31842 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations 

INTFORMATION CONTACT section to 

coordinate protest activities so that your 

message can be received without 

jeopardizing the safety or security of 

people, places or vessels. 

7. Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act 

of 1995 (2 U.S.C. 1531–1538) requires 

Federal agencies to assess the effects of 

their discretionary regulatory actions. In 

particular, the Act addresses actions 

that may result in the expenditure by a 

State, local, or tribal government, in the 

aggregate, or by the private sector of 

$100,000,000 (adjusted for inflation) or 

more in any one year. Though this rule 

will not result in such an expenditure, 

we do discuss the effects of this rule 

elsewhere in this preamble. 

8. Taking of Private Property 

This rule will not cause a taking of 

private property or otherwise have 

taking implications under Executive 

Order 12630, Governmental Actions and 

Interference with Constitutionally 

Protected Property Rights. 

9. Civil Justice Reform 

This rule meets applicable standards 

in sections 3(a) and 3(b)(2) of Executive 

Order 12988, Civil Justice Reform, to 

minimize litigation, eliminate 

ambiguity, and reduce burden. 

10. Protection of Children 

We have analyzed this rule under 

Executive Order 13045, Protection of 

Children from Environmental Health 

Risks and Safety Risks. This rule is not 

an economically significant rule and 

does not create an environmental risk to 

health or risk to safety that may 

disproportionately affect children. 

11. Indian Tribal Governments 

This rule does not have tribal 

implications under Executive Order 

13175, Consultation and Coordination 

with Indian Tribal Governments, 

because it does not have a substantial 

direct effect on one or more Indian 

tribes, on the relationship between the 

Federal Government and Indian tribes, 

or on the distribution of power and 

responsibilities between the Federal 

Government and Indian tribes. 

12. Energy Effects 

This action is not a ‘‘significant 

energy action’’ under Executive Order 

13211, Actions Concerning Regulations 

That Significantly Affect Energy Supply, 

Distribution, or Use. 

13. Technical Standards 

This rule does not use technical 

standards. Therefore, we did not 

consider the use of voluntary consensus 

standards. 

14. Environment 

We have analyzed this rule under 

Department of Homeland Security 

Management Directive 023–01 and 

Commandant Instruction M16475.lD, 

which guide the Coast Guard in 

complying with the National 

Environmental Policy Act of 1969 

(NEPA) (42 U.S.C. 4321–4370f), and 

have determined that this action is one 

of a category of actions that do not 

individually or cumulatively have a 

significant effect on the human 

environment. This rule involves the 

establishment of a safety zone on the 

navigable waters of the Atlantic Ocean 

in Virginia Beach, VA in order to restrict 

vessel traffic movement to protect 

mariners from the hazards associated 

with air show events. This rule is 

categorically excluded from further 

review under paragraph 34(g) of Figure 

2–1 of the Commandant Instruction. An 

environmental analysis checklist 

supporting this determination and a 

Categorical Exclusion Determination 

will be available in the docket where 

indicated under ADDRESSES. 

List of Subjects in 33 CFR Part 165 

Harbors, Marine safety, Navigation 

(water), Reporting and recordkeeping 

requirements, Security measures, 

Waterways. 

For the reasons discussed in the 

preamble, the Coast Guard amends 33 

CFR part 165 as follows: 

PART 165—REGULATED NAVIGATION 

AREAS AND LIMITED ACCESS AREAS 

■ 1. The authority citation for part 165 

continues to read as follows: 

Authority: 33 U.S.C. 1231; 46 U.S.C. 

Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 

33 CFR 1.05–1, 6.04–1, 6.04–6 and 160.5; 

Pub. L. 107–295, 116 Stat. 2064; Department 

of Homeland Security Delegation No. 0170.1. 

■ 2. Add § 165.T05–0377 to read as 

follows: 

§ 165.T05–0377 Safety Zone; USO Patriotic 

Festival Air Show, Atlantic Ocean; Virginia 

Beach, VA. 

(a) Regulated Area. The following area 

is a safety zone: specified waters of the 

Captain of the Port Sector Hampton 

Roads zone, as defined in 33 CFR 3.25– 

10, in the vicinity of the Atlantic Ocean 

in Virginia Beach, VA bound by the 

following coordinates: 36°-49′-50′′ N/ 

075°-58′-02′′ W, 36°-51′-46′′ N/075°-58′- 

33′′ W, 36°-51′-53′′ N/075°-57′-57′′ W, 

36°-49′-57′′ N/075°-57′-26′′ W (NAD 

1983). 

(b) Definition. For the purposes of this 

part, Captain of the Port Representative 

means any U.S. Coast Guard 

commissioned, warrant or petty officer 

who has been authorized by the Captain 

of the Port, Hampton Roads, Virginia to 

act on his behalf. 

(c) Regulations. 

(1) In accordance with the general 

regulations in § 165.23 of this part, entry 

into this zone is prohibited unless 

authorized by the Captain of the Port, 

Hampton Roads or his designated 

representatives. 

(2) The operator of any vessel in the 

immediate vicinity of this safety zone 

shall: 

(i) Stop the vessel immediately upon 

being directed to do so by any 

commissioned, warrant or petty officer 

on shore or on board a vessel that is 

displaying a U.S. Coast Guard Ensign. 

(ii) Proceed as directed by any 

commissioned, warrant or petty officer 

on shore or on board a vessel that is 

displaying a U.S. Coast Guard Ensign. 

(3) The Captain of the Port, Hampton 

Roads can be reached through the Sector 

Duty Officer at Sector Hampton Roads 

in Portsmouth, Virginia at telephone 

Number (757) 668–5555. 

(4) The Coast Guard Representatives 

enforcing the safety zone can be 

contacted on VHF–FM marine band 

radio channel 13 (165.65Mhz) and 

channel 16 (156.8 Mhz). 

(d) Enforcement Period. This 

regulation will be enforced from May 

31, 2013, until June 2, 2013, between 

the hours of 12 p.m. and 3 p.m. each 

day. 

Dated: May 13, 2013. 

John K. Little, 

Captain, U.S. Coast Guard, Captain of the 

Port Hampton Roads. 

[FR Doc. 2013–12541 Filed 5–24–13; 8:45 am] 

BILLING CODE 9110–04–P 

LIBRARY OF CONGRESS 

Copyright Royalty Board 

37 CFR Part 382 

[Docket No. 2011–1 CRB PSS/Satellite II] 

Determination of Rates and Terms for 

Preexisting Subscription Services and 

Satellite Digital Audio Radio Services 

AGENCY: Copyright Royalty Board, 

Library of Congress. 

ACTION: Final determination; 

modification. 

SUMMARY: The Copyright Royalty Judges 

announce a modification to their final 

determination of rates and terms for the 


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Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations 31843 

1The Final Determination was not a unanimous 

decision. Judge William Roberts issued a dissenting 

opinion on the same date; his dissent was 

published with the Final Determination. See 78 FR 

23075–96 (Apr. 17. 2013). References to the 

‘‘Judges’’ in this Amendment are references to the 

Judges issuing the majority determination. 

2The Judges believe their interpretation of 

Section 803(c)(4) is not only consistent with the 

flexibility that Congress intended to grant the 

Judges to correct their own determinations, but also 

consistent with the Register of Copyright’s 

application of the term ‘‘technical amendment’’ in 

the copyright royalty context. See 61 FR 63715 

(Dec. 2, 1996) (in which the Library adopted a broad 

range of ‘‘non-substantive technical amendments’’ 

to address ‘‘identified problems’’ in the regulations 

governing CARP proceedings). 

3 [As discussed below, the Judges conclude that 

the second Section 801(b) factor (afford the 

copyright owner a fair return for his or her creative 

work and the copyright user a fair income under 

existing economic conditions) warrants a 1 percent 

upward adjustment (to 8.5% phased in from 8.0% 

in 2013 to 8.5% for 2014 through 2017) from the 

current statutory rate of 7.5%. In her April 9, 2013, 

decision, the Register of Copyrights found that the 

Judges erred by not considering the 8.0% and 8.5% 

rates under the Section 801(b) factors. After 

carefully reviewing the evidence, the Judges 

conclude that none of the Section 801(b) factors 

warrants an adjustment, either upward or 

downward, from the 8.5% rate that the Judges 

selected for the PSS for 2014 through 2017, or for 

the 8.0% rate that the Judges selected for 2013.] 

digital transmission of sound recordings 

and the reproduction of ephemeral 

recordings by preexisting subscription 

services and preexisting satellite digital 

audio radio services for the period 

beginning January 1, 2013, and ending 

on December 31, 2017. The modification 

addresses an error identified by the 

Register of Copyrights concerning the 

resolution of a material question of 

substantive law relating to the rates and 

terms set for preexisting subscription 

services. 

FOR FURTHER INFORMATION CONTACT: Gina 

Giuffreda, Attorney Advisor. Telephone: 

(202) 707–7658. Telefax: (202) 252– 

3423. 

SUPPLEMENTARY INFORMATION: The 

Copyright Royalty Judges (‘‘Judges’’) 

issued a Final Determination in the 

captioned proceeding on February 14, 

2013. The Librarian of Congress 

published the Final Determination on 

April 17, 2013, as required by 17 U.S.C. 

803(c)(6).1 See 78 FR 23054. The 

Register of Copyrights (‘‘Register’’) may 

review any determination by the Judges 

for legal error in resolution of a material 

issue of substantive law under the 

Copyright Act (‘‘Act’’) found in title 17, 

United States Code. 17 U.S.C. 

802(f)(1)(D). If the Register finds such 

legal error, her decision identifying and 

correcting the error is published in the 

Federal Register, along with the Final 

Determination. Although the Register’s 

decision does not change the rates and 

terms set in the Final Determination, her 

opinion is binding on the Judges 

prospectively. Section 803(c)(4) of the 

Copyright Act authorizes the Judges to 

issue amendments to a written 

determination to correct any technical 

or clerical errors in the determination or 

to modify the terms, but not the rates, 

of royalty payments in response to 

unforeseen circumstances that would 

frustrate the proper implementation of 

such determination. 

In the Final Determination, the Judges 

found that the current statutory rate of 

7.5% of Gross Revenues for Pre-existing 

Subscription Services (‘‘PSS’’) was the 

appropriate rate upon which to consider 

whether a policy adjustment was 

warranted under the factors set forth in 

Section 801(b) of the Copyright Act. In 

applying those factors as required by the 

statute, the Judges determined that, 

under the second of those factors (afford 

the copyright owner a fair return for his 

or her creative work and the copyright 

user a fair income under existing 

economic conditions) a 1 percent 

upward adjustment (phased in over the 

first two years of the rate period) from 

the current rate was warranted. The 

Register found that it was legal error for 

the Judges not to then apply (or reapply 

as the case may be) the Section 801(b) 

factors with respect to those adjusted 

rates. See 78 FR 22913 (Apr. 17, 2013). 

After careful consideration, the Judges 

find that such a supplemental review of 

the application of the Section 801(b) 

factors is technical in nature and is 

therefore amenable to correction 

pursuant to the Judges’ authority under 

Section 803(c)(4) of the Copyright Act. 

In this Amendment, the Judges do not 

revisit any of the analysis in the 

Determination relating to the base rate; 

rather, they articulate the outcome of 

application of the Section 801(b) factors 

to the prospective rates—an application 

cited by the Register of Copyrights as 

missing in the Determination.2

The Judges, therefore, issue this 

Technical Amendment to the Final 

Determination. The Amendment is 

confined to Section V.A.3.c.1. of the 

Final Determination. All other portions 

of the Final Determination, including 

the rates and terms, are unchanged. The 

amended text, which is bracketed, 

appears below. 

1. Application of Section 801(b) Factors 

Based on the record evidence in this 

proceeding, the Judges have determined 

that the benchmark evidence submitted 

by Music Choice and SoundExchange 

has failed to provide the means for 

determining a reasonable rate for the 

PSS, other than, perhaps to indicate the 

extreme ends of the range of reasonable 

rates. The testimony and argument of 

Music Choice demonstrates nothing 

more than to show that a reasonable rate 

cannot be as low as the rates (i.e., 

[REDACTED] of Music Choice’s 

revenues) paid by Music Choice to the 

three performing rights societies for the 

public performance of musical works. 

The benchmark testimony of 

SoundExchange is of even lesser value. 

The proposed rate of 15% for the PSS 

for the first year of the licensing period, 

deemed reasonable by Dr. Ford (at least 

in the beginning of the licensing 

period), stands as the upper bound of 

the range of reasonable rates. Within 

that range is the current 7.5% rate. On 

the record before us, the Judges are 

persuaded that the current rate is 

neither too high, too low, nor otherwise 

inappropriate, subject to consideration 

of the Section 801(b) factors discussed 

below.3

a. Maximize Availability of Creative 

Works 

To argue for an adjustment in its favor 

under the first Section 801(b) factor, 

Music Choice touts that it is a music 

service that is available in over 54 

million homes, with 40 million 

customers using the service every 

month. 8/16/12 Tr. 3878:3 (Del 

Beccaro); 6/11/12 Tr. 1462:5–11, 

1486:19–1487:2 (Del Beccaro). 

According to Music Choice, channel 

offerings have increased through the 

years, and they are curated by experts in 

a variety of music genres. Del Beccaro 

Corrected WDT at 3, 24, PSS Trial Ex. 

1. Music Choice also highlights recent 

developments in technology that enable 

Music Choice to display original onscreen content identifying pertinent 

information regarding the songs and 

artists being performed. Id. at 24, MC 

23; Williams WDT at 12, PSS Trial Ex. 

3; 6/11/12 Tr. 1461:14–1462: 1, 1491:2– 

12 (Del Beccaro). According to Music 

Choice, these elements, along with 

certain promotional efforts that Music 

Choice makes on behalf of artists, 

support a downward adjustment in the 

rates. In any event, an upward 

adjustment in the rates, argues Music 

Choice, would not affect the record 

companies’ bottom-line because PSS 

royalties are not a material revenue 

source for record companies. Music 

Choice PFF ¶¶ 409–417. 

SoundExchange submits that a market 

rate incorporates considerations under 

the first Section 801(b) factor, citing the 

decision in SDARS–I, and that if PSS 

rates turn out to be too high and drive 

Music Choice from the market, 

presumably consumers will shift to 

alternative providers of digital music 


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31844 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations 

4Much was made in the hearing and in closing 

arguments regarding Dr. Crawford’s supposed use of 

audited financial data and Dr. Ford’s use of 

unaudited financial data in an effort to examine 

costs and revenues of the PSS service vis-a`-vis 

Music Choice’s other non-PSS services. The Judges 

see no superiority to either data set as presented in 

this proceeding. 

5 It is improbable that Music Choice would 

continue to operate for over 15 years with the 

considerable losses that it claims. [It is equally 

improbable that Music Choice would elect to incur 

the additional costs of adding more music channels 

unless it anticipated some additional revenue from 

the expanded service.] 

where higher royalty payments are more 

likely for record companies. Ford 

Second Corrected WDT at 19–21, SX 

Trial Ex. 79. 

The current PSS rate is not a market 

rate, so market forces cannot be 

presumed to determine the maximum 

amount of product availability 

consistent with the efficient use of 

resources. See SDARS–I, 73 FR 4094. 

However, the testimony demonstrates 

that Music Choice has not, under the 

current rate, reduced its music offerings 

or contemplated exiting the business; in 

fact, it will be expanding its channel 

offerings in the near term. Del Becarro 

Corrected WDT at 3, 24, PSS Trial Ex. 

1; see also 6/11/12 Tr. 1460:21–1461:1 

(Del Beccaro). The Judges find no 

credible evidence in the record to 

suggest that the output of music from 

record labels has been impacted 

negatively as a result of the current rate. 

The record shows no persuasive 

evidence that a higher PSS royalty rate 

would necessarily result in increased 

output of music by the record 

companies, nor that a lower rate would 

necessarily further stimulate Music 

Choice’s current and planned offerings. 

In sum, the policy goal of maximizing 

creative works to the public is 

reasonably reflected in the current rate 

and, therefore, no adjustment is 

necessary. 

[Similarly, the Judges’ conclusion 

with respect to the first Section 801(b) 

factor is unchanged even when weighed 

against the modest increases to 8.0% for 

2013 and to 8.5% for 2014 through 2017 

that the Judges adopt for the upcoming 

rate period. Given the Judges’ 

determination on other grounds to 

increase the rate by only one percentage 

point above the current statutory rate 

(phased in over the first two years of the 

rate period), the Judges find that that 

minimal increase will not adversely 

affect Music Choice’s planned 

expansion nor will it provide a material 

incentive to artists and record 

companies sufficient to impact the 

availability of creative works to the 

public. In sum, the modest increase 

ordered by the Judges is in concert with 

the policy objective of maximizing the 

availability of creative works to the 

public. No adjustment, either upward or 

downward, is warranted by this factor.] 

b. Afford Fair Return/Fair Income Under 

Existing Market Conditions 

Music Choice submits that the Judges 

need not worry about the impact of a 

low royalty rate on the fair return to 

record companies and artists for use of 

their works because royalties from the 

PSS market are so small as to be 

virtually inconsequential to companies 

whose principal business is the sale of 

CDs and digital downloads. Music 

Choice PFF ¶¶ 420–430. With respect to 

Music Choice’s ability to earn a fair 

income, however, Music Choice argues 

that it is not profitable under the current 

7.5% rate. Mr. Del Beccaro testified that 

its average revenue per customer for its 

residential audio business has been on 

the decline since the early 1990’s, down 

from $1.00 per customer/per month to 

[REDACTED] per customer/per month 

currently. Del Beccaro Corrected WDT 

at 40, PSS Trial Ex. 1. He further 

testified that after 15 years of paying a 

PSS statutory rate between 6.5% and 

7.5% Music Choice has not become 

profitable on a cumulative basis and is 

not projected to become so within the 

foreseeable future. Id. at 42. Music 

Choice represents that it has a 

cumulative loss at the end of 2011 of 

[REDACTED], projected to grow to 

[REDACTED] in 2012 and continue to 

increase throughout the 2013–17 license 

period. Del Beccaro Corrected WRT at 

MC 69 at 1 and MC 70 at 1, PSS Trial 

Ex. 21. These losses lead Music Choice 

to conclude that it has not generated a 

reasonable return on capital under the 

existing rates. Music Choice PFF ¶¶ 

442–43. 

Music Choice’s claims of 

unprofitability under the existing PSS 

rate come from the oblique presentation 

of its financial data and a combining of 

revenues and expenses from other 

aspects of its business. The appropriate 

business to analyze for purposes of this 

proceeding is the residential audio 

service offered by Music Choice, the 

subject of the Section 114 license. Music 

Choice, however, reports costs and 

revenues for its residential audio 

business with those of its commercial 

business, which is not subject to the 

statutory license. This aggregation of the 

data, which Music Choice acknowledges 

cannot be disaggregated, see 6/11/12 Tr. 

1572:3–1576:2 (Del Beccaro), masks the 

financial performance of the PSS 

business. As a consolidated business, 

Music Choice has had significantly 

positive operating income between 2007 

and 2011 and made profit distributions 

to its partners since 2009. Ford 

Amended/Corrected WRT at SX Ex. 

362–RR, p. 3 (PSS_002739), SX Trial Ex. 

244; SX Trial Ex. 64 at 3 (PSS_002715); 

SX Trial Ex. 233 at 3 (PSS_366020). Dr. 

Crawford’s effort to extract costs and 

revenues from this data for the PSS 

service alone for use in his surplus 

analysis cannot be credited because of 

his lack of familiarity with the data’s 

source. 6/13/12 Tr. 1890:15–1891:10 

(Crawford).4 The Judges find no 

persuasive evidence to suggest that 

Music Choice has not operated 

successfully and received a fair income 

under the existing statutory rate, [nor 

any to suggest that Music Choice would 

not continue to do so under a rate that 

was modestly above the current rate 

(i.e., the 8.0% (2013) and 8.5% (2014– 

2017) rates that the Judges adopt for the 

upcoming rate period)].5

With respect to fair return to the 

copyright owner, the Judges’ 

examination is whether the existing 

statutory rate has produced a fair return 

with respect to the usage of sound 

recordings. During the current licensing 

period, Music Choice provided 46 

channels of music programming. Music 

Choice plans to expand the number of 

music channels it provides dramatically 

in the coming licensing term, however, 

up to 300 channels by the first quarter 

of 2013. Del Beccaro Corrected WDT at 

3–4, PSS Trial Ex. 1; 6/11/12 Tr. 

1490:8–16 (Del Beccaro). This 

expansion will result in a substantial 

increase in the number of plays of music 

by Music Choice, even if the ultimate 

listenership intensity of its licensees’ 

subscribers cannot be measured. Music 

Choice provided no evidence, however, 

to suggest that the planned expansion in 

usage would result in increased 

revenues to which the statutory royalty 

rate is to be applied. Indeed, Music 

Choice has declared itself to be in a 

mature market with no expectation of 

increasing profits. 8/16/12 Tr. 3855:17– 

3856:7 (Del Beccaro). 

Music Choice presented no evidence 

to suggest that copyright owners would 

be compensated for the increased usage 

of their works. Dramatically expanded 

usage without a corresponding 

expectation of increased compensation 

suggests an upward adjustment to the 

existing statutory rate is warranted. 

Measurement of the adjustment is not 

without difficulty because any 

downstream increases in listenership of 

subscribers as a result of additional 

music offerings by Music Choice cannot 

be readily predicted. It is possible that 

listenership overall may remain 


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Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations 31845 

constant despite the availability of 

several additional music channels. It is 

more likely, however, that Music Choice 

would not make the expansion, and 

incur the additional expense of doing 

so, without reasonable expectation that 

subscribers or advertisers would be 

more attracted to the expanded 

offerings, although the Judges have no 

evidence to suggest that the net increase 

in listenership (or advertising revenue) 

would be anything more than modest. 

SoundExchange refers to prior rate 

decisions and the application of the fair 

return/fair income factor by the Judges 

and their predecessors. SoundExchange 

asserts that the Judges are looking for a 

fair return/fair income result that is 

consistent with reasonable market 

incomes. SX PFF at ¶ 491, citing 

SDARS–1, 73 FR 4080, 4095 (Jan. 24, 

2008). Referring to testimony by Messrs. 

Ciongoli and Van Arman, 

SoundExchange emphasizes how vital 

statutory royalty income is to copyright 

owners—both the record labels and the 

artists, whose share SoundExchange 

distributes directly. See 6/13/12 Tr. 

2138:5–2142:9 (Ciongoli), Van Arman 

WDT at 4, SX Trial Ex. 77. Although the 

income from any one statutory license 

may not be great, SoundExchange cites 

the aggregate value of income from all 

of the statutory licenses as vital to the 

industry. With respect to fair income to 

the rights user, SoundExchange points 

to the profit on the consolidated 

financial statements of Music Choice 

over the past five years, 2007–2011. 

The balance of fair return and fair 

income appears to have been 

maintained at the current PSS rates. 

This factor does not argue in favor of 

drastic cuts or increases in the current 

rate. Music Choice’s planned increase in 

usage, however, argues in favor of an 

increase in the rates going forward to 

fairly compensate the licensors for the 

additional performances. 

The Judges determine, therefore, that 

a 1% upward adjustment of the 

benchmark (from 7.5% to 8.5% of Gross 

Revenues), phased in during the early 

part of the licensing period, is 

appropriate to serve the policy of fair 

return/fair income. [Because the 

increase is modest and phased in over 

the first two years of the rate period, the 

Judges do not believe that the adjusted 

rates will negatively impact Music 

Choice’s ability to earn a fair income.] 

c. Weigh the Relative Roles of Copyright 

Owners and Copyright Users 

This policy factor requires that the 

rates the Judges adopt reflect the relative 

roles of the copyright owners and 

copyright users in the product made 

available with respect to relative 

creative contribution, technological 

contribution, capital investment, cost, 

risk, and contribution to the opening of 

markets for creative expression and 

media for their communication. Music 

Choice argues that its creative and 

technological contributions, and capital 

investments, outweigh those of the 

record companies. First, Music Choice 

touts the graphic and informational 

improvements made to its on-screen 

channels, noting that what were once 

blank screens now display significant 

artist and music information. According 

to Music Choice, costs for these 

improvements have exceeded 

[REDACTED]. Del Beccaro Corrected 

WDT at 31–32, PSS Trial Ex. 1. Second, 

Music Choice offers increases in 

programming, staff size and facilities, 

along with enhancements to product 

development and infrastructure. Music 

Choice estimates that costs for these 

improvements have exceeded 

[REDACTED]. Id. Regarding costs and 

risks, Music Choice points to its lack of 

profitability and the exit of other PSS 

from the market as evidence of its 

continued risk and limited opportunity 

for profit. Music Choice PFF ¶¶ 512– 

520. Finally, with respect to opening 

new markets, Music Choice touts the 

PSS market itself for which it remains 

the standard-bearer in disseminating 

music to the public through cable 

television. Id. at ¶ 523. 

SoundExchange offers little more on 

the third Section 801(b) factor beyond 

Dr. Ford’s contention that he saw no 

evidence to support that Music Choice 

makes contributions to creativity or 

availability of music that are beyond 

those of the music services he included 

in his benchmarks, and therefore, 

according to Dr. Ford, the third factor is 

accounted for in the market. Ford 

Second Corrected WDT at 21, SX Trial 

Ex. 79; 6/18/12 Tr. 2849:10–16 (Ford). 

In considering the third factor, the 

Judges’ task is not to determine who 

individually bears the greater risk, 

incurs the higher cost or makes a greater 

contribution in the PSS market, and 

then make individual up or down 

adjustments to the selected rate based 

upon some unspecified quantification. 

Rather, the consideration is whether 

these elements, taken as a whole, 

require adjustment to the Judges’ 

selected benchmark rate of 7.5% [(or to 

the modestly increased rates of 8.0% 

and 8.5% that the Judges found 

warranted under the second Section 801 

factor discussed above)]. Upon careful 

weighing of the evidence, the Judges 

determine that no adjustment is 

necessary [under the current statutory 

rate or under the modestly increased 

rates that the Judges have selected for 

the upcoming rate period]. 

Music Choice’s investments in 

programming offerings, staff, and 

facilities, and other related products and 

services are no doubt impressive, but 

they have been accomplished under the 

current rate. As discussed above, Music 

Choice has already begun to expand its 

channel offerings and has allocated 

greater financial resources to its 

residential audio business. All of these 

undertakings, plus the investments 

made and costs incurred to date have 

been made under the existing rate, and 

the Judges have no persuasive evidence 

to suggest that these contributions have 

not been accounted for in the current 

rate. [Moreover, the Judges find no 

evidence to suggest that the modest 

increase to 8.5% (phased in over the 

first two years of the rate period) that 

the Judges adopt will negatively impact 

Music Choice’s continued operations in 

a material way.] 

On the other side of the ledger, 

SoundExchange has not offered any 

persuasive evidence that the existing 

rate has prevented the music industry 

from making significant contributions to 

or investments in the PSS market or that 

those contributions are not already 

accounted for in the current rate. [The 

modest increases that the Judges adopt 

would make any such argument even 

less persuasive.] Therefore, no 

adjustment[, either upward or 

downward, from the 8.0% and 8.5% 

rates that the Judges adopt] is warranted 

under this factor. 

d. Minimize Disruptive Impact 

Of the four Section 801(b) factors, the 

parties devoted most of their attention 

to the last one: minimizing disruption 

on the structure of the industries and on 

generally prevailing industry practices. 

This is perhaps not surprising, given the 

role this factor played in SDARS–I in 

adjusting the benchmark rates upon 

which the Judges relied to set the 

royalty fees. See SDARS–I, 73 FR at 

4097–98. [The Judges’ analysis of the 

disruption factor is confined to the 

current statutory rate of 7.5% and to the 

phased-in rate of 8.5% (including the 

8.0% rate for the first year of the rate 

period) that the Judges found warranted 

under the second Section 801(b) factor, 

discussed above.] 

SoundExchange argues that the 

current rate is disruptive to the music 

industry. Dr. Ford testified that ‘‘the 

current practice of applying an 

exceedingly low rate to deflated 

revenues is disruptive of industry 

structure, especially where there are 

identical services already paying a 

higher rate.’’ Ford Second Corrected 


wreier-aviles on DSK5TPTVN1PROD with RULES
31846 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations 

6The first alteration in the reasoning supporting 

the majority’s determination of royalty rates 

occurred in its denial of the motions for rehearing 

filed by SoundExchange, Inc. and Sirius XM. See 

Order Denying Motions for Rehearing, Docket No. 

2011–1 CRB PSS/Satellite II (Jan. 30, 2013). 

7The majority provides no discussion or analysis 

of this criterion. 

WDT at 23, SX Trial Ex. 79. This results, 

according to Dr. Ford, in a tilting of the 

competitive field for music services in 

favor of Music Choice, thereby 

disrupting the natural evolution of the 

music delivery industry. Dr. Ford, 

however, concedes that the PSS market 

has unique and distinctive features that 

distinguish it from other types of music 

services, thereby substantially reducing 

the likelihood that the PSS and other 

music services would be viewed as 

substitutes for one another. Further, Dr. 

Ford failed to present any empirical 

evidence demonstrating a likelihood of 

migration of customers from music 

services paying higher royalty fees to 

the PSS as a result of his perceived 

royalty imbalance. Dr. Ford’s conclusion 

that the current rate paid by the PSS for 

the Section 114 license has caused a 

disruption to the music industry (or 

would likely do so in the upcoming 

license period) is mere conjecture. 

Music Choice also contends that the 

current rate is disruptive. The Judges 

find its argument weak and 

unsubstantiated. The test for 

determining disruption to an industry, 

announced by the Judges in SDARS–I, is 

whether the selected rate directly 

produces an adverse impact that is 

substantial, immediate, and irreversible 

in the short-run. SDARS–I, 73 FR 4097. 

The current rate has been in place for 

some time and, despite Music Choice’s 

protestations that it has never been 

profitable, it continues to operate and 

continues to increase its expenditures 

by expanding and enhancing its services 

in the face of the supposedly disruptive 

current royalty rate. Music Choice’s 

argument that DMX’s bankruptcy and 

Muzak’s decision to limit its 

participation in the PSS market are 

evidence of the onerous burden of the 

current rate are without support. Music 

Choice has failed to put forward any 

evidence demonstrating a causal 

relationship between the actions of 

those services and the current PSS 

royalty rate. In sum, the Judges are not 

persuaded by the record testimony or 

the arguments of the parties that the 

current PSS rate is disruptive to a 

degree that would warrant an 

adjustment, either up or down. 

[The modest, phased-in increase to 

8.5% that the Judges adopt does nothing 

to change this conclusion. Neither 

SoundExchange nor Music Choice 

presented any credible evidence to 

suggest that the adjusted rates of 8.0% 

and 8.5% that the Judges adopt would 

directly produce an adverse impact that 

is substantial, immediate, and 

irreversible in the short-run. Therefore, 

the Judges find that no adjustment to the 

adopted rates is warranted under the 

fourth Section 801(b) factor.] 

So ordered. 

Suzanne M. Barnett, 

Chief Copyright Royalty Judge. 

Richard C. Strasser, 

Copyright Royalty Judge. 

Dated: April 30, 2013. 

Dissenting Opinion of Copyright 

Royalty Judge Roberts 

For the second time in this 

proceeding, the majority alters its 

evaluation of the evidence and 

explanation of its reasoning in 

determining royalty rates,6 this time 

under the rubric of 17 U.S.C. 803(c)(4). 

The majority’s amendments do not 

comply with the terms and conditions 

of that section; and no other provision 

in the statute grants authority, at this 

stage of the proceeding, for making 

them. 

Section 803(c)(4) of the Copyright Act, 

17 U.S.C., entitled ‘‘Continuing 

Jurisdiction,’’ states that ‘‘The Copyright 

Royalty Judges may issue an 

amendment to a written determination 

to correct any technical or clerical errors 

in the determination or to modify the 

terms, but not the rates, of royalty 

payments in response to unforeseen 

circumstances that would frustrate the 

proper implementation of such 

determination.’’ This provision and 

Section 803(c)(2), regarding motions for 

rehearing, are the only grants of 

authority for altering or amending 

written determinations. The language of 

Section 803(c)(4) is very precise. 

Amendments can be made to a 

determination only if (1) they are 

‘‘technical’’ or ‘‘clerical’’; and (2) they 

are in response to unforeseen 

circumstances that would frustrate the 

proper implementation of such 

determination. The majority’s issuance 

of amendments here fails on both 

accounts. First, the amendments are in 

no way ‘‘technical’’ or ‘‘clerical.’’ The 

majority reconsiders both its evidentiary 

and legal analysis of the Section 801(b) 

factors as applied to the preexisting 

subscription services (‘‘PSS’’) in light of 

the Register of Copyrights’ finding of 

legal error in the majority’s analysis. 

Review of Copyright Royalty Judges 

Determination, Notice, 78 FR 22913 

(Apr. 17, 2013). Recasting evidentiary 

and legal analysis is by no means 

‘‘technical’’ or ‘‘clerical,’’ and I can find 

nothing in either the plain language of 

Section 804(c)(4) or its legislative 

history that supports such a 

classification. 

Furthermore, even if the majority is 

accurate in its conclusion that the 

amendments to the written 

determination are ‘‘technical,’’ the 

amendments do not satisfy the second 

criterion of Section 803(c)(4), which is 

that they can be made only if the 

‘‘proper implementation of such 

determination’’ would be frustrated 

without them.7 The majority’s 

amendments are not at all necessary to 

the implementation of PSS rates, for 

they do not change them (which Section 

804(c)(4) expressly forbids) nor do they 

alter, correct, or clarify any of the terms 

or conditions of payment or reporting. 

What the amendments do seek to 

accomplish is to bolster the legal 

rationale behind the choice of the rates, 

presumably to raise the chances of 

success of the determination on appeal. 

This is not a permitted or intended 

purpose for making amendments under 

Section 803(c)(4), and the majority is 

without authority to make them. I, 

therefore, dissent. 

Dated: April 30, 2013 

William J. Roberts, Jr., 

Copyright Royalty Judge. 

Dated: April 30, 2013 

Suzanne M. Barnett, 

Chief Copyright Royalty Judge. 

Approved by: 

James H. Billington, 

Librarian of Congress. 

[FR Doc. 2013–12493 Filed 5–24–13; 8:45 am] 

BILLING CODE 1410–72–P 


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