

ATH limitation and no cap on the 

minimum fee. The agreement, along 

with the 24 comments received in favor 

of it, ‘‘is strong evidence of the rates and 

terms that noncommercial webcasters 

are willing to pay.’’ SX PFF at ¶ 501. 

IBS agrees with SoundExchange’s 

proposal for noncommercial webcasters, 

but asks the Judges to recognize two 

additional types of noncommercial 

services that it identifies as ‘‘small’’ and 

‘‘very small.’’ Its arrival at this request 

has followed a decidedly convoluted 

path throughout this proceeding, 

metamorphosing from the written direct 

statements through the closing 

argument. Section 351.4(a)(3) of the 

Judges’ rules, which governs the content 

of written direct statements, provides 

that in a rate proceeding, ‘‘each party 

must state its requested rate.’’ IBS did 

not do this in plain fashion, instead 

including its request within the body of 

testimony of one of its three witnesses. 

Frederick J. Kass, Jr., the ‘‘treasurer, 

director of operation (chief operating 

officer), and a director of’’ IBS stated 

that: ‘‘IBS Members should only pay for 

their direct use of the statutory license 

by the IBS Member. There should be no 

minimum fee greater than that which 

would reasonably approximate the 

annual direct use of the statutory 

license, not to exceed $25.00 annually.’’ 

Kass WDT at 1, 9. However, Mr. Kass 

attached as an exhibit to his statement 

a joint petition to adopt an agreement 

negotiated between the RIAA, IBS, and 

the Harvard Radio Broadcasting, Co. 

that was submitted to the Copyright 

Office on August 26, 2004.20 That 

agreement provided for a minimum 

annual fee of $500 for noncommercial 

educational webcasters, except that the 

fee was $250 for any noncommercial 

educational webcaster that affiliated 

with an educational institution with 

fewer than 10,000 enrolled students or 

where substantially all of the 

programming transmitted was classified 

as news, talk, sports or business 

programming. Kass WDT, Exhibit A at 5. 

Despite the inclusion of this exhibit, Mr. 

Kass expressly disavowed endorsement 

of its rates in the hearing on his written 

direct statement. Instead, he asserted 

that ‘‘the appropriate rates are what most 

people were paying in the marketplace 

for the direct use of the statutory 

license,’’ without stating what that fee or 

amount should be. 4/22/10 Tr. at 

779:22–780:2 (Kass). When the Judges 

questioned Mr. Kass as to exactly what 

was his rate proposal, he responded that 

IBS members should pay only for their 

actual use of sound recordings and that 

the fee should be 50 cents per 

continuous listener per year to a station 

or channel,21 not to exceed $25 per year. 

Id. at 781:3–792:12 (Kass). He then later 

characterized the $25 as a ‘‘flat fee’’ and 

concluded his testimony on this point 

that each IBS station should pay an 

annual $25 flat fee. Id. at 791:17–792:12 

(Kass). 

After the close of the direct case 

hearings and before the submission of 

written rebuttal cases, IBS filed a 

‘‘Restatement of IBS’ Rate Proposal.’’ 

This proposal identified two new types 

of services: a ‘‘small noncommercial 

webcaster,’’ described as a service with 

total performances of digitally recorded 

music less than 15,914 ATH per month 

or the equivalent; and a ‘‘very small 

noncommercial webcaster,’’ described as 

a service with total performances of less 

than 6,365 ATH per month or the 

equivalent. For small noncommercial 

webcasters, IBS proposed a flat annual 

fee of $50, and for very small 

noncommercial webcasters a flat annual 

fee of $20. No mention was made of the 

broader category of noncommercial 

webcaster. On July 29, 2010, after the 

submission of written rebuttal cases, IBS 

filed an ‘‘Amplification of IBS’ Restated 

Rate Proposal.’’ This filing was far more 

than an amplification, because for the 

first time it proposed an annual 

minimum fee of $500 for 

noncommercial webcasters per station 

or channel, along with annual minimum 

fees of $50 and $20 for small 

noncommercial webcasters and very 

small noncommercial webcasters, 

respectively. IBS also expressly 

endorsed SoundExchange’s per 

performance rate proposal for the 

sections 114 and 112 licenses.22 And, as 

an alternative to this rate structure, IBS 

proposed paying an annual lump sum of 

$10,000 to SoundExchange to cover all 

performances by IBS members that are 

not covered by a negotiated agreement. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13041 

23 IBS does not explain what is meant by IBS 

members exceeding $10,000 in participation. 

However, the pleading does offer a number of 

annual statutory performances covered by the $50 

annual minimum fees for small noncommercial 

webcasters (2,291,616) and very small 

noncommercial webcasters (916,646). Presumably, 

IBS is offering to pay additional unspecified 

amounts for those members that exceed that 

number of performances in a given year. 

24Section 350.4(d) provides that ‘‘[t]he testimony 

of each witness shall be accompanied by an 

affidavit or a declaration made pursuant to 28 

U.S.C. 1746 supporting the testimony.’’ 

25 It was apparent after voir dire of the witness 

that not only did he not comply with the 

verification rule in filing his written rebuttal 

statement, but that he was not familiar with 

substantial portions of his testimony, which had 

been drafted by IBS’ counsel. 7/29/10 Tr. at 292:1– 

296:15 (Kass). 

26To further roil the waters, IBS attached to its 

proposed findings its Amplification of IBS’ Restated 

Rate Proposal which does contain the $10,000 lump 

sum payment language. 

27 IBS distinguishes between the services based 

upon the number of ATH, but ATH is not a 

measurement of the quantity of use of sound 

recordings covered by the section 114 license. It is 

only a time measurement of reception of a 

transmission. 

28Counsel for IBS conceded at closing argument 

that the record was devoid of evidence on this 

statutory requirement. 9/30/10 Tr. at 647:12–651:5 

(IBS Closing Argument). 

29 It was revealed that WHUS did not pay any 

statutory license fees in 2009 nor did it file required 

reports of use. 4/21/10 Tr. at 579:21–582:3, 594:5– 

600:2 (Murphy). 

30 Interestingly, IBS members pay an annual $125 

membership fee to IBS, and pay $85 per person, or 

$480 per station, to attend IBS’ annual conference 

in New York City, plus the cost of hotel rooms. 

4/21/10 Tr. at 593:12–594:3 (Murphy). 

IBS added that ‘‘[i]f the amount of IBS 

members participating exceeds 

$10,000.00 there will be a true up 

within 15 days of the end of the year.’’ 

Amplification of IBS’ Restated Rate 

Proposal at 3 (July 29, 2010).23

During the hearings on the written 

rebuttal cases, SoundExchange objected 

to the testimony of Mr. Kass, IBS’ only 

rebuttal witness, on the grounds that he 

did not verify his testimony as required 

by § 350.4(d) of the Judges’ rules, and 

did not appear to know what was in his 

testimony.24 The Judges granted the 

motion and his testimony was not 

admitted.25 IBS sought reconsideration 

of the decision, which was denied. 

Order Denying IBS’ Motion For 

Reconsideration of the Rulings 

Excluding Its Rebuttal Case, Docket No. 

2009–1 CRB Webcasting III (August 18, 

2010). Even if his testimony had been 

admitted, it did not contain support for 

IBS’ new rate proposals, nor could it 

given that such testimony would be 

outside the scope of the rebuttal 

proceedings. 

IBS changed its proposed rates one 

final time with the filing of its proposed 

findings of fact and conclusions of law. 

It withdrew its proposal of a $10,000 

annual lump sum payment, and 

proposed regulatory language that 

permitted SoundExchange to accept 

unspecified collective payments on 

behalf of small and very small 

noncommercial webcasters.26

2. The Section 114 Noncommercial 

Webcaster Rates Determined by the 

Judges 

The statutory standards that apply to 

the Judges’ determination of section 114 

rates for commercial webcasters apply 

with equal force to our consideration of 

rates for noncommercial webcasters. IBS 

requests that we distinguish between 

two different types of noncommercial 

webcasters—small and very small— 

within the broader category, thereby 

invoking the provision of section 

114(f)(2)(B) that requires that rates (and 

terms) 

shall distinguish among different types of 

eligible nonsubscription transmission 

services then in operation and shall include 

a minimum fee for each such type of service, 

such differences to be based on criteria 

including, but not limited to, the quantity 

and nature of the use of sound recordings 

and the degree to which use of the service 

may substitute for or may promote the 

purchase of phonorecords by consumers. 

17 U.S.C. 114(f)(2)(B). IBS asks that we 

make such a distinction for small and 

very small noncommercial webcasters 

despite the fact that it has not presented 

one iota of evidence regarding the 

relative quantities of music used by 

these services,27 nor the nature of their 

use of sound recordings covered by the 

license.28 Likewise, it has completely 

failed to present any evidence that 

would enable the Judges to determine 

the degree to which these proposed 

services promoted or substituted for the 

purchase of phonorecords by 

consumers. IBS has done nothing more 

than create two arbitrary subcategories 

of noncommercial webcaster, separated 

by unsupported amounts of monthly 

aggregated tuning hours, in an effort to 

obtain lower royalty rates for its 

members. IBS has failed to satisfy the 

statutory burden of presenting evidence 

to enable the Judges to determine if 

distinctions within the noncommercial 

webcaster category are required or 

warranted, and there is nothing in the 

record of this proceeding that requires 

the Judges under section 114(f)(2)(B) to 

establish separate terms and rates for 

types of services other than 

noncommercial webcasters. 

IBS’ failure on this point is endemic 

to its failure to the even greater task at 

hand: The rates that would be 

negotiated in the marketplace between a 

willing buyer and willing seller. IBS’ 

constantly changing rate proposals were 

not fashioned with this standard in 

mind (let alone the evidence to support 

it), but rather appeared to spring from 

some undefined meaning of ‘‘fairness,’’ 

or more likely the impressions of Mr. 

Kass as to what his members would like 

to pay for statutory royalties. Indeed, 

even with respect to Mr. Kass’ 

somewhat consistent mantra, that IBS 

members should not pay for any more 

than the music that they used, there was 

no proffer of evidence to demonstrate 

the nature or volume of that use, by 

what stations, or under what 

circumstances. The aridity of the record 

necessitates the rejection of IBS’ 

proposal. 

There is no dispute between 

SoundExchange and IBS that 

noncommercial webcasting is a distinct 

segment of the noninteractive 

webcasting market for which a willing 

buyer/willing seller hypothetical 

marketplace would produce different, 

lower rates than we have determined 

hereinabove for commercial webcasters. 

SX PFF at ¶¶ 489–90; IBS PFF at ¶¶ 4, 

26. There is also no dispute that the 

boundary of that submarket is marked 

by 159,140 ATH per month per station 

or channel and that any noncommercial 

webcaster exceeding this limitation 

should pay the commercial rates 

adopted in this proceeding for the 

overage. SX PFF at ¶ 489; IBS PFF at 

¶ 26. There is a dispute as to the annual 

$500 minimum, recoupable fee (i.e., the 

flat fee rate) proposed by 

SoundExchange and adopted by the 

Judges in the Webcaster II proceeding. 

See 75 FR 56873 (September 17, 2010) 

(Remand order). IBS contends that many 

of its members cannot afford the fee and 

will cease webcasting activities, but it 

did not provide any financial records, 

data or other information, beyond bare 

allegations of its counsel and Mr. Kass, 

to support its claim. To the contrary, 

financial data obtained from IBS’ 

witness John E. Murphy, General 

Manager of WHUS, licensed to the 

University of Connecticut, revealed that 

in 2009 WHUS generated total revenues 

of $527,364.21 and had a profit of 

$87,041.55. 4/21/10 Tr. at 583:1–586:12 

(Murphy).29 Mr. Murphy was the only 

witness to present radio station 

financial data. Even Mr. Kass’ statement 

that the average operating budget of IBS 

members is $9,000, though wholly 

unsupported by documentation, does 

not demonstrate a lack of ability to 

pay.30 Three hundred and five 

noncommercial webcasters paid 

SoundExchange the $500 minimum fee 

in 2009 pursuant to the decision in 

Webcaster II, with an additional 58 

mstockstill on DSKH9S0YB1PROD with RULES2

13042 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

31 In its proposed findings, and for the first time 

in this proceeding, IBS contends that ‘‘Congress in 

Section 114(f)(2) intended that the minimum rate be 

tailored to the type of service in accord with the 

general public policy favoring small businesses,’’ 

and that as a consequence the Judges are required 

under the Regulatory Flexibility Act, 5 U.S.C. 

601(6), to determine whether the $500 fee 

unnecessarily burdens IBS’ members. IBS PFF 

(Reformatted) at ¶¶ 10–13. There is no support in 

the text or legislative history of the Copyright Act 

for the proposition that section 114(f)(2) favors 

small businesses, and, indeed, IBS does not supply 

any. To the contrary, section 114(f)(2)(B) is very 

clear as to our task in this proceeding: To fashion 

rates (and terms) that ‘‘most clearly represent the 

rates and terms that would have been negotiated in 

the marketplace between a willing buyer and a 

willing seller.’’ IBS has also failed to support its 

contention that the Judges must conduct a 

Regulatory Flexibility Act assessment of impact of 

the $500 fee on IBS’ members in particular. IBS has 

not supplied the Judges with any evidence to 

adduce whether its members are ‘‘small entities’’ 

within the meaning of 5 U.S.C. 601—IBS has not 

supplied us with any documentary evidence of its 

membership, even their names—nor has it 

demonstrated that the Regulatory Flexibility Act 

applies to rate proceedings before the Judges. See 

5 U.S.C. 601(2) (exempting from the definition of 

a rule of a government agency ‘‘a rule of particular 

applicability relating to rates’’); c.f. American 

Moving and Storage Assoc. v. DOD, 91 F.Supp.2d 

132, 136 (D.D.C. 2000) (exception for ‘‘a rule of 

particular applicability relating to rates’’ is explicit 

and broad). In any event, the Judges did consider 

the circumstances of noncommercial webcasters, 

discussed above, in establishing the $500 fee. 

32CBI’s proposal consisted of the terms contained 

in the agreement with SoundExchange submitted 

for adoption by the Judges. Since we are adopting 

that agreement, see supra at Section III.A., CBI’s 

proposal will not be discussed here. 

33Live365’s request for an aggregator discount 

initially was proposed as a term. However, as 

discussed supra at Section II.B.5., the aggregator 

discount was handled in the section on proposed 

rates and thus will not be discussed here. See also, 

9/30/10 Tr. at 615:5–22 (Live365 Closing 

Argument). 

34As noted supra at n.4, RLI filed a written direct 

statement but did not present oral testimony; 

services paying more for exceeding the 

ATH cap or streaming more than one 

station or channel. 75 FR 56874 

(September 17, 2010) (Remand order). 

Twenty-four noncommercial 

educational stations endorsed the 

SoundExchange-CBI agreement which 

contains the same flat $500 fee. See 

supra at Section III.A. In sum, we reject 

IBS’ contention that the $500 fee is not 

affordable and cannot represent what a 

willing buyer would pay in the 

hypothetical marketplace. 

Having rejected in toto the 

contentions and claims of IBS,31 we are 

persuaded that the presentation of 

SoundExchange best represents the rates 

that would be paid in the willing buyer/ 

willing seller hypothetical marketplace 

for noncommercial webcasting. The 

annual minimum fee of $500 per station 

or channel functions as the royalty 

payable for usage of sound recordings 

up to 159,140 ATH per month. This flat 

fee is the same that we adopted in 

Webcaster II and, as discussed above, is 

demonstrably affordable to 

noncommercial webcasters. We find 

that the SoundExchange-CBI agreement, 

which contains the very same fee and 

rate structure, and the 24 comments 

supporting it are corroborative evidence 

that our determination satisfies the 

statutory standard. As a minimum fee, 

and mindful of the Court of Appeals’ 

admonition regarding evidence of 

administrative costs administering the 

licenses, Intercollegiate Broadcast 

System, Inc. v. Copyright Royalty Bd., 

574 F.3d at 761 (DC Cir. 2009), we are 

persuaded that the testimony of Ms. 

Kessler as to estimates of average 

administrative costs per licensee shows 

that a $500 minimum fee for 

noncommercial webcasters is more than 

reasonable. SX PFF at ¶ 484; see also 75 

FR 56874 (September 17, 2010) 

(Remand order). 

3. The Section 112 Noncommercial 

Webcaster Rates Determined by the 

Judges 

Although there is not a stipulation as 

to the rates for the section 112 license 

for noncommercial webcasters as there 

is for commercial webcasters, supra at 

Section II.B.1, there is no disagreement 

between SoundExchange and IBS. 

SoundExchange proposes the same 

bundled rate approach for both the 

section 112 and 114 rights, five percent 

of which is allocated as the section 112 

royalty for making ephemeral copies, 

and IBS endorses the proposal. SX PFF 

at ¶¶ 671; IBS PFF at ¶ 24. The 

testimony offered by SoundExchange 

supports this proposal and we adopt it. 

SX PFF at ¶¶ 672–688. 

IV. Terms 

The standard for setting terms of 

payment is what the record reflects 

would have been agreed to by willing 

buyers and willing sellers in the 

marketplace. Webcaster II, 72 FR 24102 

(May 1, 2007); see also Webcaster I, 67 

FR 45266 (July 8, 2002). In Webcaster II, 

we further established that we are 

obligated to ‘‘adopt royalty payment and 

distribution terms that are practical and 

efficient.’’ Webcaster II, 72 FR 24102 

(May 1, 2007). The parties each 

submitted proposals of the terms that 

they believe satisfy both of these 

requirements.32 SoundExchange based 

its proposal generally on the current 

terms as adopted in Webcaster II and the 

proceeding setting the sections 112 and 

114 rates and terms for preexisting 

satellite digital audio radio services, 

with certain revisions, and proposed 

conforming editorial changes to the 

webcasting terms in light of changes 

made in that proceeding. SX PFF at 

¶ 549. Live365 proposed changes to the 

definitions of two terms in § 380.2 of the 

current webcasting regulations.33

Live365 PFF at ¶¶ 382–87; Live365 PCL 

at ¶¶ 77–79. IBS proposed terms for 

noncommercial webcasters. IBS PFF at 

¶ 26. 

SoundExchange and Live365 also 

stipulated to certain terms. See 

Stipulation of SoundExchange, Inc. and 

Live365, Inc. Regarding Certain 

Proposed Terms, Docket No. 2009–1 

CRB Webcasting III (September 10, 

2010) (‘‘Joint Stipulation’’). 

When adopting royalty terms, we also 

strive, where possible, to maintain 

consistency across the licenses set forth 

in sections 112 and 114 in order to 

maximize efficiency in and minimize 

the overall costs associated with the 

administration of the license. 

Determination of Rates and Terms for 

Preexisting Subscription Services and 

Satellite Digital Audio Radio Services 

(Final rule and order), 73 FR 4080, 4098 

(January 28, 2008) (‘‘SDARS’’). However, 

this goal is not overriding. We will vary 

terms across the licenses where a party 

can demonstrate the need for and the 

benefits of such variance. Id. 

A. Collective 

SoundExchange requests to be named 

the sole collective for the collection and 

distribution of royalties paid by 

commercial and noncommercial 

webcasters under the sections 112 and 

114 licenses for the period 2011–2015. 

SX PFF at ¶ 602; Second Revised Rates 

and Terms of SoundExchange, Inc., 

Docket No. 2009–1 CRB Webcasting III, 

at Proposed Regulations § 380.4(b) (July 

23, 2010). Live365 takes no position 

regarding SoundExchange’s request, 

Live365 RFF at ¶ 602, and IBS does not 

appear to object, given its rate proposal 

refers to SoundExchange as the 

collective. See Amplification of IBS’ 

Restated Rate Proposal, Docket No. 

2009–1 CRB Webcasting III, at 2 (July 

29, 2010). 

We have determined previously that 

designation of a single Collective 

‘‘presents the most economically and 

administratively efficient system for 

collecting royalties under the blanket 

license framework created by the 

statutory licenses.’’ Webcaster II, 72 FR 

24104 (May 1, 2007); see also SDARS, 

73 FR 4099 (January 24, 2008). No party 

has submitted evidence that would 

compel us to alter that determination 

here. Indeed, no party requested the 

designation of multiple collectives, and 

SoundExchange was the only party 

requesting to be selected as a 

collective.34

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13043 

therefore, their written direct statement was not 

considered. In any event, RLI did not seek 

designation as a Collective. 

35 In the proposed regulations attached to its 

proposed findings of fact, Live365 included an 

additional term: A proposed deadline for the 

completion and issuance of a report regarding an 

audit to verify royalty payments. See Attachment to 

Live365’s Proposed Findings of Fact and 

Conclusions of Law, § 380.6(g). Since this proposal 

was not discussed in its proposed findings of fact 

and Live365 presented no evidence to support the 

need for such a term, we decline to adopt it. 

36We need not address the validity of this 

argument since we decline to adopt this term on 

other grounds. 

37According to SoundExchange, the upward 

adjustment would result from a reduction in the 

number of plays in the calculation of a perperformance rate. SX RFF at ¶ 230. 

SoundExchange (and its predecessor) 

has served as the Collective for the 

collection, processing and distribution 

of royalty payments made under the 

sections 112 and 114 statutory licenses 

since their inception thereby 

accumulating a wealth of knowledge 

and expertise in administering these 

licenses. See Kessler Corrected WDT at 

4. Moreover, SoundExchange’s 

designation as the sole Collective is 

supported by artists and copyright 

owners. See Roberts Hedgpeth WDT at 

1–2; McCrady WDT at 19. This coupled 

with the absence of any opposition or 

record evidence to suggest that 

SoundExchange should not serve in that 

capacity here leads us to designate 

SoundExchange as the Collective for the 

2011–2015 license period. 

B. Stipulated Terms and Technical and 

Conforming Changes 

On September 10, 2010, 

SoundExchange and Live365 submitted 

a stipulation regarding certain proposed 

terms in the Proposed Regulations 

appearing as an attachment to Second 

Revised Proposed Rates and Terms of 

SoundExchange, Inc. filed July 23, 2010. 

In several instances, they have 

stipulated that current provisions of the 

webcasting terms will remain 

unchanged. For example, 

SoundExchange and Live365 agree that 

the current definitions of the following 

terms in § 380.2 shall remain 

unchanged: ‘‘Commercial Webcaster,’’ 

‘‘Copyright Owners,’’ ‘‘Ephemeral 

Recording,’’ ‘‘Noncommercial 

Webcaster,’’ ‘‘Performers,’’ and 

‘‘Qualified Auditor.’’ Joint Stipulation, 

Exhibit A at 2–4 (September 10, 2010). 

Similarly, the current provisions of 

§ 380.5 will remain unchanged. Id. at 

9–11. 

In other instances, stipulated terms 

consist of eliminating provisions which 

were solely applicable to the 2006–2010 

license period (see, e.g., § 380.4(d)) and 

reflecting changes necessitated by the 

adoption of the NAB-SoundExchange 

and SoundExchange-CBI agreements 

(see, e.g., § 380.2 definition of 

‘‘Licensee’’). Id. at 3, 8. 

We find that the stipulated terms 

constitute for the most part technical 

and non-controversial changes that will 

add to the clarity of the regulations 

adopted today. Therefore, we are 

adopting the terms stipulated to by 

SoundExchange and Live365. 

For these same reasons, we are 

adopting the technical and conforming 

changes proposed by SoundExchange, 

and not opposed by any party, in 

Section IV of their Second Revised Rates 

and Terms, filed July 23, 2010. 

We now turn to those contested terms 

proposed for Commercial Webcasters. 

C. Contested Terms for Commercial 

Webcasters 

1. Terms Proposed by Live365 

Live365 proposes changes to the 

definitions of two terms in § 380.2, 

namely, ‘‘performance’’ and ‘‘aggregate 

tuning hours.’’ 35 Live365 PFF at ¶ 387 

and PCL at ¶ 79. Specifically, Live365 

proposes to modify the definition of 

‘‘performance’’ to ‘‘exclude any 

performances of sound recording that 

are not more than thirty (30) 

consecutive seconds.’’ Live365 PFF at 

¶ 387. According to Live365, this 

proposed modification conforms the 

definition of ‘‘performance’’ in § 380.2 to 

that of a ‘‘performance’’ or ‘‘play’’ as 

defined in the four interactive service 

agreements reviewed by Dr. Pelcovits. 

Id. Live365 also contends that past 

precedent has excluded partial 

performances from ‘‘royalty-bearing’’ 

performances, citing to the Librarian’s 

adoption of a settlement agreement 

among SoundExchange, AFTRA, the 

American Federation of Musicians of 

the United States and Canada, and 

Digital Media Association which 

excluded from payment performances 

that suffered technical interruptions or 

the closing down of a media player or 

channel switching. Live365 PCL at ¶ 78, 

citing Digital Performance Right In 

Sound Recordings And Ephemeral 

Recordings, Docket Nos. 2002–1 CARP 

DTRA3 & 2001–2 CARP DTNSRA, 74 FR 

27506, 27509 (May 20, 2003). 

Similarly, Live365 seeks to revise the 

current definition of ‘‘aggregate tuning 

hours’’ to exclude programming that 

does not contain sound recordings such 

as talk, sports, and advertising not 

containing sound recordings. Live365 

PCL at ¶ 79. Live365 justifies its request 

by asserting that ‘‘programming without 

sound recordings should not be subject 

to consideration in regulations dealing 

with a royalty to be paid for the use of 

sound recordings.’’ Id. 

SoundExchange vehemently opposes 

adoption of either proposed 

modification. First, SoundExchange 

contends that these proposed 

modifications constitute new terms, not 

a revision to an existing proposal, in 

violation of § 351.4(b)(3) which allows 

for revision of a rate proposal at any 

time up to and including submission of 

proposed findings of fact.36 SX RFF at 

¶ 223. Next, SoundExchange asserts that 

Live365’s citation to the four interactive 

service agreements without more does 

not provide sufficient record support for 

either the need for or benefit of this 

request. Id. at ¶¶ 226–228. With regard 

to the request to redefine ‘‘aggregate 

tuning hours,’’ SoundExchange argues 

that Live365 fails to point to anything in 

the record explaining, much less 

supporting, the need for such proposal. 

Id. at ¶¶ 231–232. Finally, 

SoundExchange points to Live365’s 

failure to consider the potential effect of 

its definition of ‘‘performance’’ on the 

per-performance rate as yet another 

reason not to accept Live365’s proposal. 

Id. at ¶ 230. Were Live365’s definition 

adopted, SoundExchange contends that 

an upward adjustment would be needed 

to the per-performance rate since 

neither Drs. Pelcovits nor Fratrik 

excluded performances of less than 30 

seconds in the calculation of their 

respective per-performance rates.37 Id. 

The Judges decline to adopt either of 

Live365’s proposed definitions. Live365 

has provided insufficient record support 

for either of its proposals. This is 

especially true with regard to its 

proposed definition of ‘‘aggregate tuning 

hours.’’ It appears for the first time in 

Live365’s proposed conclusions of law 

without any citation to the record or any 

substantive explanation as to why such 

a change is needed or what benefits 

would result from its adoption. All 

Live365 has provided is the 

unsupported assertions of counsel. 

Thus, Live365 has not met its burden 

regarding adoption of this term. See 

SDARS, 73 FR 4101 (January 28, 2008) 

(refusal to adopt bare proposals 

unsupported by record evidence). 

Likewise, Live365 has not met its 

burden with respect to adoption of its 

proffered definition of ‘‘performance.’’ 

Neither the mere citation to the four 

interactive service agreements in the 

record here without more nor a 

reference to a settlement agreement 

adopted by the Librarian in a CARP 

proceeding demonstrates that a willing 

buyer and a willing seller would agree 

to such a term in the non-interactive 

market. Live365 simply states that its 

mstockstill on DSKH9S0YB1PROD with RULES2

13044 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

requested definition conforms to the 

definitions of ‘‘performance’’ and ‘‘play’’ 

in the agreements reviewed by Dr. 

Pelcovits with no discussion of or cited 

support for why such conformance is 

needed or beneficial or even appropriate 

here. 

Live365’s reference to adoption by the 

Librarian of the settlement agreement in 

a prior CARP proceeding is 

unpersuasive. As with its proposal 

regarding aggregate tuning hours, this 

justification is offered for the first time 

in Live365’s proposed conclusions of 

law. Thus, like its proposed definition 

for aggregate tuning hours, the proffered 

justification amounts to nothing more 

than an unsupported argument of 

counsel. 

More importantly, as SoundExchange 

correctly observes, since neither Dr. 

Pelcovits nor Dr. Fratrik excluded 

performances from the calculation of 

their respective per-performance rates, 

there would be fewer plays in such 

calculations, thereby necessitating an 

upward adjustment to the perperformance rates. Live365 never 

acknowledges this effect much less 

addresses how to make the adjustment. 

See SX RFF at ¶ 230. The lack of 

supportive evidence presented by 

Live365 when combined with the 

potential problematic effect on the perperformance rates requires rejection of 

this term. 

2. Terms Proposed by SoundExchange 

SoundExchange proposes several 

terms. We note at the outset that several 

of SoundExchange’s proposed terms are 

contained in some or all of the WSA 

agreements, including the NAB– 

SoundExchange and SoundExchangeCBI agreements adopted herein. Parties 

are free to agree to whatever terms they 

choose. When such agreement is 

submitted to the Judges for adoption, we 

are obligated to adopt said agreement in 

the absence of objections after 

publication in the Federal Register. 17 

U.S.C. 801(b)(7)(A); see supra at Section 

II.A. However, when parties litigate over 

the adoption of a term, even one that is 

contained in an adopted agreement, the 

requesting party must meet its burden 

with respect to the standards set forth 

supra. 

Evaluating SoundExchange’s 

proposals in this light, we find that 

SoundExchange has not met its burden. 

a. Server Log Retention 

SoundExchange urges the Judges to 

clarify that server logs are among the 

records to be retained for three years 

pursuant to § 380.4(h) and to be made 

available during an audit conducted 

pursuant to § 380.6. See Second Revised 

Rates and Terms of SoundExchange, 

Inc., Section III.A., Proposed 

Regulations, § 380.4(h) (July 23, 2010); 

Kessler Corrected WDT at 27. Although 

SoundExchange believes that retention 

of these records is required under the 

current regulations, it requests an 

amendment to include server logs since 

oftentimes such logs are not retained. 

SX PFF at ¶¶ 556–57; Kessler Corrected 

WDT at 27. SoundExchange asserts that 

‘‘[t]he evidence indicates marketplace 

acceptance of such a term,’’ citing to the 

SoundExchange-CBI agreement which 

contains an equivalent term. SX PFF at 

¶ 555. 

In its opposition to this term, Live365 

notes that neither the NABSoundExchange agreement nor the 

Commercial Webcasters agreement 

contains this term nor do any of the 

interactive service agreements 

submitted in this proceeding. Live365 

RFF at ¶ 555. Live365 further argues 

that SoundExchange failed to establish 

how the benefits to SoundExchange of 

this term outweigh the burden on 

licensees to comply. Id. at ¶ 557. 

Section 380.4(h), which governs the 

retention of records, requires licensees 

to retain ‘‘books and records’’ relating to 

royalty payments. The language does 

not include server logs and 

SoundExchange’s assumption that it 

does is incorrect. The question remains, 

however, whether server logs should be 

included, and the Judges answer in the 

negative because the record evidence 

does not support such a finding. None 

of the interactive agreements in 

evidence here contain such specificity. 

Live365 Exs. 17 and 18; McCrady WDT, 

Exs. 104–DR & 106–DR. Rather, the 

agreements require licensees only to 

retain records relating to their 

obligations under the agreement and in 

terms no more specific than in the 

current regulation. See, e.g., Live365 

Exs. 17 at ¶ 7(h) and Ex. 18 at ¶ 7(h); 

McCrady WDT, Exs. 104–DR at ¶ 6(j) 

and 106–DR at ¶ 4(h). Since these 

agreements were negotiated in a setting 

free from the constraints of the 

regulatory scheme, they provide the best 

evidence of the agreement of a willing 

buyer and a willing seller in this 

respect. 

We disagree with SoundExchange’s 

assertion that inclusion of this term in 

the SoundExchange-CBI WSA 

agreement constitutes ‘‘marketplace 

acceptance.’’ As discussed supra and as 

acknowledged by SoundExchange, such 

agreements were reached under atypical 

marketplace conditions, since their 

negotiations were overshadowed by the 

possibility of a regulatory proceeding. 

See supra at Section II.B.3.b.ii.; see also 

9/30/10 Tr. at 547:20–548:5 

(SoundExchange Closing Argument). 

Furthermore, while the SoundExchangeCBI agreement contains the term, the 

NAB–SoundExchange and Commercial 

Webcasters agreements do not despite 

the assertion of Ms. Kessler that server 

logs contain data that is ‘‘critical for 

verifying that licensees have made the 

proper payments.’’ Kessler Corrected 

WDT at 27; see also 4/20/10 Tr. at 

455:15–17 (Kessler). If such data is 

‘‘critical,’’ it is difficult to understand 

why server logs were not included in 

the NAB–SoundExchange and 

Commercial Webcasters agreements, 

particularly where these agreement were 

negotiated by SoundExchange and cover 

‘‘webcasters representing a substantial 

part of [the webcasting] market.’’ 9/30/ 

10 Tr. at 508:3–4 (SoundExchange 

Closing Argument); see supra at Section 

II.B.3.b.ii. 

Finally, retention of server logs for a 

three-year period may present 

significant issues to webcasters 

regarding storage and costs. No evidence 

was adduced by SoundExchange as to 

these important considerations, and the 

Judges are hesitant to adopt a term 

without such data. In sum, 

SoundExchange’s request for retention 

of server logs appears to be more of a 

want than a need, and we decline to 

amend § 380.4(h) of our rules. 

b. Standardized Forms for Statements of 

Account 

SoundExchange proposes to require 

licensees to submit statements of 

account on a standardized form 

prescribed by SoundExchange in order 

to simplify licensees’ calculations of the 

royalties owed and to facilitate 

SoundExchange’s ability to efficiently 

collect information from licensees. SX 

PFF at ¶¶ 572, 575. SoundExchange 

currently provides a template statement 

of account on its Web site. Id. at ¶ 574. 

SoundExchange notes that 

noncommercial educational webcasters 

are required pursuant to their WSA 

agreement to use a form supplied by 

SoundExchange. McCrady WDT, Ex. 

103–DP at section 4.4.1. 

Live365 opposes adoption of this term 

on the grounds that it is addressed more 

appropriately in a notice and 

recordkeeping proceeding. Live365 RFF 

at ¶ 574. 

We are not persuaded that a need for 

mandatory use of a standardized 

statement of account exists at this time 

nor do we find support in the record for 

adoption of this term. As Mr. Funn 

testified, the majority of webcasters 

currently use the template form made 

available on SoundExchange’s Web site. 

Funn WRT at 2; 8/2/10 Tr. at 492:2–3 

(Funn) (‘‘much more than half’’ of 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13045 

38SoundExchange requested these same, or 

similar, changes in a rulemaking concluded last 

year where we imposed census reporting for all 

services except those broadcasters paying no more 

than the minimum fee. See Comments of 

SoundExchange, Docket No. RM 2008–7, at 20–23 

(January 29, 2009). Such requests were outside the 

scope of that rulemaking, which was to improve the 

reporting regulations in light of technological 

developments since promulgation of the interim 

regulation, and were deferred for consideration in 

a future rulemaking. See Notice and Recordkeeping 

for Use of Sound Recordings Under Statutory 

License (Final rule), 74 FR 52418, 52422–23 

(October 13, 2009). 

39Ms. Kessler acknowledges, at least with respect 

to the late fees for reports of use, that such 

proposals could be implemented in either the 

notice and recordkeeping regulations or in the 

license terms. Kessler Corrected WDT at 28. 

webcasters currently use template). Mr. 

Funn provided no information 

quantifying the additional work for 

SoundExchange to process a statement 

of account for the few webcasters who 

choose not to use the template. The only 

example given in this regard focused on 

Live365 and its submission of an altered 

form using incorrect rates, which is 

irrelevant to SoundExchange’s request. 

See Funn WDT at 3–4; 8/2/10 Tr. at 

465:19–22 (Funn). 

Our skepticism regarding the need to 

require use of a standardized form also 

stems from the fact that neither the 

NAB–SoundExchange WSA agreement 

nor the Commercial Webcasters WSA 

agreement contains this term. McCrady 

WDT, Exs. 101–DP and 102–DP. 

Moreover, although the 

SoundExchange-CBI WSA agreement 

requires use of a SoundExchangesupplied form, see McCrady WDT, Ex. 

103–DP at section 4.4.1, such language 

was not included in the 

SoundExchange-CBI agreement 

submitted to the Judges and adopted 

herein. See Digital Performance Right in 

Sound Recordings and Ephemeral 

Recordings (Proposed rule), 75 FR 

16377, 16385 (§ 380.23(f)) (April 1, 

2010). 

Given the already widespread use of 

SoundExchange’s template form, the 

lack of quantification in the record of 

the time savings to SoundExchange by 

having a standardized form, and 

SoundExchange’s failure to include this 

term in the NAB-SoundExchange and 

Commercial Webcasters WSA 

agreements or the SoundExchange-CBI 

agreement submitted to the Judges, we 

find that the record before us does not 

support the adoption of this term. 

c. Electronic Signature on Statement of 

Account 

SoundExchange seeks to eliminate the 

requirement in the current § 380.4(f)(3) 

of a handwritten signature on the 

statement of account. SX PFF at ¶ 576. 

According to SoundExchange, allowing 

electronic signatures would make it 

easier for licensees to submit their 

statements of account. Id., citing Funn 

WRT at 3 n.1. SoundExchange further 

asserts that ‘‘none [of the WSA 

agreements in evidence] requires that 

statements of account bear a 

handwritten signature.’’ SX PFF at 

¶ 577. 

Live365 does not oppose this request 

as its own proposed regulations 

eliminate the requirement for a 

handwritten signature on the statement 

of account. See Attachment to PFF, 

Proposed Regulations, § 380.4(f)(3). 

The Judges determine that the record 

evidence does not support adoption of 

this term. The WSA agreements, as 

submitted as exhibits to Mr. McCrady’s 

written direct testimony do, despite 

SoundExchange’s assertions to the 

contrary, require a handwritten 

signature on a statement of account. 

SoundExchange is correct that each 

agreement requires statements of 

account to be provided each month, 

although neither agreement sets forth 

the specific information to be included. 

See McCrady WDT, Ex. 101–DP at 

section 4.6 (NAB), Ex. 102–DP at section 

4.5 (Commercial Webcasters), and Ex. 

103–DP at section 4.4.1 (CBI). However, 

SoundExchange ignores the provision in 

each agreement which states ‘‘[t]o the 

extent not inconsistent with the Rates 

and Terms herein, all applicable 

regulations, including 37 CFR Parts 370 

and 380, shall apply to activities subject 

to these Rates and Terms.’’ See McCrady 

WDT, Ex. 101–DP at section 6.1 (NAB), 

Ex. 102–DP at section 5.1 (Commercial 

Webcasters) and Ex. 103–DP at section 

6.1 (CBI). Current § 380.4(f)(3) requires a 

handwritten signature; such 

requirement is not inconsistent with the 

agreements’ general requirement to 

simply submit statements of account. 

Our interpretation is confirmed by the 

fact that the NAB-SoundExchange and 

SoundExchange-CBI WSA agreements 

submitted to the Judges for adoption 

here each retained the requirement for 

a handwritten signature. See Proposed 

rule, 75 FR 16380 (§ 380.13(f)(3)), 16385 

(§ 380.23(f)(4)) (April 1, 2010). Since we 

are adopting those provisions as 

proposed on April 1, 2010, to accept 

SoundExchange’s proposal here would 

create an inconsistency in terms that 

does not exist currently. 

d. Identification of Licensees and Late 

Fee for Reports of Use 

SoundExchange requests that the 

Judges harmonize identification of 

licensees among the notice of intent to 

use the sections 112 and 114 licenses, 

the statements of account and the 

reports of use, and to impose a late fee 

for reports of use. These two requests 

differ from the rest of their requests in 

that these are notice and recordkeeping 

terms.38 39 See Kessler Corrected WDT at 

20–23, 27–28. This is not the first time 

we have been asked to adopt terms 

regarding notice and recordkeeping in 

this context. Webcaster II, 72 FR 24109 

(May 1, 2007); SDARS, 73 FR 4101 

(January 28, 2008). While the Copyright 

Act grants us the authority to adopt 

such terms here (said terms would 

supersede those set forth in 37 CFR Part 

370), such authority is discretionary. 17 

U.S.C. 803(c)(3). To date, we have 

declined to exercise this discretion. 

Webcaster II, 72 FR at 24109–10 (May 1, 

2007); SDARS, 73 FR at 4101 (January 

28, 2008). 

Our prior refusals stemmed from our 

findings that the issues presented, such 

as census reporting, were more 

appropriately addressed in the context 

of a rulemaking proceeding and that ‘‘no 

persuasive testimony compelling an 

adjustment of the current recordkeeping 

regulations’’ was presented in either 

instance. SDARS, 73 FR 4101 (January 

28, 2008), citing Webcaster II, 72 FR 

24110 (May 1, 2007). In light of the 

record before us, we decline to adopt 

SoundExchange’s proposals regarding 

the harmonization of licensee 

identification and the imposition of a 

late fee for reports of use because the 

evidence does not compel us to amend 

the current recordkeeping regulations 

here; rather, these issues are more 

appropriately addressed in a future 

rulemaking proceeding, for the reasons 

discussed below. 

i. Identification of Licensees 

SoundExchange asserts that 

harmonization of the identification of 

licensees can be accomplished by 

(1) requiring licensees to identify 

themselves on their statements of 

account and reports of use ‘‘in exactly 

the same way [they are] identified on 

the corresponding notice of use * * * 

and that they cover the same scope of 

activity (e.g., the same channels or 

stations),’’ SX PFF at ¶ 568, Kessler 

Corrected WDT at 28; (2) making the 

regulations clear that the ‘‘Licensee’’ is 

‘‘the entity identified on the notice of 

use, statement of account, and report of 

use and that each Licensee must submit 

its own notice of use, statement of 

account, and report of use,’’ id. 

(emphasis in original); and (3) requiring 

licensees to use an account number 

issued by SoundExchange. Id. at ¶ 571. 

In support of these requests, Ms. Kessler 

testified that these proposals would 

allow SoundExchange to more quickly 

and efficiently match the requisite 

mstockstill on DSKH9S0YB1PROD with RULES2

13046 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

40We note that neither agreement mandates the 

use of an account number. 

41Even if the request were not moot, it seems 

unnecessary. SoundExchange is authorized, by 

virtue of its recognition as the collective under the 

sections 112 and 114 licenses, to accept payments 

on behalf of copyright owners, from one or more 

users of the licenses. 

notice of use, statement of account and 

report of use to the correct licensee. 

Kessler Corrected WDT at 29; 4/20/10 

Tr. at 461:2–8 (Kessler). She also claims 

that such requirements would impose 

‘‘little or no evident cost’’ to licensees, 

and licensees’ accounting and reporting 

efforts would be simplified by use of an 

account number. Kessler Corrected 

WDT at 29. SoundExchange also points 

out that these proposals are included in 

the NAB–SoundExchange and 

SoundExchange-CBI agreements.40 SX 

PFF at ¶ 569. 

While Live365 does not dispute 

SoundExchange’s proposed findings of 

fact on this issue, it did not stipulate to 

the language provided by 

SoundExchange. 

These claims are not sufficiently 

supported in the record. For instance, 

there is nothing in the record that 

supports Ms. Kessler’s assertion 

regarding the potential costs, or lack 

thereof, to licensees in complying with 

such a requirement. Without input from 

licensees regarding such information, 

we are reluctant to adopt such a 

proposal. Similarly, there is insufficient 

evidence to support mandating the use 

of an account number. None of the WSA 

agreements in evidence contain such a 

provision. McCrady WDT, Exs. 101–DP 

(NAB), 102–DP (Commercial 

Webcasters) and 103–DP (CBI). All that 

exists is Ms. Kessler’s assertion that use 

of an account number may simplify a 

licensee’s accounting and reporting. 

Kessler Corrected WDT at 29. Moreover, 

while the SoundExchange-CBI 

agreement as adopted herein requires 

that statements of account list the 

licensee’s name as it appears on the 

notice of use, see § 380.23(f)(1), it does 

not impose that requirement with regard 

to reports of use. Compare McCrady Ex. 

103–DP, section 5.2.2 with § 380.23(g). 

Thus, even if we adopted 

SoundExchange’s proposal, there would 

still be an inconsistency within the 

webcasting regulations. We are, 

therefore, not persuaded that such a 

proposal should be adopted here; rather, 

this issue is more appropriately 

addressed in a future rulemaking 

proceeding. 

ii. Late Fee for Reports of Use 

SoundExchange seeks the imposition 

of the same late fee of 1.5% for reports 

of use as currently exists for late 

payments and statements of account. 

See 37 CFR 380.4(c). In support of its 

request, SoundExchange proffered the 

testimony of Ms. Kessler. She testified 

that currently there is widespread 

noncompliance with reporting 

requirements, either failure to file a 

report of use at all or provision of late 

and/or ‘‘grossly inadequate’’ reports. 

Kessler Corrected WDT at 28. Given that 

a report of use is ‘‘a critical element in 

the fair and efficient distribution of the 

royalties,’’ 4/20/10 Tr. at 458:21–22 

(Kessler), such noncompliance 

significantly hampers SoundExchange’s 

ability to timely distribute the royalties. 

Kessler Corrected WDT at 28. Ms. 

Kessler further noted ‘‘that late fees in 

other areas does [sic] help with our 

compliance situation.’’ 4/20/10 Tr. at 

458:19–20 (Kessler). SoundExchange 

also points to the inclusion of a late fee 

for untimely reports of use in the NAB– 

SoundExchange and SoundExchangeCBI WSA agreements as further support 

for its request. SX PFF at ¶ 564. 

Live365 questions SoundExchange’s 

characterization of a payment as being 

useless without a report of use given 

that both the NAB–SoundExchange and 

CBI–SoundExchange agreements 

contain reporting waivers. Live365 RCL 

at ¶ 20. 

We are not persuaded by the record 

before us that there is a need to adopt 

a late fee for reports of use in this 

context. The record evidence does not 

show that a willing buyer and a willing 

seller would agree to a late fee with 

respect to reporting, as none of the 

interactive agreements in evidence 

contain such a term. Live365 Exs. 17, 

18; McCrady WDT, Exs.104–DR and 

106–DR. Although the NAB– 

SoundExchange and SoundExchangeCBI WSA agreements do contain the late 

fee, they were negotiated under the 

shadow of a regulatory proceeding, and 

we note that this late fee was not 

included in the Commercial Webcasters 

WSA agreement negotiated by 

SoundExchange. 

D. Contested Terms for Noncommercial 

Webcasters 

IBS has proposed two terms. The first 

is an exemption from the recordkeeping 

reporting requirements for the small and 

very small noncommercial webcaster 

subcategories it proposed in its rate 

request. As discussed, supra, the Judges 

declined to recognize the proffered 

subcategories, thus making IBS’ request 

for recordkeeping reporting exemptions 

moot. The second term proposed by IBS 

is an express authorization that 

SoundExchange ‘‘may elect to accept 

collective payments on behalf of small 

and very small noncommercial 

webcasters.’’ IBS PFF at ¶ 26. This 

request is also moot.41

V. Determination and Order 

Having fully considered the record, 

the Copyright Royalty Judges make the 

above Findings of Fact based on the 

record. Relying on these Findings of 

Fact, the Copyright Royalty Judges 

unanimously adopt this Final 

Determination of Rates and Terms for 

the statutory licenses for the digital 

audio transmission of sound recordings, 

pursuant to 17 U.S.C. 114, and for the 

making of ephemeral phonorecords, 

pursuant to 17 U.S.C. 112(e), for the 

license period 2011–2015. 

So ordered. 

Dated: January 5, 2011. 

James Scott Sledge, 

Chief U.S. Copyright Royalty Judge. 

William J. Roberts, Jr., 

U.S. Copyright Royalty Judge. 

Stanley C. Wisniewski, 

U.S. Copyright Royalty Judge. 

List of Subjects in 37 CFR Part 380 

Copyright, Sound recordings. 

Final Regulations 

For the reasons set forth in the 

preamble, the Copyright Royalty Judges 

revise part 380 of title 37 of the Code of 

Federal Regulations to read as follows: 

PART 380—RATES AND TERMS FOR 

CERTAIN ELIGIBLE 

NONSUBSCRIPTION TRANSMISSIONS, 

NEW SUBSCRIPTION SERVICES AND 

THE MAKING OF EPHEMERAL 

REPRODUCTIONS 

Subpart A—Commercial Webcasters and 

Noncommercial Webcasters 

Sec. 

380.1 General. 

380.2 Definitions. 

380.3 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

380.4 Terms for making payment of royalty 

fees and statements of account. 

380.5 Confidential Information. 

380.6 Verification of royalty payments. 

380.7 Verification of royalty distributions. 

380.8 Unclaimed funds. 

Subpart B—Broadcasters 

380.10 General. 

380.11 Definitions. 

380.12 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

380.13 Terms for making payment of 

royalty fees and statements of account. 

380.14 Confidential Information. 

380.15 Verification of royalty payments. 

380.16 Verification of royalty distributions. 

380.17 Unclaimed funds. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13047 

Subpart C—Noncommercial Educational 

Webcasters 

380.20 General. 

380.21 Definitions. 

380.22 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

380.23 Terms for making payment of 

royalty fees and statements of account. 

380.24 Confidential Information. 

380.25 Verification of royalty payments. 

380.26 Verification of royalty distributions. 

380.27 Unclaimed funds. 

Authority: 17 U.S.C. 112(e), 114(f), 

804(b)(3). 

Subpart A—Commercial Webcasters 

and Noncommercial Webcasters 

§ 380.1 General. 

(a) Scope. This subpart establishes 

rates and terms of royalty payments for 

the public performance of sound 

recordings in certain digital 

transmissions by Licensees as set forth 

in this subpart in accordance with the 

provisions of 17 U.S.C. 114, and the 

making of Ephemeral Recordings by 

Licensees in accordance with the 

provisions of 17 U.S.C. 112(e), during 

the period January 1, 2011, through 

December 31, 2015. 

(b) Legal compliance. Licensees 

relying upon the statutory licenses set 

forth in 17 U.S.C. 112(e) and 114 shall 

comply with the requirements of those 

sections, the rates and terms of this 

subpart, and any other applicable 

regulations. 

(c) Relationship to voluntary 

agreements. Notwithstanding the 

royalty rates and terms established in 

this subpart, the rates and terms of any 

license agreements entered into by 

Copyright Owners and Licensees shall 

apply in lieu of the rates and terms of 

this subpart to transmission within the 

scope of such agreements. 

§ 380.2 Definitions. 

For purposes of this subpart, the 

following definitions shall apply: 

Aggregate Tuning Hours (ATH) means 

the total hours of programming that the 

Licensee has transmitted during the 

relevant period to all listeners within 

the United States from all channels and 

stations that provide audio 

programming consisting, in whole or in 

part, of eligible nonsubscription 

transmissions or noninteractive digital 

audio transmissions as part of a new 

subscription service, less the actual 

running time of any sound recordings 

for which the Licensee has obtained 

direct licenses apart from 17 U.S.C. 

114(d)(2) or which do not require a 

license under United States copyright 

law. By way of example, if a service 

transmitted one hour of programming to 

10 simultaneous listeners, the service’s 

Aggregate Tuning Hours would equal 

10. If 3 minutes of that hour consisted 

of transmission of a directly licensed 

recording, the service’s Aggregate 

Tuning Hours would equal 9 hours and 

30 minutes. As an additional example, 

if one listener listened to a service for 

10 hours (and none of the recordings 

transmitted during that time was 

directly licensed), the service’s 

Aggregate Tuning Hours would equal 

10. 

Broadcaster is a type of Licensee that 

owns and operates a terrestrial AM or 

FM radio station that is licensed by the 

Federal Communications Commission. 

Collective is the collection and 

distribution organization that is 

designated by the Copyright Royalty 

Judges. For the 2011–2015 license 

period, the Collective is 

SoundExchange, Inc. 

Commercial Webcaster is a Licensee, 

other than a Noncommercial Webcaster, 

that makes eligible digital audio 

transmissions. 

Copyright Owners are sound 

recording copyright owners who are 

entitled to royalty payments made 

under this subpart pursuant to the 

statutory licenses under 17 U.S.C. 112(e) 

and 114. 

Ephemeral Recording is a 

phonorecord created for the purpose of 

facilitating a transmission of a public 

performance of a sound recording under 

a statutory license in accordance with 

17 U.S.C. 114, and subject to the 

limitations specified in 17 U.S.C. 112(e). 

Licensee is a person that has obtained 

a statutory license under 17 U.S.C. 114, 

and the implementing regulations, to 

make eligible nonsubscription 

transmissions, or noninteractive digital 

audio transmissions as part of a new 

subscription service (as defined in 17 

U.S.C. 114(j)(8)) other than a Service as 

defined in § 383.2(h) of this chapter, or 

that has obtained a statutory license 

under 17 U.S.C. 112(e), and the 

implementing regulations, to make 

Ephemeral Recordings for use in 

facilitating such transmissions, but that 

is not— 

(1) A Broadcaster as defined in 

§ 380.11; or 

(2) A Noncommercial Educational 

Webcaster as defined in § 380.21. 

Noncommercial Webcaster is a 

Licensee that makes eligible digital 

audio transmissions and 

(1) Is exempt from taxation under 

section 501 of the Internal Revenue 

Code of 1986 (26 U.S.C. 501), 

(2) Has applied in good faith to the 

Internal Revenue Service for exemption 

from taxation under section 501 of the 

Internal Revenue Code and has a 

commercially reasonable expectation 

that such exemption shall be granted, or 

(3) Is operated by a State or 

possession or any governmental entity 

or subordinate thereof, or by the United 

States or District of Columbia, for 

exclusively public purposes. 

Performance is each instance in 

which any portion of a sound recording 

is publicly performed to a listener by 

means of a digital audio transmission 

(e.g., the delivery of any portion of a 

single track from a compact disc to one 

listener) but excluding the following: 

(1) A performance of a sound 

recording that does not require a license 

(e.g., a sound recording that is not 

copyrighted); 

(2) A performance of a sound 

recording for which the service has 

previously obtained a license from the 

Copyright Owner of such sound 

recording; and 

(3) An incidental performance that 

both: 

(i) Makes no more than incidental use 

of sound recordings including, but not 

limited to, brief musical transitions in 

and out of commercials or program 

segments, brief performances during 

news, talk and sports programming, 

brief background performances during 

disk jockey announcements, brief 

performances during commercials of 

sixty seconds or less in duration, or 

brief performances during sporting or 

other public events and 

(ii) Other than ambient music that is 

background at a public event, does not 

contain an entire sound recording and 

does not feature a particular sound 

recording of more than thirty seconds 

(as in the case of a sound recording used 

as a theme song). 

Performers means the independent 

administrators identified in 17 U.S.C. 

114(g)(2)(B) and (C) and the parties 

identified in 17 U.S.C. 114(g)(2)(D). 

Qualified Auditor is a Certified Public 

Accountant. 

Side Channel is a channel on the Web 

site of a Broadcaster which channel 

transmits eligible transmissions that are 

not simultaneously transmitted over the 

air by the Broadcaster. 

§ 380.3 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

(a) Royalty rates. Royalty rates and 

fees for eligible digital transmissions of 

sound recordings made pursuant to 

17 U.S.C. 114, and the making of 

ephemeral recordings pursuant to 

17 U.S.C. 112(e) are as follows: 

(1) Commercial Webcasters: For all 

digital audio transmissions, including 

simultaneous digital audio 

retransmissions of over-the-air AM or 

mstockstill on DSKH9S0YB1PROD with RULES2

13048 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

FM radio broadcasts, and related 

Ephemeral Recordings, a Commercial 

Webcaster will pay a royalty of: $0.0019 

per performance for 2011; $0.0021 per 

performance for 2012; $0.0021 per 

performance for 2013; $0.0023 per 

performance for 2014; and $0.0023 per 

performance for 2015. 

(2) Noncommercial Webcasters: (i) For 

all digital audio transmissions totaling 

not more than 159,140 Aggregate 

Tuning Hours (ATH) in a month, 

including simultaneous digital audio 

retransmissions of over-the-air AM or 

FM radio broadcasts, and related 

Ephemeral Recordings, a 

Noncommercial Webcaster will pay an 

annual per channel or per station 

performance royalty of $500 in 2011, 

2012, 2013, 2014, and 2015. 

(ii) For all digital audio transmissions 

totaling in excess of 159,140 Aggregate 

Tuning Hours (ATH) in a month, 

including simultaneous digital audio 

retransmissions of over-the-air AM or 

FM radio broadcasts, and related 

Ephemeral Recordings, a 

Noncommercial Webcaster will pay a 

royalty of: $0.0019 per performance for 

2011; $0.0021 per performance for 2012; 

$0.0021 per performance for 2013; 

$0.0023 per performance for 2014; and 

$0.0023 per performance for 2015. 

(b) Minimum fee—(1) Commercial 

Webcasters. Each Commercial 

Webcaster will pay an annual, 

nonrefundable minimum fee of $500 for 

each calendar year or part of a calendar 

year of the period 2011–2015 during 

which it is a Licensee pursuant to 17 

U.S.C. 112(e) or 114. This annual 

minimum fee is payable for each 

individual channel and each individual 

station maintained by Commercial 

Webcasters, and is also payable for each 

individual Side Channel maintained by 

Broadcasters who are Commercial 

Webcasters, provided that a Commercial 

Webcaster shall not be required to pay 

more than $50,000 per calendar year in 

minimum fees in the aggregate (for 100 

or more channels or stations). For each 

such Commercial Webcaster, the annual 

minimum fee described in this 

paragraph (b)(1) shall constitute the 

minimum fees due under both 17 U.S.C. 

112(e)(4) and 114(f)(2)(B). Upon 

payment of the minimum fee, the 

Commercial Webcaster will receive a 

credit in the amount of the minimum 

fee against any additional royalty fees 

payable in the same calendar year. 

(2) Noncommercial Webcasters. Each 

Noncommercial Webcaster will pay an 

annual, nonrefundable minimum fee of 

$500 for each calendar year or part of a 

calendar year of the period 2011–2015 

during which it is a Licensee pursuant 

to 17 U.S.C. 112(e) or 114. This annual 

minimum fee is payable for each 

individual channel and each individual 

station maintained by Noncommercial 

Webcasters, and is also payable for each 

individual Side Channel maintained by 

Broadcasters who are Noncommercial 

Webcasters. For each such 

Noncommercial Webcaster, the annual 

minimum fee described in this 

paragraph (b)(2) shall constitute the 

minimum fees due under both 17 U.S.C. 

112(e)(4) and 114(f)(2)(B). Upon 

payment of the minimum fee, the 

Noncommercial Webcaster will receive 

a credit in the amount of the minimum 

fee against any additional royalty fees 

payable in the same calendar year. 

(c) Ephemeral recordings. The royalty 

payable under 17 U.S.C. 112(e) for the 

making of all Ephemeral Recordings 

used by the Licensee solely to facilitate 

transmissions for which it pays royalties 

shall be included within, and constitute 

5% of, the total royalties payable under 

17 U.S.C. 112(e) and 114. 

§ 380.4 Terms for making payment of 

royalty fees and statements of account. 

(a) Payment to the Collective. A 

Licensee shall make the royalty 

payments due under § 380.3 to the 

Collective. 

(b) Designation of the Collective. 

(1) Until such time as a new designation 

is made, SoundExchange, Inc., is 

designated as the Collective to receive 

statements of account and royalty 

payments from Licensees due under 

§ 380.3 and to distribute such royalty 

payments to each Copyright Owner and 

Performer, or their designated agents, 

entitled to receive royalties under 17 

U.S.C. 112(e) or 114(g). 

(2) If SoundExchange, Inc. should 

dissolve or cease to be governed by a 

board consisting of equal numbers of 

representatives of Copyright Owners 

and Performers, then it shall be replaced 

by a successor Collective upon the 

fulfillment of the requirements set forth 

in paragraph (b)(2)(i) of this section. 

(i) By a majority vote of the nine 

Copyright Owner representatives and 

the nine Performer representatives on 

the SoundExchange board as of the last 

day preceding the condition precedent 

in this paragraph (b)(2), such 

representatives shall file a petition with 

the Copyright Royalty Judges 

designating a successor to collect and 

distribute royalty payments to Copyright 

Owners and Performers entitled to 

receive royalties under 17 U.S.C. 112(e) 

or 114(g) that have themselves 

authorized the Collective. 

(ii) The Copyright Royalty Judges 

shall publish in the Federal Register 

within 30 days of receipt of a petition 

filed under paragraph (b)(2)(i) of this 

section an order designating the 

Collective named in such petition. 

(c) Monthly payments. A Licensee 

shall make any payments due under 

§ 380.3 on a monthly basis on or before 

the 45th day after the end of each month 

for that month. All monthly payments 

shall be rounded to the nearest cent. 

(d) Minimum payments. A Licensee 

shall make any minimum payment due 

under § 380.3(b) by January 31 of the 

applicable calendar year, except that 

payment for a Licensee that has not 

previously made eligible 

nonsubscription transmissions, 

noninteractive digital audio 

transmissions as part of a new 

subscription service or Ephemeral 

Recordings pursuant to the licenses in 

17 U.S.C. 114 and/or 17 U.S.C. 112(e) 

shall be due by the 45th day after the 

end of the month in which the Licensee 

commences to do so. 

(e) Late payments and statements of 

account. A Licensee shall pay a late fee 

of 1.5% per month, or the highest lawful 

rate, whichever is lower, for any 

payment and/or statement of account 

received by the Collective after the due 

date. Late fees shall accrue from the due 

date until payment and the related 

statement of account are received by the 

Collective. 

(f) Statements of account. Any 

payment due under § 380.3 shall be 

accompanied by a corresponding 

statement of account. A statement of 

account shall contain the following 

information: 

(1) Such information as is necessary 

to calculate the accompanying royalty 

payment; 

(2) The name, address, business title, 

telephone number, facsimile number (if 

any), electronic mail address and other 

contact information of the person to be 

contacted for information or questions 

concerning the content of the statement 

of account; 

(3) The handwritten signature of: 

(i) The owner of the Licensee or a 

duly authorized agent of the owner, if 

the Licensee is not a partnership or 

corporation; 

(ii) A partner or delegee, if the 

Licensee is a partnership; or 

(iii) An officer of the corporation, if 

the Licensee is a corporation. 

(4) The printed or typewritten name 

of the person signing the statement of 

account; 

(5) The date of signature; 

(6) If the Licensee is a partnership or 

corporation, the title or official position 

held in the partnership or corporation 

by the person signing the statement of 

account; 

(7) A certification of the capacity of 

the person signing; and 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13049 

(8) A statement to the following effect: 

I, the undersigned owner or agent of the 

Licensee, or officer or partner, have 

examined this statement of account and 

hereby state that it is true, accurate, and 

complete to my knowledge after reasonable 

due diligence. 

(g) Distribution of royalties. (1) The 

Collective shall promptly distribute 

royalties received from Licensees to 

Copyright Owners and Performers, or 

their designated agents, that are entitled 

to such royalties. The Collective shall 

only be responsible for making 

distributions to those Copyright 

Owners, Performers, or their designated 

agents who provide the Collective with 

such information as is necessary to 

identify the correct recipient. The 

Collective shall distribute royalties on a 

basis that values all performances by a 

Licensee equally based upon the 

information provided under the reports 

of use requirements for Licensees 

contained in § 370.4 of this chapter. 

(2) If the Collective is unable to locate 

a Copyright Owner or Performer entitled 

to a distribution of royalties under 

paragraph (g)(1) of the section within 3 

years from the date of payment by a 

Licensee, such royalties shall be 

handled in accordance with § 380.8. 

(h) Retention of records. Books and 

records of a Licensee and of the 

Collective relating to payments of and 

distributions of royalties shall be kept 

for a period of not less than the prior 3 

calendar years. 

§ 380.5 Confidential Information. 

(a) Definition. For purposes of this 

subpart, ‘‘Confidential Information’’ 

shall include the statements of account 

and any information contained therein, 

including the amount of royalty 

payments, and any information 

pertaining to the statements of account 

reasonably designated as confidential by 

the Licensee submitting the statement. 

(b) Exclusion. Confidential 

Information shall not include 

documents or information that at the 

time of delivery to the Collective are 

public knowledge. The party claiming 

the benefit of this provision shall have 

the burden of proving that the disclosed 

information was public knowledge. 

(c) Use of Confidential Information. In 

no event shall the Collective use any 

Confidential Information for any 

purpose other than royalty collection 

and distribution and activities related 

directly thereto. 

(d) Disclosure of Confidential 

Information. Access to Confidential 

Information shall be limited to: 

(1) Those employees, agents, 

attorneys, consultants and independent 

contractors of the Collective, subject to 

an appropriate confidentiality 

agreement, who are engaged in the 

collection and distribution of royalty 

payments hereunder and activities 

related thereto, for the purpose of 

performing such duties during the 

ordinary course of their work and who 

require access to the Confidential 

Information; 

(2) An independent and Qualified 

Auditor, subject to an appropriate 

confidentiality agreement, who is 

authorized to act on behalf of the 

Collective with respect to verification of 

a Licensee’s statement of account 

pursuant to § 380.6 or on behalf of a 

Copyright Owner or Performer with 

respect to the verification of royalty 

distributions pursuant to § 380.7; 

(3) Copyright Owners and Performers, 

including their designated agents, 

whose works have been used under the 

statutory licenses set forth in 17 U.S.C. 

112(e) and 114 by the Licensee whose 

Confidential Information is being 

supplied, subject to an appropriate 

confidentiality agreement, and 

including those employees, agents, 

attorneys, consultants and independent 

contractors of such Copyright Owners 

and Performers and their designated 

agents, subject to an appropriate 

confidentiality agreement, for the 

purpose of performing their duties 

during the ordinary course of their work 

and who require access to the 

Confidential Information; and 

(4) In connection with future 

proceedings under 17 U.S.C. 112(e) and 

114 before the Copyright Royalty Judges, 

and under an appropriate protective 

order, attorneys, consultants and other 

authorized agents of the parties to the 

proceedings or the courts. 

(e) Safeguarding of Confidential 

Information. The Collective and any 

person identified in paragraph (d) of 

this section shall implement procedures 

to safeguard against unauthorized access 

to or dissemination of any Confidential 

Information using a reasonable standard 

of care, but no less than the same degree 

of security used to protect Confidential 

Information or similarly sensitive 

information belonging to the Collective 

or person. 

§ 380.6 Verification of royalty payments. 

(a) General. This section prescribes 

procedures by which the Collective may 

verify the royalty payments made by a 

Licensee. 

(b) Frequency of verification. The 

Collective may conduct a single audit of 

a Licensee, upon reasonable notice and 

during reasonable business hours, 

during any given calendar year, for any 

or all of the prior 3 calendar years, but 

no calendar year shall be subject to 

audit more than once. 

(c) Notice of intent to audit. The 

Collective must file with the Copyright 

Royalty Judges a notice of intent to audit 

a particular Licensee, which shall, 

within 30 days of the filing of the 

notice, publish in the Federal Register 

a notice announcing such filing. The 

notification of intent to audit shall be 

served at the same time on the Licensee 

to be audited. Any such audit shall be 

conducted by an independent and 

Qualified Auditor identified in the 

notice, and shall be binding on all 

parties. 

(d) Acquisition and retention of 

report. The Licensee shall use 

commercially reasonable efforts to 

obtain or to provide access to any 

relevant books and records maintained 

by third parties for the purpose of the 

audit. The Collective shall retain the 

report of the verification for a period of 

not less than 3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent and Qualified 

Auditor, shall serve as an acceptable 

verification procedure for all parties 

with respect to the information that is 

within the scope of the audit. 

(f) Consultation. Before rendering a 

written report to the Collective, except 

where the auditor has a reasonable basis 

to suspect fraud and disclosure would, 

in the reasonable opinion of the auditor, 

prejudice the investigation of such 

suspected fraud, the auditor shall 

review the tentative written findings of 

the audit with the appropriate agent or 

employee of the Licensee being audited 

in order to remedy any factual errors 

and clarify any issues relating to the 

audit; Provided that an appropriate 

agent or employee of the Licensee 

reasonably cooperates with the auditor 

to remedy promptly any factual errors or 

clarify any issues raised by the audit. 

(g) Costs of the verification procedure. 

The Collective shall pay the cost of the 

verification procedure, unless it is 

finally determined that there was an 

underpayment of 10% or more, in 

which case the Licensee shall, in 

addition to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.7 Verification of royalty 

distributions. 

(a) General. This section prescribes 

procedures by which any Copyright 

Owner or Performer may verify the 

royalty distributions made by the 

Collective; provided, however, that 

mstockstill on DSKH9S0YB1PROD with RULES2

13050 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

nothing contained in this section shall 

apply to situations where a Copyright 

Owner or Performer and the Collective 

have agreed as to proper verification 

methods. 

(b) Frequency of verification. A 

Copyright Owner or Performer may 

conduct a single audit of the Collective 

upon reasonable notice and during 

reasonable business hours, during any 

given calendar year, for any or all of the 

prior 3 calendar years, but no calendar 

year shall be subject to audit more than 

once. 

(c) Notice of intent to audit. A 

Copyright Owner or Performer must file 

with the Copyright Royalty Judges a 

notice of intent to audit the Collective, 

which shall, within 30 days of the filing 

of the notice, publish in the Federal 

Register a notice announcing such 

filing. The notification of intent to audit 

shall be served at the same time on the 

Collective. Any audit shall be 

conducted by an independent and 

Qualified Auditor identified in the 

notice, and shall be binding on all 

Copyright Owners and Performers. 

(d) Acquisition and retention of 

report. The Collective shall use 

commercially reasonable efforts to 

obtain or to provide access to any 

relevant books and records maintained 

by third parties for the purpose of the 

audit. The Copyright Owner or 

Performer requesting the verification 

procedure shall retain the report of the 

verification for a period of not less than 

3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent and Qualified 

Auditor, shall serve as an acceptable 

verification procedure for all parties 

with respect to the information that is 

within the scope of the audit. 

(f) Consultation. Before rendering a 

written report to a Copyright Owner or 

Performer, except where the auditor has 

a reasonable basis to suspect fraud and 

disclosure would, in the reasonable 

opinion of the auditor, prejudice the 

investigation of such suspected fraud, 

the auditor shall review the tentative 

written findings of the audit with the 

appropriate agent or employee of the 

Collective in order to remedy any 

factual errors and clarify any issues 

relating to the audit; Provided that the 

appropriate agent or employee of the 

Collective reasonably cooperates with 

the auditor to remedy promptly any 

factual errors or clarify any issues raised 

by the audit. 

(g) Costs of the verification procedure. 

The Copyright Owner or Performer 

requesting the verification procedure 

shall pay the cost of the procedure, 

unless it is finally determined that there 

was an underpayment of 10% or more, 

in which case the Collective shall, in 

addition to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.8 Unclaimed funds. 

If the Collective is unable to identify 

or locate a Copyright Owner or 

Performer who is entitled to receive a 

royalty distribution under this subpart, 

the Collective shall retain the required 

payment in a segregated trust account 

for a period of 3 years from the date of 

distribution. No claim to such 

distribution shall be valid after the 

expiration of the 3-year period. After 

expiration of this period, the Collective 

may apply the unclaimed funds to offset 

any costs deductible under 17 U.S.C. 

114(g)(3). The foregoing shall apply 

notwithstanding the common law or 

statutes of any State. 

Subpart B—Broadcasters 

§ 380.10 General. 

(a) Scope. This subpart establishes 

rates and terms of royalty payments for 

the public performance of sound 

recordings in certain digital 

transmissions made by Broadcasters as 

set forth herein in accordance with the 

provisions of 17 U.S.C. 114, and the 

making of Ephemeral Recordings by 

Broadcasters as set forth herein in 

accordance with the provisions of 17 

U.S.C. 112(e), during the period January 

1, 2011, through December 31, 2015. 

(b) Legal compliance. Broadcasters 

relying upon the statutory licenses set 

forth in 17 U.S.C. 112(e) and 114 shall 

comply with the requirements of those 

sections, the rates and terms of this 

subpart, and any other applicable 

regulations not inconsistent with the 

rates and terms set forth herein. 

(c) Relationship to voluntary 

agreements. Notwithstanding the 

royalty rates and terms established in 

this subpart, the rates and terms of any 

license agreements entered into by 

Copyright Owners and digital audio 

services shall apply in lieu of the rates 

and terms of this subpart to 

transmission within the scope of such 

agreements. 

§ 380.11 Definitions. 

For purposes of this subpart, the 

following definitions shall apply: 

Aggregate Tuning Hours means the 

total hours of programming that the 

Broadcaster has transmitted during the 

relevant period to all listeners within 

the United States from any channels and 

stations that provide audio 

programming consisting, in whole or in 

part, of Eligible Transmissions. 

Broadcaster means an entity that: 

(1) Has a substantial business owning 

and operating one or more terrestrial 

AM or FM radio stations that are 

licensed as such by the Federal 

Communications Commission; 

(2) Has obtained a compulsory license 

under 17 U.S.C. 112(e) and 114 and the 

implementing regulations therefor to 

make Eligible Transmissions and related 

ephemeral recordings; 

(3) Complies with all applicable 

provisions of Sections 112(e) and 114 

and applicable regulations; and 

(4) Is not a noncommercial webcaster 

as defined in 17 U.S.C. 114(f)(5)(E)(i). 

Broadcaster Webcasts mean eligible 

nonsubscription transmissions made by 

a Broadcaster over the Internet that are 

not Broadcast Retransmissions. 

Broadcast Retransmissions mean 

eligible nonsubscription transmissions 

made by a Broadcaster over the Internet 

that are retransmissions of terrestrial 

over-the-air broadcast programming 

transmitted by the Broadcaster through 

its AM or FM radio station, including 

ones with substitute advertisements or 

other programming occasionally 

substituted for programming for which 

requisite licenses or clearances to 

transmit over the Internet have not been 

obtained. For the avoidance of doubt, a 

Broadcast Retransmission does not 

include programming that does not 

require a license under United States 

copyright law or that is transmitted on 

an Internet-only side channel. 

Collective is the collection and 

distribution organization that is 

designated by the Copyright Royalty 

Judges. For the 2011–2015 license 

period, the Collective is 

SoundExchange, Inc. 

Copyright Owners are sound 

recording copyright owners who are 

entitled to royalty payments made 

under this subpart pursuant to the 

statutory licenses under 17 U.S.C. 112(e) 

and 114(f). 

Eligible Transmission shall mean 

either a Broadcaster Webcast or a 

Broadcast Retransmission. 

Ephemeral Recording is a 

phonorecord created for the purpose of 

facilitating an Eligible Transmission of a 

public performance of a sound 

recording under a statutory license in 

accordance with 17 U.S.C. 114(f), and 

subject to the limitations specified in 17 

U.S.C. 112(e). 

Performance is each instance in 

which any portion of a sound recording 

is publicly performed to a listener by 

means of a digital audio transmission 

(e.g., the delivery of any portion of a 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13051 

single track from a compact disc to one 

listener) but excluding the following: 

(1) A performance of a sound 

recording that does not require a license 

(e.g., a sound recording that is not 

copyrighted); 

(2) A performance of a sound 

recording for which the Broadcaster has 

previously obtained a license from the 

Copyright Owner of such sound 

recording; and 

(3) An incidental performance that 

both: 

(i) Makes no more than incidental use 

of sound recordings including, but not 

limited to, brief musical transitions in 

and out of commercials or program 

segments, brief performances during 

news, talk and sports programming, 

brief background performances during 

disk jockey announcements, brief 

performances during commercials of 

sixty seconds or less in duration, or 

brief performances during sporting or 

other public events and 

(ii) Other than ambient music that is 

background at a public event, does not 

contain an entire sound recording and 

does not feature a particular sound 

recording of more than thirty seconds 

(as in the case of a sound recording used 

as a theme song). 

Performers means the independent 

administrators identified in 17 U.S.C. 

114(g)(2)(B) and (C) and the parties 

identified in 17 U.S.C. 114(g)(2)(D). 

Qualified Auditor is a Certified Public 

Accountant. 

Small Broadcaster is a Broadcaster 

that, for any of its channels and stations 

(determined as provided in § 380.12(c)) 

over which it transmits Broadcast 

Retransmissions, and for all of its 

channels and stations over which it 

transmits Broadcaster Webcasts in the 

aggregate, in any calendar year in which 

it is to be considered a Small 

Broadcaster, meets the following 

additional eligibility criteria: 

(1) During the prior year it made 

Eligible Transmissions totaling less than 

27,777 Aggregate Tuning Hours; and 

(2) During the applicable year it 

reasonably expects to make Eligible 

Transmissions totaling less than 27,777 

Aggregate Tuning Hours; provided that, 

one time during the period 2011–2015, 

a Broadcaster that qualified as a Small 

Broadcaster under the foregoing 

definition as of January 31 of one year, 

elected Small Broadcaster status for that 

year, and unexpectedly made Eligible 

Transmissions on one or more channels 

or stations in excess of 27,777 aggregate 

tuning hours during that year, may 

choose to be treated as a Small 

Broadcaster during the following year 

notwithstanding paragraph (1) of the 

definition of ‘‘Small Broadcaster’’ if it 

implements measures reasonably 

calculated to ensure that it will not 

make Eligible Transmissions exceeding 

27,777 aggregate tuning hours during 

that following year. As to channels or 

stations over which a Broadcaster 

transmits Broadcast Retransmissions, 

the Broadcaster may elect Small 

Broadcaster status only with respect to 

any of its channels or stations that meet 

all of the foregoing criteria. 

§ 380.12 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

(a) Royalty rates. Royalties for Eligible 

Transmissions made pursuant to 17 

U.S.C. 114, and the making of related 

ephemeral recordings pursuant to 17 

U.S.C. 112(e), shall, except as provided 

in § 380.13(g)(3), be payable on a perperformance basis, as follows: 

(1) 2011: $0.0017; 

(2) 2012: $0.0020; 

(3) 2013: $0.0022; 

(4) 2014: $0.0023; 

(5) 2015: $0.0025. 

(b) Ephemeral royalty. The royalty 

payable under 17 U.S.C. 112(e) for any 

reproduction of a phonorecord made by 

a Broadcaster during this license period 

and used solely by the Broadcaster to 

facilitate transmissions for which it pays 

royalties as and when provided in this 

section is deemed to be included within 

such royalty payments and to equal the 

percentage of such royalty payments 

determined by the Copyright Royalty 

Judges for other webcasting as set forth 

in § 380.3. 

(c) Minimum fee. Each Broadcaster 

will pay an annual, nonrefundable 

minimum fee of $500 for each of its 

individual channels, including each of 

its individual side channels, and each of 

its individual stations, through which 

(in each case) it makes Eligible 

Transmissions, for each calendar year or 

part of a calendar year during 2011– 

2015 during which the Broadcaster is a 

licensee pursuant to licenses under 17 

U.S.C. 112(e) and 114, provided that a 

Broadcaster shall not be required to pay 

more than $50,000 in minimum fees in 

the aggregate (for 100 or more channels 

or stations). For the purpose of this 

subpart, each individual stream (e.g., 

HD radio side channels, different 

stations owned by a single licensee) will 

be treated separately and be subject to 

a separate minimum, except that 

identical streams for simulcast stations 

will be treated as a single stream if the 

streams are available at a single Uniform 

Resource Locator (URL) and 

performances from all such stations are 

aggregated for purposes of determining 

the number of payable performances 

hereunder. Upon payment of the 

minimum fee, the Broadcaster will 

receive a credit in the amount of the 

minimum fee against any additional 

royalties payable for the same calendar 

year for the same channel or station. In 

addition, an electing Small Broadcaster 

also shall pay a $100 annual fee (the 

‘‘Proxy Fee’’) to the Collective for the 

reporting waiver discussed in 

§ 380.13(g)(2). 

§ 380.13 Terms for making payment of 

royalty fees and statements of account. 

(a) Payment to the Collective. A 

Broadcaster shall make the royalty 

payments due under § 380.12 to the 

Collective. 

(b) Designation of the Collective. 

(1) Until such time as a new designation 

is made, SoundExchange, Inc., is 

designated as the Collective to receive 

statements of account and royalty 

payments from Broadcasters due under 

§ 380.12 and to distribute such royalty 

payments to each Copyright Owner and 

Performer, or their designated agents, 

entitled to receive royalties under 17 

U.S.C. 112(e) and 114(g). 

(2) If SoundExchange, Inc. should 

dissolve or cease to be governed by a 

board consisting of equal numbers of 

representatives of Copyright Owners 

and Performers, then it shall be replaced 

by a successor Collective upon the 

fulfillment of the requirements set forth 

in paragraph (b)(2)(i) of this section. 

(i) By a majority vote of the nine 

Copyright Owner representatives and 

the nine Performer representatives on 

the SoundExchange board as of the last 

day preceding the condition precedent 

in this paragraph (b)(2), such 

representatives shall file a petition with 

the Copyright Royalty Board designating 

a successor to collect and distribute 

royalty payments to Copyright Owners 

and Performers entitled to receive 

royalties under 17 U.S.C. 112(e) or 

114(g) that have themselves authorized 

such Collective. 

(ii) The Copyright Royalty Judges 

shall publish in the Federal Register 

within 30 days of receipt of a petition 

filed under paragraph (b)(2)(i) of this 

section an order designating the 

Collective named in such petition. 

(c) Monthly payments and reporting. 

Broadcasters must make monthly 

payments where required by § 380.12, 

and provide statements of account and 

reports of use, for each month on the 

45th day following the month in which 

the Eligible Transmissions subject to the 

payments, statements of account, and 

reports of use were made. All monthly 

payments shall be rounded to the 

nearest cent. 

(d) Minimum payments. A 

Broadcaster shall make any minimum 

mstockstill on DSKH9S0YB1PROD with RULES2

13052 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

payment due under § 380.12(b) by 

January 31 of the applicable calendar 

year, except that payment by a 

Broadcaster that was not making 

Eligible Transmissions or Ephemeral 

Recordings pursuant to the licenses in 

17 U.S.C. 114 and/or 17 U.S.C. 112(e) as 

of said date but begins doing so 

thereafter shall be due by the 45th day 

after the end of the month in which the 

Broadcaster commences to do so. 

(e) Late fees. A Broadcaster shall pay 

a late fee for each instance in which any 

payment, any statement of account or 

any report of use is not received by the 

Collective in compliance with 

applicable regulations by the due date. 

The amount of the late fee shall be 1.5% 

of a late payment, or 1.5% of the 

payment associated with a late 

statement of account or report of use, 

per month, or the highest lawful rate, 

whichever is lower. The late fee shall 

accrue from the due date of the 

payment, statement of account or report 

of use until a fully compliant payment, 

statement of account or report of use is 

received by the Collective, provided 

that, in the case of a timely provided but 

noncompliant statement of account or 

report of use, the Collective has notified 

the Broadcaster within 90 days 

regarding any noncompliance that is 

reasonably evident to the Collective. 

(f) Statements of account. Any 

payment due under § 380.12 shall be 

accompanied by a corresponding 

statement of account. A statement of 

account shall contain the following 

information: 

(1) Such information as is necessary 

to calculate the accompanying royalty 

payment; 

(2) The name, address, business title, 

telephone number, facsimile number (if 

any), electronic mail address (if any) 

and other contact information of the 

person to be contacted for information 

or questions concerning the content of 

the statement of account; 

(3) The handwritten signature of: 

(i) The owner of the Broadcaster or a 

duly authorized agent of the owner, if 

the Broadcaster is not a partnership or 

corporation; 

(ii) A partner or delegee, if the 

Broadcaster is a partnership; or 

(iii) An officer of the corporation, if 

the Broadcaster is a corporation. 

(4) The printed or typewritten name 

of the person signing the statement of 

account; 

(5) The date of signature; 

(6) If the Broadcaster is a partnership 

or corporation, the title or official 

position held in the partnership or 

corporation by the person signing the 

statement of account; 

(7) A certification of the capacity of 

the person signing; and 

(8) A statement to the following effect: 

I, the undersigned owner or agent of the 

Broadcaster, or officer or partner, have 

examined this statement of account and 

hereby state that it is true, accurate, and 

complete to my knowledge after reasonable 

due diligence. 

(g) Reporting by Broadcasters in 

General. (1) Broadcasters other than 

electing Small Broadcasters covered by 

paragraph (g)(2) of this section shall 

submit reports of use on a perperformance basis in compliance with 

the regulations set forth in part 370 of 

this chapter, except that the following 

provisions shall apply notwithstanding 

the provisions of such part 370 of this 

chapter from time to time in effect: 

(i) Broadcasters may pay for, and 

report usage in, a percentage of their 

programming hours on an Aggregate 

Tuning Hour basis as provided in 

paragraph (g)(3) of this section. 

(ii) Broadcasters shall submit reports 

of use to the Collective on a monthly 

basis. 

(iii) As provided in paragraph (d) of 

this section, Broadcasters shall submit 

reports of use by no later than the 45th 

day following the last day of the month 

to which they pertain. 

(iv) Except as provided in paragraph 

(g)(3) of this section, Broadcasters shall 

submit reports of use to the Collective 

on a census reporting basis (i.e., reports 

of use shall include every sound 

recording performed in the relevant 

month and the number of performances 

thereof). 

(v) Broadcasters shall either submit a 

separate report of use for each of their 

stations, or a collective report of use 

covering all of their stations but 

identifying usage on a station-by-station 

basis; 

(vi) Broadcasters shall transmit each 

report of use in a file the name of which 

includes: 

(A) The name of the Broadcaster, 

exactly as it appears on its notice of use, 

and 

(B) If the report covers a single station 

only, the call letters of the station. 

(vii) Broadcasters shall submit reports 

of use with headers, as presently 

described in § 370.4(e)(7) of this 

chapter. 

(viii) Broadcasters shall submit a 

separate statement of account 

corresponding to each of their reports of 

use, transmitted in a file the name of 

which includes: 

(A) The name of the Broadcaster, 

exactly as it appears on its notice of use, 

and 

(B) If the statement covers a single 

station only, the call letters of the 

station. 

(2) On a transitional basis for a 

limited time in light of the unique 

business and operational circumstances 

currently existing with respect to Small 

Broadcasters and with the expectation 

that Small Broadcasters will be 

required, effective January 1, 2016, to 

report their actual usage in compliance 

with then-applicable regulations. Small 

Broadcasters that have made an election 

pursuant to paragraph (h) of this section 

for the relevant year shall not be 

required to provide reports of their use 

of sound recordings for Eligible 

Transmissions and related Ephemeral 

Recordings. The immediately preceding 

sentence applies even if the Small 

Broadcaster actually makes Eligible 

Transmissions for the year exceeding 

27,777 Aggregate Tuning Hours, so long 

as it qualified as a Small Broadcaster at 

the time of its election for that year. In 

addition to minimum royalties 

hereunder, electing Small Broadcasters 

will pay to the Collective a $100 Proxy 

Fee to defray costs associated with this 

reporting waiver, including 

development of proxy usage data. 

(3) Broadcasters generally reporting 

pursuant to paragraph (g)(1) of this 

section may pay for, and report usage in, 

a percentage of their programming hours 

on an Aggregate Tuning Hours basis, if 

(i) Census reporting is not reasonably 

practical for the programming during 

those hours, and 

(ii) If the total number of hours on a 

single report of use, provided pursuant 

to paragraph (g)(1) of this section, for 

which this type of reporting is used is 

below the maximum percentage set 

forth below for the relevant year: 

(A) 2011: 16%; 

(B) 2012: 14%; 

(C) 2013: 12%; 

(D) 2014: 10%; 

(E) 2015: 8%. 

(iii) To the extent that a Broadcaster 

chooses to report and pay for usage on 

an Aggregate Tuning Hours basis 

pursuant to this paragraph (g)(3), the 

Broadcaster shall 

(A) Report and pay based on the 

assumption that the number of sound 

recordings performed during the 

relevant programming hours is 12 per 

hour; 

(B) Pay royalties (or recoup minimum 

fees) at the per-performance rates 

provided in § 380.12 on the basis of 

paragraph (g)(3)(iii)(A) of this section; 

(C) Include Aggregate Tuning Hours 

in reports of use; and 

(D) Include in reports of use complete 

playlist information for usage reported 

on the basis of Aggregate Tuning Hours. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13053 

(h) Election of Small Broadcaster 

Status. To be eligible for the reporting 

waiver for Small Broadcasters with 

respect to any particular channel in a 

given year, a Broadcaster must satisfy 

the definition set forth in § 380.11 and 

must submit to the Collective a 

completed and signed election form 

(available on the SoundExchange Web 

site at http://www.soundexchange.com) 

by no later than January 31 of the 

applicable year. Even if a Broadcaster 

has once elected to be treated as a Small 

Broadcaster, it must make a separate, 

timely election in each subsequent year 

in which it wishes to be treated as a 

Small Broadcaster. 

(i) Distribution of royalties. (1) The 

Collective shall promptly distribute 

royalties received from Broadcasters to 

Copyright Owners and Performers, or 

their designated agents, that are entitled 

to such royalties. The Collective shall 

only be responsible for making 

distributions to those Copyright 

Owners, Performers, or their designated 

agents who provide the Collective with 

such information as is necessary to 

identify and pay the correct recipient. 

The Collective shall distribute royalties 

on a basis that values all performances 

by a Broadcaster equally based upon 

information provided under the report 

of use requirements for Broadcasters 

contained in § 370.4 of this chapter and 

this subpart, except that in the case of 

electing Small Broadcasters, the 

Collective shall distribute royalties 

based on proxy usage data in 

accordance with a methodology adopted 

by the Collective’s Board of Directors. 

(2) If the Collective is unable to locate 

a Copyright Owner or Performer entitled 

to a distribution of royalties under 

paragraph (g)(1) of this section within 3 

years from the date of payment by a 

Broadcaster, such distribution may be 

first applied to the costs directly 

attributable to the administration of that 

distribution. The foregoing shall apply 

notwithstanding the common law or 

statutes of any State. 

(j) Retention of records. Books and 

records of a Broadcaster and of the 

Collective relating to payments of and 

distributions of royalties shall be kept 

for a period of not less than the prior 3 

calendar years. 

§ 380.14 Confidential Information. 

(a) Definition. For purposes of this 

subpart, ‘‘Confidential Information’’ 

shall include the statements of account 

and any information contained therein, 

including the amount of royalty 

payments, and any information 

pertaining to the statements of account 

reasonably designated as confidential by 

the Broadcaster submitting the 

statement. 

(b) Exclusion. Confidential 

Information shall not include 

documents or information that at the 

time of delivery to the Collective are 

public knowledge. The party claiming 

the benefit of this provision shall have 

the burden of proving that the disclosed 

information was public knowledge. 

(c) Use of Confidential Information. In 

no event shall the Collective use any 

Confidential Information for any 

purpose other than royalty collection 

and distribution and activities related 

directly thereto. 

(d) Disclosure of Confidential 

Information. Access to Confidential 

Information shall be limited to: 

(1) Those employees, agents, 

attorneys, consultants and independent 

contractors of the Collective, subject to 

an appropriate confidentiality 

agreement, who are engaged in the 

collection and distribution of royalty 

payments hereunder and activities 

related thereto, for the purpose of 

performing such duties during the 

ordinary course of their work and who 

require access to the Confidential 

Information; 

(2) An independent and Qualified 

Auditor, subject to an appropriate 

confidentiality agreement, who is 

authorized to act on behalf of the 

Collective with respect to verification of 

a Broadcaster’s statement of account 

pursuant to § 380.15 or on behalf of a 

Copyright Owner or Performer with 

respect to the verification of royalty 

distributions pursuant to § 380.16; 

(3) Copyright Owners and Performers, 

including their designated agents, 

whose works have been used under the 

statutory licenses set forth in 17 U.S.C. 

112(e) and 114(f) by the Broadcaster 

whose Confidential Information is being 

supplied, subject to an appropriate 

confidentiality agreement, and 

including those employees, agents, 

attorneys, consultants and independent 

contractors of such Copyright Owners 

and Performers and their designated 

agents, subject to an appropriate 

confidentiality agreement, for the 

purpose of performing their duties 

during the ordinary course of their work 

and who require access to the 

Confidential Information; and 

(4) In connection with future 

proceedings under 17 U.S.C. 112(e) and 

114(f) before the Copyright Royalty 

Judges, and under an appropriate 

protective order, attorneys, consultants 

and other authorized agents of the 

parties to the proceedings or the courts. 

(e) Safeguarding of Confidential 

Information. The Collective and any 

person identified in paragraph (d) of 

this section shall implement procedures 

to safeguard against unauthorized access 

to or dissemination of any Confidential 

Information using a reasonable standard 

of care, but not less than the same 

degree of security used to protect 

Confidential Information or similarly 

sensitive information belonging to the 

Collective or person. 

§ 380.15 Verification of royalty payments. 

(a) General. This section prescribes 

procedures by which the Collective may 

verify the royalty payments made by a 

Broadcaster. 

(b) Frequency of verification. The 

Collective may conduct a single audit of 

a Broadcaster, upon reasonable notice 

and during reasonable business hours, 

during any given calendar year, for any 

or all of the prior 3 calendar years, but 

no calendar year shall be subject to 

audit more than once. 

(c) Notice of intent to audit. The 

Collective must file with the Copyright 

Royalty Board a notice of intent to audit 

a particular Broadcaster, which shall, 

within 30 days of the filing of the 

notice, publish in the Federal Register 

a notice announcing such filing. The 

notification of intent to audit shall be 

served at the same time on the 

Broadcaster to be audited. Any such 

audit shall be conducted by an 

independent and Qualified Auditor 

identified in the notice, and shall be 

binding on all parties. 

(d) Acquisition and retention of 

report. The Broadcaster shall use 

commercially reasonable efforts to 

obtain or to provide access to any 

relevant books and records maintained 

by third parties for the purpose of the 

audit. The Collective shall retain the 

report of the verification for a period of 

not less than 3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent and Qualified 

Auditor, shall serve as an acceptable 

verification procedure for all parties 

with respect to the information that is 

within the scope of the audit. 

(f) Consultation. Before rendering a 

written report to the Collective, except 

where the auditor has a reasonable basis 

to suspect fraud and disclosure would, 

in the reasonable opinion of the auditor, 

prejudice the investigation of such 

suspected fraud, the auditor shall 

review the tentative written findings of 

the audit with the appropriate agent or 

employee of the Broadcaster being 

audited in order to remedy any factual 

errors and clarify any issues relating to 

the audit; Provided that an appropriate 

mstockstill on DSKH9S0YB1PROD with RULES2

13054 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

agent or employee of the Broadcaster 

reasonably cooperates with the auditor 

to remedy promptly any factual error or 

clarify any issues raised by the audit. 

(g) Costs of the verification procedure. 

The Collective shall pay the cost of the 

verification procedure, unless it is 

finally determined that there was an 

underpayment of 10% or more, in 

which case the Broadcaster shall, in 

addition to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.16 Verification of royalty 

distributions. 

(a) General. This section prescribes 

procedures by which any Copyright 

Owner or Performer may verify the 

royalty distributions made by the 

Collective; Provided, however, that 

nothing contained in this section shall 

apply to situations where a Copyright 

Owner or Performer and the Collective 

have agreed as to proper verification 

methods. 

(b) Frequency of verification. A 

Copyright Owner or Performer may 

conduct a single audit of the Collective 

upon reasonable notice and during 

reasonable business hours, during any 

given calendar year, for any or all of the 

prior 3 calendar years, but no calendar 

year shall be subject to audit more than 

once. 

(c) Notice of intent to audit. A 

Copyright Owner or Performer must file 

with the Copyright Royalty Board a 

notice of intent to audit the Collective, 

which shall, within 30 days of the filing 

of the notice, publish in the Federal 

Register a notice announcing such 

filing. The notification of intent to audit 

shall be served at the same time on the 

Collective. Any audit shall be 

conducted by an independent and 

Qualified Auditor identified in the 

notice, and shall be binding on all 

Copyright Owners and Performers. 

(d) Acquisition and retention of 

report. The Collective shall use 

commercially reasonable efforts to 

obtain or to provide access to any 

relevant books and records maintained 

by third parties for the purpose of the 

audit. The Copyright Owner or 

Performer requesting the verification 

procedure shall retain the report of the 

verification for a period of not less than 

3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent and Qualified 

Auditor, shall serve as an acceptable 

verification procedure for all parties 

with respect to the information that is 

within the scope of the audit. 

(f) Consultation. Before rendering a 

written report to a Copyright Owner or 

Performer, except where the auditor has 

a reasonable basis to suspect fraud and 

disclosure would, in the reasonable 

opinion of the auditor, prejudice the 

investigation of such suspected fraud, 

the auditor shall review the tentative 

written findings of the audit with the 

appropriate agent or employee of the 

Collective in order to remedy any 

factual errors and clarify any issues 

relating to the audit; Provided that the 

appropriate agent or employee of the 

Collective reasonably cooperates with 

the auditor to remedy promptly any 

factual errors or clarify any issues raised 

by the audit. 

(g) Costs of the verification procedure. 

The Copyright Owner or Performer 

requesting the verification procedure 

shall pay the cost of the procedure, 

unless it is finally determined that there 

was an underpayment of 10% or more, 

in which case the Collective shall, in 

addition to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.17 Unclaimed funds. 

If the Collective is unable to identify 

or locate a Copyright Owner or 

Performer who is entitled to receive a 

royalty distribution under this subpart, 

the Collective shall retain the required 

payment in a segregated trust account 

for a period of 3 years from the date of 

distribution. No claim to such 

distribution shall be valid after the 

expiration of the 3-year period. After 

expiration of this period, the Collective 

may apply the unclaimed funds to offset 

any costs deductible under 17 U.S.C. 

114(g)(3). The foregoing shall apply 

notwithstanding the common law or 

statutes of any State. 

Subpart C—Noncommercial 

Educational Webcasters 

§ 380.20 General. 

(a) Scope. This subpart establishes 

rates and terms, including requirements 

for royalty payments, recordkeeping and 

reports of use, for the public 

performance of sound recordings in 

certain digital transmissions made by 

Noncommercial Educational Webcasters 

as set forth herein in accordance with 

the provisions of 17 U.S.C. 114, and the 

making of Ephemeral Recordings by 

Noncommercial Educational Webcasters 

as set forth herein in accordance with 

the provisions of 17 U.S.C. 112(e), 

during the period January 1, 2011, 

through December 31, 2015. 

(b) Legal compliance. Noncommercial 

Educational Webcasters relying upon 

the statutory licenses set forth in 17 

U.S.C. 112(e) and 114 shall comply with 

the requirements of those sections, the 

rates and terms of this subpart, and any 

other applicable regulations not 

inconsistent with the rates and terms set 

forth herein. 

(c) Relationship to voluntary 

agreements. Notwithstanding the 

royalty rates and terms established in 

this subpart, the rates and terms of any 

license agreements entered into by 

Copyright Owners and digital audio 

services shall apply in lieu of the rates 

and terms of this subpart to 

transmissions within the scope of such 

agreements. 

§ 380.21 Definitions. 

For purposes of this subpart, the 

following definitions shall apply: 

ATH or Aggregate Tuning Hours 

means the total hours of programming 

that a Noncommercial Educational 

Webcaster has transmitted during the 

relevant period to all listeners within 

the United States over all channels and 

stations that provide audio 

programming consisting, in whole or in 

part, of Eligible Transmissions, 

including from any archived programs, 

less the actual running time of any 

sound recordings for which the 

Noncommercial Educational Webcaster 

has obtained direct licenses apart from 

17 U.S.C. 114(d)(2) or which do not 

require a license under United States 

copyright law. By way of example, if a 

Noncommercial Educational Webcaster 

transmitted one hour of programming to 

10 simultaneous listeners, the 

Noncommercial Educational 

Webcaster’s Aggregate Tuning Hours 

would equal 10. If three minutes of that 

hour consisted of transmission of a 

directly licensed recording, the 

Noncommercial Educational 

Webcaster’s Aggregate Tuning Hours 

would equal 9 hours and 30 minutes. As 

an additional example, if one listener 

listened to a Noncommercial 

Educational Webcaster for 10 hours (and 

none of the recordings transmitted 

during that time was directly licensed), 

the Noncommercial Educational 

Webcaster’s Aggregate Tuning Hours 

would equal 10. 

Collective is the collection and 

distribution organization that is 

designated by the Copyright Royalty 

Judges. For the 2011–2015 license 

period, the Collective is 

SoundExchange, Inc. 

Copyright Owners are sound 

recording copyright owners who are 

entitled to royalty payments made 

under this subpart pursuant to the 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13055 

statutory licenses under 17 U.S.C. 112(e) 

and 114(f). 

Eligible Transmission means an 

eligible nonsubscription transmission 

made by a Noncommercial Educational 

Webcaster over the Internet. 

Ephemeral Recording is a 

phonorecord created for the purpose of 

facilitating an Eligible Transmission of a 

public performance of a sound 

recording under a statutory license in 

accordance with 17 U.S.C. 114(f), and 

subject to the limitations specified in 17 

U.S.C. 112(e). 

Noncommercial Educational 

Webcaster means Noncommercial 

Webcaster (as defined in 17 U.S.C. 

114(f)(5)(E)(i)) that 

(1) Has obtained a compulsory license 

under 17 U.S.C. 112(e) and 114 and the 

implementing regulations therefor to 

make Eligible Transmissions and related 

ephemeral recordings; 

(2) Complies with all applicable 

provisions of Sections 112(e) and 114 

and applicable regulations; 

(3) Is directly operated by, or is 

affiliated with and officially sanctioned 

by, and the digital audio transmission 

operations of which are staffed 

substantially by students enrolled at, a 

domestically accredited primary or 

secondary school, college, university or 

other post-secondary degree-granting 

educational institution; and 

(4) Is not a ‘‘public broadcasting 

entity’’ (as defined in 17 U.S.C. 118(g)) 

qualified to receive funding from the 

Corporation for Public Broadcasting 

pursuant to the criteria set forth in 47 

U.S.C. 396. 

Performance is each instance in 

which any portion of a sound recording 

is publicly performed to a listener by 

means of a digital audio transmission 

(e.g., the delivery of any portion of a 

single track from a compact disc to one 

listener) but excluding the following: 

(1) A performance of a sound 

recording that does not require a license 

(e.g., a sound recording that is not 

copyrighted); 

(2) A performance of a sound 

recording for which the Noncommercial 

Educational Webcaster has previously 

obtained a license from the Copyright 

Owner of such sound recording; and 

(3) An incidental performance that 

both: 

(i) Makes no more than incidental use 

of sound recordings, including, but not 

limited to, brief musical transitions in 

and out of commercials or program 

segments, brief performances during 

news, talk and sports programming, 

brief background performances during 

disk jockey announcements, brief 

performances during commercials of 

sixty seconds or less in duration, or 

brief performances during sporting or 

other public events; and 

(ii) Other than ambient music that is 

background at a public event, does not 

contain an entire sound recording and 

does not feature a particular sound 

recording of more than thirty seconds 

(as in the case of a sound recording used 

as a theme song). 

Performers means the independent 

administrators identified in 17 U.S.C. 

114(g)(2)(B) and (C) and the parties 

identified in 17 U.S.C. 114(g)(2)(D). 

Qualified Auditor is a Certified Public 

Accountant. 

§ 380.22 Royalty fees for the public 

performance of sound recordings and for 

ephemeral recordings. 

(a) Minimum fee. Each 

Noncommercial Educational Webcaster 

shall pay an annual, nonrefundable 

minimum fee of $500 (the ‘‘Minimum 

Fee’’) for each of its individual channels, 

including each of its individual side 

channels, and each of its individual 

stations, through which (in each case) it 

makes Eligible Transmissions, for each 

calendar year it makes Eligible 

Transmissions subject to this subpart. 

For clarity, each individual stream (e.g., 

HD radio side channels, different 

stations owned by a single licensee) will 

be treated separately and be subject to 

a separate minimum. In addition, a 

Noncommercial Educational Webcaster 

electing the reporting waiver described 

in § 380.23(g)(1), shall pay a $100 

annual fee (the ‘‘Proxy Fee’’) to the 

Collective. 

(b) Additional usage fees. If, in any 

month, a Noncommercial Educational 

Webcaster makes total transmissions in 

excess of 159,140 Aggregate Tuning 

Hours on any individual channel or 

station, the Noncommercial Educational 

Webcaster shall pay additional usage 

fees (‘‘Usage Fees’’) for the Eligible 

Transmissions it makes on that channel 

or station after exceeding 159,140 total 

ATH at the following per-performance 

rates: 

(1) 2011: $0.0017; 

(2) 2012: $0.0020; 

(3) 2013: $0.0022; 

(4) 2014: $0.0023; 

(5) 2015: $0.0025. 

(6) For a Noncommercial Educational 

Webcaster unable to calculate actual 

total performances and not required to 

report ATH or actual total performances 

under § 380.23(g)(3), the 

Noncommercial Educational Webcaster 

may pay its Usage Fees on an ATH 

basis, provided that the Noncommercial 

Educational Webcaster shall pay its 

Usage Fees at the per-performance rates 

provided in paragraphs (b)(1) through 

(5) of this section based on the 

assumption that the number of sound 

recordings performed is 12 per hour. 

The Collective may distribute royalties 

paid on the basis of ATH hereunder in 

accordance with its generally applicable 

methodology for distributing royalties 

paid on such basis. In addition, and for 

the avoidance of doubt, a 

Noncommercial Educational Webcaster 

offering more than one channel or 

station shall pay Usage Fees on a perchannel or -station basis. 

(c) Ephemeral royalty. The royalty 

payable under 17 U.S.C. 112(e) for any 

ephemeral reproductions made by a 

Noncommercial Educational Webcaster 

and covered by this subpart is deemed 

to be included within the royalty 

payments set forth in paragraphs (a) and 

(b)(1) through (5) of this section and to 

equal the percentage of such royalty 

payments determined by the Copyright 

Royalty Judges for other webcasting in 

§ 380.3. 

§ 380.23 Terms for making payment of 

royalty fees and statements of account. 

(a) Payment to the Collective. A 

Noncommercial Educational Webcaster 

shall make the royalty payments due 

under § 380.22 to the Collective. 

(b) Designation of the Collective. 

(1) Until such time as a new designation 

is made, SoundExchange, Inc., is 

designated as the Collective to receive 

statements of account and royalty 

payments from Noncommercial 

Educational Webcasters due under 

§ 380.22 and to distribute such royalty 

payments to each Copyright Owner and 

Performer, or their designated agents, 

entitled to receive royalties under 17 

U.S.C. 112(e) or 114(g). 

(2) If SoundExchange, Inc., should 

dissolve or cease to be governed by a 

board consisting of equal numbers of 

representatives of Copyright Owners 

and Performers, then it shall be replaced 

by a successor Collective upon the 

fulfillment of the requirements set forth 

in paragraph (b)(2)(i) of this section. 

(i) By a majority vote of the nine 

Copyright Owner representatives and 

the nine Performer representatives on 

the SoundExchange board as of the last 

day preceding the condition precedent 

in this paragraph (b)(2), such 

representatives shall file a petition with 

the Copyright Royalty Board designating 

a successor to collect and distribute 

royalty payments to Copyright Owners 

and Performers entitled to receive 

royalties under 17 U.S.C. 112(e) or 

114(g) that have themselves authorized 

such Collective. 

(ii) The Copyright Royalty Judges 

shall publish in the Federal Register 

within 30 days of receipt of a petition 

filed under paragraph (b)(2)(i) of this 

mstockstill on DSKH9S0YB1PROD with RULES2

13056 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

section an order designating the 

Collective named in such petition. 

(c) Minimum fee. Noncommercial 

Educational Webcasters shall submit the 

Minimum Fee, and Proxy Fee if 

applicable, accompanied by a statement 

of account, by January 31st of each 

calendar year, except that payment of 

the Minimum Fee, and Proxy Fee if 

applicable, by a Noncommercial 

Educational Webcaster that was not 

making Eligible Transmissions or 

Ephemeral Recordings pursuant to the 

licenses in 17 U.S.C. 114 and/or 17 

U.S.C. 112(e) as of said date but begins 

doing so thereafter shall be due by the 

45th day after the end of the month in 

which the Noncommercial Educational 

Webcaster commences doing so. 

Payments of minimum fees must be 

accompanied by a certification, signed 

by an officer or another duly authorized 

faculty member or administrator of the 

institution with which the 

Noncommercial Educational Webcaster 

is affiliated, on a form provided by the 

Collective, that the Noncommercial 

Educational Webcaster. 

(1) Qualifies as a Noncommercial 

Educational Webcaster for the relevant 

year; and 

(2) Did not exceed 159,140 total ATH 

in any month of the prior year for which 

the Noncommercial Educational 

Webcaster did not submit a statement of 

account and pay any required Usage 

Fees. At the same time the 

Noncommercial Educational Webcaster 

must identify all its stations making 

Eligible Transmissions and identify 

which of the reporting options set forth 

in paragraph (g) of this section it elects 

for the relevant year (provided that it 

must be eligible for the option it elects). 

(d) Usage fees. In addition to its 

obligations pursuant to paragraph (c) of 

this section, a Noncommercial 

Educational Webcaster must make 

monthly payments of Usage Fees where 

required by § 380.22(b), and provide 

statements of account to accompany 

these payments, for each month on the 

45th day following the month in which 

the Eligible Transmissions subject to the 

Usage Fees and statements of account 

were made. All monthly payments shall 

be rounded to the nearest cent. 

(e) Late fees. A Noncommercial 

Educational Webcaster shall pay a late 

fee for each instance in which any 

payment, any statement of account or 

any report of use is not received by the 

Collective in compliance with the 

applicable regulations by the due date. 

The amount of the late fee shall be 1.5% 

of the late payment, or 1.5% of the 

payment associated with a late 

statement of account or report of use, 

per month, compounded monthly for 

the balance due, or the highest lawful 

rate, whichever is lower. The late fee 

shall accrue from the due date of the 

payment, statement of account or report 

of use until a fully compliant payment, 

statement of account or report of use (as 

applicable) is received by the Collective, 

provided that, in the case of a timely 

provided but noncompliant statement of 

account or report of use, the Collective 

has notified the Noncommercial 

Educational Webcaster within 90 days 

regarding any noncompliance that is 

reasonably evident to the Collective. 

(f) Statements of account. Any 

payment due under § 380.22 shall be 

accompanied by a corresponding 

statement of account. A statement of 

account shall contain the following 

information: 

(1) The name of the Noncommercial 

Educational Webcaster, exactly as it 

appears on the notice of use, and if the 

statement of account covers a single 

station only, the call letters or name of 

the station; 

(2) Such information as is necessary 

to calculate the accompanying royalty 

payment as prescribed in this subpart; 

(3) The name, address, business title, 

telephone number, facsimile number (if 

any), electronic mail address (if any) 

and other contact information of the 

person to be contacted for information 

or questions concerning the content of 

the statement of account; 

(4) The handwritten signature of an 

officer or another duly authorized 

faculty member or administrator of the 

applicable educational institution; 

(5) The printed or typewritten name 

of the person signing the statement of 

account; 

(6) The date of signature; 

(7) The title or official position held 

by the person signing the statement of 

account; 

(8) A certification of the capacity of 

the person signing; and 

(9) A statement to the following effect: 

I, the undersigned officer or other duly 

authorized faculty member or administrator 

of the applicable educational institution, 

have examined this statement of account and 

hereby state that it is true, accurate, and 

complete to my knowledge after reasonable 

due diligence. 

(g) Reporting by Noncommercial 

Educational Webcasters in general— 

(1) Reporting waiver. In light of the 

unique business and operational 

circumstances currently existing with 

respect to Noncommercial Educational 

Webcasters, and for the purposes of this 

subpart only, a Noncommercial 

Educational Webcaster that did not 

exceed 55,000 total ATH for any 

individual channel or station for more 

than one calendar month in the 

immediately preceding calendar year 

and that does not expect to exceed 

55,000 total ATH for any individual 

channel or station for any calendar 

month during the applicable calendar 

year may elect to pay to the Collective 

a nonrefundable, annual Proxy Fee of 

$100 in lieu of providing reports of use 

for the calendar year pursuant to the 

regulations at § 370.4 of this chapter. In 

addition, a Noncommercial Educational 

Webcaster that unexpectedly exceeded 

55,000 total ATH on one or more 

channels or stations for more than one 

month during the immediately 

preceding calendar year may elect to 

pay the Proxy Fee and receive the 

reporting waiver described in this 

paragraph (g)(1) during a calendar year, 

if it implements measures reasonably 

calculated to ensure that it will not 

make Eligible Transmissions exceeding 

55,000 total ATH during any month of 

that calendar year. The Proxy Fee is 

intended to defray the Collective’s costs 

associated with this reporting waiver, 

including development of proxy usage 

data. The Proxy Fee shall be paid by the 

date specified in paragraph (c) of this 

section for paying the Minimum Fee for 

the applicable calendar year and shall 

be accompanied by a certification on a 

form provided by the Collective, signed 

by an officer or another duly authorized 

faculty member or administrator of the 

applicable educational institution, 

stating that the Noncommercial 

Educational Webcaster is eligible for the 

Proxy Fee option because of its past and 

expected future usage and, if applicable, 

has implemented measures to ensure 

that it will not make excess Eligible 

Transmissions in the future. 

(2) Sample-basis reports. A 

Noncommercial Educational Webcaster 

that did not exceed 159,140 total ATH 

for any individual channel or station for 

more than one calendar month in the 

immediately preceding calendar year 

and that does not expect to exceed 

159,140 total ATH for any individual 

channel or station for any calendar 

month during the applicable calendar 

year may elect to provide reports of use 

on a sample basis (two weeks per 

calendar quarter) in accordance with the 

regulations at § 370.4 of this chapter, 

except that, notwithstanding 

§ 370.4(d)(2)(vi), such an electing 

Noncommercial Educational Webcaster 

shall not be required to include ATH or 

actual total performances and may in 

lieu thereof provide channel or station 

name and play frequency. 

Notwithstanding the foregoing, a 

Noncommercial Educational Webcaster 

that is able to report ATH or actual total 

performances is encouraged to do so. 

mstockstill on DSKH9S0YB1PROD with RULES2

Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 13057 

These reports of use shall be submitted 

to the Collective no later than January 

31st of the year immediately following 

the year to which they pertain. 

(3) Census-basis reports. If any of the 

following three conditions is satisfied, a 

Noncommercial Educational Webcaster 

must report pursuant to this paragraph 

(g)(3): 

(i) The Noncommercial Educational 

Webcaster exceeded 159,140 total ATH 

for any individual channel or station for 

more than one calendar month in the 

immediately preceding calendar year; 

(ii) The Noncommercial Educational 

Webcaster expects to exceed 159,140 

total ATH for any individual channel or 

station for any calendar month in the 

applicable calendar year; or 

(iii) The Noncommercial Educational 

Webcaster otherwise does not elect to be 

subject to paragraphs (g)(1) or (2) of this 

section. A Noncommercial Educational 

Webcaster required to report pursuant to 

this paragraph (g)(3) shall provide 

reports of use to the Collective quarterly 

on a census reporting basis (i.e., reports 

of use shall include every sound 

recording performed in the relevant 

quarter), containing information 

otherwise complying with applicable 

regulations (but no less information 

than required by § 370.4 of this chapter), 

except that, notwithstanding 

§ 370.4(d)(2)(vi), such a Noncommercial 

Educational Webcaster shall not be 

required to include ATH or actual total 

performances, and may in lieu thereof 

provide channel or station name and 

play frequency, during the first calendar 

year it reports in accordance with this 

paragraph (g)(3). For the avoidance of 

doubt, after a Noncommercial 

Educational Webcaster has been 

required to report in accordance with 

this paragraph (g)(3) for a full calendar 

year, it must thereafter include ATH or 

actual total performances in its reports 

of use. All reports of use under this 

paragraph (g)(3) shall be submitted to 

the Collective no later than the 45th day 

after the end of each calendar quarter. 

(h) Distribution of royalties. (1) The 

Collective shall promptly distribute 

royalties received from Noncommercial 

Educational Webcasters to Copyright 

Owners and Performers, or their 

designated agents, that are entitled to 

such royalties. The Collective shall only 

be responsible for making distributions 

to those Copyright Owners, Performers, 

or their designated agents who provide 

the Collective with such information as 

is necessary to identify and pay the 

correct recipient. The Collective shall 

distribute royalties on a basis that 

values all performances by a 

Noncommercial Educational Webcaster 

equally based upon the information 

provided under the report of use 

requirements for Noncommercial 

Educational Webcasters contained in 

§ 370.4 of this chapter and this subpart, 

except that in the case of 

Noncommercial Educational Webcasters 

that elect to pay a Proxy Fee in lieu of 

providing reports of use pursuant to 

paragraph (g)(1) of this section, the 

Collective shall distribute the aggregate 

royalties paid by electing 

Noncommercial Educational Webcasters 

based on proxy usage data in 

accordance with a methodology adopted 

by the Collective’s Board of Directors. 

(2) If the Collective is unable to locate 

a Copyright Owner or Performer entitled 

to a distribution of royalties under 

paragraph (h)(1) of this section within 3 

years from the date of payment by a 

Noncommercial Educational Webcaster, 

such distribution may first be applied to 

the costs directly attributable to the 

administration of that distribution. The 

foregoing shall apply notwithstanding 

the common law or statutes of any State. 

(i) Server logs. Noncommercial 

Educational Webcasters shall retain for 

a period of no less than three full 

calendar years server logs sufficient to 

substantiate all information relevant to 

eligibility, rate calculation and reporting 

under this subpart. To the extent that a 

third-party Web hosting or service 

provider maintains equipment or 

software for a Noncommercial 

Educational Webcaster and/or such 

third party creates, maintains, or can 

reasonably create such server logs, the 

Noncommercial Educational Webcaster 

shall direct that such server logs be 

created and maintained by said third 

party for a period of no less than three 

full calendar years and/or that such 

server logs be provided to, and 

maintained by, the Noncommercial 

Educational Webcaster. 

§ 380.24 Confidential Information. 

(a) Definition. For purposes of this 

subpart, ‘‘Confidential Information’’ 

shall include the statements of account 

and any information contained therein, 

including the amount of Usage Fees 

paid, and any information pertaining to 

the statements of account reasonably 

designated as confidential by the 

Noncommercial Educational Webcaster 

submitting the statement. 

(b) Exclusion. Confidential 

Information shall not include 

documents or information that at the 

time of delivery to the Collective are 

public knowledge. The party claiming 

the benefit of this provision shall have 

the burden of proving that the disclosed 

information was public knowledge. 

(c) Use of Confidential Information. In 

no event shall the Collective use any 

Confidential Information for any 

purpose other than royalty collection 

and distribution and activities related 

directly thereto. 

(d) Disclosure of Confidential 

Information. Access to Confidential 

Information shall be limited to: 

(1) Those employees, agents, 

attorneys, consultants and independent 

contractors of the Collective, subject to 

an appropriate confidentiality 

agreement, who are engaged in the 

collection and distribution of royalty 

payments hereunder and activities 

related thereto, for the purpose of 

performing such duties during the 

ordinary course of their work and who 

require access to Confidential 

Information; 

(2) An independent Qualified 

Auditor, subject to an appropriate 

confidentiality agreement, who is 

authorized to act on behalf of the 

Collective with respect to verification of 

a Noncommercial Educational 

Webcaster’s statement of account 

pursuant to § 380.25 or on behalf of a 

Copyright Owner or Performer with 

respect to the verification of royalty 

distributions pursuant to § 380.26; 

(3) Copyright Owners and Performers, 

including their designated agents, 

whose works have been used under the 

statutory licenses set forth in 17 U.S.C. 

112(e) and 114(f) by the Noncommercial 

Educational Webcaster whose 

Confidential Information is being 

supplied, subject to an appropriate 

confidentiality agreement, and 

including those employees, agents, 

attorneys, consultants and independent 

contractors of such Copyright Owners 

and Performers and their designated 

agents, subject to an appropriate 

confidentiality agreement, for the 

purpose of performing their duties 

during the ordinary course of their work 

and who require access to the 

Confidential Information; and 

(4) In connection with future 

proceedings under 17 U.S.C. 112(e) and 

114(f) before the Copyright Royalty 

Judges, and under an appropriate 

protective order, attorneys, consultants 

and other authorized agents of the 

parties to the proceedings or the courts. 

(e) Safeguarding of Confidential 

Information. The Collective and any 

person identified in paragraph (d) of 

this section shall implement procedures 

to safeguard against unauthorized access 

to or dissemination of any Confidential 

Information using a reasonable standard 

of care, but no less than the same degree 

of security used to protect Confidential 

Information or similarly sensitive 

information belonging to the Collective 

or person. 

mstockstill on DSKH9S0YB1PROD with RULES2

13058 Federal Register / Vol. 76, No. 46 / Wednesday, March 9, 2011 / Rules and Regulations 

§ 380.25 Verification of royalty payments. 

(a) General. This section prescribes 

procedures by which the Collective may 

verify the royalty payments made by a 

Noncommercial Educational Webcaster. 

(b) Frequency of verification. The 

Collective may conduct a single audit of 

a Noncommercial Educational 

Webcaster, upon reasonable notice and 

during reasonable business hours, 

during any given calendar year, for any 

or all of the prior 3 calendar years, but 

no calendar year shall be subject to 

audit more than once. 

(c) Notice of intent to audit. The 

Collective must file with the Copyright 

Royalty Board a notice of intent to audit 

a particular Noncommercial Educational 

Webcaster, which shall, within 30 days 

of the filing of the notice, publish in the 

Federal Register a notice announcing 

such filing. The notification of intent to 

audit shall be served at the same time 

on the Noncommercial Educational 

Webcaster to be audited. Any such audit 

shall be conducted by an independent 

Qualified Auditor identified in the 

notice and shall be binding on all 

parties. 

(d) Acquisition and retention of 

report. The Noncommercial Educational 

Webcaster shall use commercially 

reasonable efforts to obtain or to provide 

access to any relevant books and records 

maintained by third parties for the 

purpose of the audit. The Collective 

shall retain the report of the verification 

for a period of not less than 3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent Qualified Auditor, 

shall serve as an acceptable verification 

procedure for all parties with respect to 

the information that is within the scope 

of the audit. 

(f) Consultation. Before rendering a 

written report to the Collective, except 

where the auditor has a reasonable basis 

to suspect fraud and disclosure would, 

in the reasonable opinion of the auditor, 

prejudice the investigation of such 

suspected fraud, the auditor shall 

review the tentative written findings of 

the audit with the appropriate agent or 

employee of the Noncommercial 

Educational Webcaster being audited in 

order to remedy any factual errors and 

clarify any issues relating to the audit; 

Provided that an appropriate agent or 

employee of the Noncommercial 

Educational Webcaster reasonably 

cooperates with the auditor to remedy 

promptly any factual errors or clarify 

any issues raised by the audit. 

(g) Costs of the verification procedure. 

The Collective shall pay the cost of the 

verification procedure, unless it is 

finally determined that there was an 

underpayment of 10% or more, in 

which case the Noncommercial 

Educational Webcaster shall, in addition 

to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.26 Verification of royalty 

distributions. 

(a) General. This section prescribes 

procedures by which any Copyright 

Owner or Performer may verify the 

royalty distributions made by the 

Collective; Provided, however, that 

nothing contained in this section shall 

apply to situations where a Copyright 

Owner or Performer and the Collective 

have agreed as to proper verification 

methods. 

(b) Frequency of verification. A 

Copyright Owner or Performer may 

conduct a single audit of the Collective 

upon reasonable notice and during 

reasonable business hours, during any 

given calendar year, for any or all of the 

prior 3 calendar years, but no calendar 

year shall be subject to audit more than 

once. 

(c) Notice of intent to audit. A 

Copyright Owner or Performer must file 

with the Copyright Royalty Board a 

notice of intent to audit the Collective, 

which shall, within 30 days of the filing 

of the notice, publish in the Federal 

Register a notice announcing such 

filing. The notification of intent to audit 

shall be served at the same time on the 

Collective. Any audit shall be 

conducted by an independent Qualified 

Auditor identified in the notice, and 

shall be binding on all Copyright 

Owners and Performers. 

(d) Acquisition and retention of 

report. The Collective shall use 

commercially reasonable efforts to 

obtain or to provide access to any 

relevant books and records maintained 

by third parties for the purpose of the 

audit. The Copyright Owner or 

Performer requesting the verification 

procedure shall retain the report of the 

verification for a period of not less than 

3 years. 

(e) Acceptable verification procedure. 

An audit, including underlying 

paperwork, which was performed in the 

ordinary course of business according to 

generally accepted auditing standards 

by an independent Qualified Auditor, 

shall serve as an acceptable verification 

procedure for all parties with respect to 

the information that is within the scope 

of the audit. 

(f) Consultation. Before rendering a 

written report to a Copyright Owner or 

Performer, except where the auditor has 

a reasonable basis to suspect fraud and 

disclosure would, in the reasonable 

opinion of the auditor, prejudice the 

investigation of such suspected fraud, 

the auditor shall review the tentative 

written findings of the audit with the 

appropriate agent or employee of the 

Collective in order to remedy any 

factual errors and clarify any issues 

relating to the audit; Provided that the 

appropriate agent or employee of the 

Collective reasonably cooperates with 

the auditor to remedy promptly any 

factual errors or clarify any issues raised 

by the audit. 

(g) Costs of the verification procedure. 

The Copyright Owner or Performer 

requesting the verification procedure 

shall pay the cost of the procedure, 

unless it is finally determined that there 

was an underpayment of 10% or more, 

in which case the Collective shall, in 

addition to paying the amount of any 

underpayment, bear the reasonable costs 

of the verification procedure. 

§ 380.27 Unclaimed funds. 

If the Collective is unable to identify 

or locate a Copyright Owner or 

Performer who is entitled to receive a 

royalty distribution under this subpart, 

the Collective shall retain the required 

payment in a segregated trust account 

for a period of 3 years from the date of 

distribution. No claim to such 

distribution shall be valid after the 

expiration of the 3-year period. After 

expiration of this period, the Collective 

may apply the unclaimed funds to offset 

any costs deductible under 17 U.S.C. 

114(g)(3). The foregoing shall apply 

notwithstanding the common law or 

statutes of any State. 

Dated: January 5, 2011. 

James Scott Sledge, 

Chief U.S. Copyright Royalty Judge. 

Approved by: 

James H. Billington, 

Librarian of Congress. 

[FR Doc. 2011–4995 Filed 3–8–11; 8:45 am] 

BILLING CODE 1410–72–P 

mstockstill on DSKH9S0YB1PROD with RULES2