24084 Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 

LIBRARY OF CONGRESS 

Copyright Royalty Board 

37 CFR Part 380 

[Docket No. 2005–1 CRB DTRA] 

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, on behalf of the Copyright 

Royalty Board of the Library of 

Congress, 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, 2006, and ending on 

December 31, 2010. 

DATES: Effective date: May 1, 2007. 

Applicability date: The regulations 

apply to the license period January 1, 

2006 through December 31, 2010. 

ADDRESSES: The final determination is 

also posted on the Copyright Royalty 

Board Web site at http://www.loc.gov/ 

crb/proceedings/2005-1/final-ratesterms2005-1.pdf. 

FOR FURTHER INFORMATION CONTACT: 

Richard Strasser, Senior Attorney, or 

Gina Giuffreda, Attorney Advisor. 

Telephone: (202) 707–7658. Telefax: 

(202) 252–3423. 

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 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 a 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 70 FR 7970 (February 16, 

2005). The rates and terms set in this 

proceeding apply to the period of 

January 1, 2006 through December 31, 

2010. 17 U.S.C. 804(b)(3)(A). 

B. Parties to the Proceeding 

The parties to this proceeding are: (i) 

Digital Media Association and certain of 

its member companies that participated 

in this proceeding, namely: America 

Online, Inc. (‘‘AOL’’), Yahoo!, Inc. 

(‘‘Yahoo!’’), Microsoft, Inc. 

(‘‘Microsoft’’), and Live365, Inc. 

(‘‘Live365’’) (collectively referred to as 

‘‘DiMA’’); (ii) ‘‘Radio Broadcasters’’ (this 

designation was adopted by the parties): 

namely, Bonneville International Corp., 

Clear Channel Communications, Inc., 

National Religious Broadcasters Music 

License Committee (‘‘NRBMLC’’), 

Susquehanna Radio Corp.; (iii) SBR 

Creative Media, Inc. (‘‘SBR’’) and the 

‘‘Small Commercial Webcasters’’ (this 

designation was adopted by the parties): 

namely, AccuRadio, LLC, Digitally 

Imported, Inc., Radioio.com LLC, 

Discombobulated, LLC, 3WK, LLC, 

Radio Paradise, Inc.; (iv) National Public 

Radio, Inc. (‘‘NPR’’), Corporation for 

Public Broadcasting-Qualified Stations 

(‘‘CPB’’), National Religious 

Broadcasters Noncommercial Music 

License Committee (‘‘NRBNMLC’’), 

Collegiate Broadcasters, Inc. (‘‘CBI’’), 

Intercollegiate Broadcasting System, 

Inc., (‘‘IBS’’), and Harvard Radio 

Broadcasting, Inc. (‘‘WHRB’’); (v) 

Royalty Logic, Inc. (‘‘RLI’’); and (vi) 

SoundExchange, Inc. 

(‘‘SoundExchange’’). 

DiMA, Radio Broadcasters, Small 

Commercial Webcasters, SBR, NPR, 

CPB, NRBNMLC, CBI, IBS and WHRB 

are sometimes referred to collectively as 

‘‘the Services.’’ The Services are Internet 

webcasters or broadcast radio 

simulcasters that each employ a 

technology known as streaming, but 

comprise a range of different business 

models and music programming. DiMA 

and certain of its member companies 

that participated in the proceeding 

(namely: AOL, Yahoo!, Microsoft and 

Live365), Radio Broadcasters, SBR and 

Small Commercial Webcasters are 

sometimes referred to collectively as 

‘‘Commercial Webcasters.’’ NPR, CPB, 

NRBNMLC, CBI, IBS and WHRB are 

sometimes referred to collectively as 

‘‘Noncommercial Webcasters.’’ 

II. The Proceedings 

A. Pre-Hearing Proceedings 

A notice calling for the filing of 

Petitions to Participate in this 

proceeding to set the rates and terms for 

the period beginning January 1, 2006, 

and ending on December 31, 2010, was 

published February 16, 2005. 70 FR 

7970. The Petitions were due by March 

18, 2005. Forty-two petitions were filed. 

Following an order to file a Notice of 

Intention to Submit Written Direct 

Statements, the participants were 

reduced to the following twenty eight: 

SBR; NPR; NPR Member Stations; CPB; 

CBI; SoundExchange; RLI; IBS; WHRB; 

Digital Media Association; AOL; 

Live365; Microsoft; Yahoo!; AccuRadio 

LLC; Discombobulated LLC; Digitally 

Imported, Inc.; Radioio.com LLC; Radio 

Paradise, Inc.; Educational Media 

Foundation; NRBNMLC; Bonneville 

International Corp.; Clear Channel 

Communications, Inc.; CBS Radio, Inc.; 

NRBMLC; Salem Communications 

Corp.; Susquehanna Radio Corp.; and 

Beethoven.com LLC. 

Following an unsuccessful 

negotiation period, the Written Direct 

Statements were due October 31, 2005. 

All of the above filed plus the additional 

following: Mvyradio.com LLC; 3WK; 

XM Satellite Radio, Inc.; Sirius Satellite, 

Inc.; Infinity Broadcasting Corp. 

B. The Direct Cases 

The participants conducted discovery 

and then began live testimony. By the 

time testimony began, the participants 

reduced to the following: SBR; NPR; 

NPR Member Stations; CPB; CBI; 

SoundExchange; RLI; IBS; WHRB; 

Digital Media Association; AOL; 

Yahoo!; AccuRadio LLC; 

Discombobulated LLC; Digitally 

Imported, Inc.; Mvyradio.com LLC; 

Radioio.com LLC; Radio Paradise, Inc.; 

3WK LLC; Educational Media 

Foundation; NRBNMLC; Bonneville 

International Corp.; Clear Channel 

Communications, Inc.; NRBMLC; and 

Susquehanna Radio Corp. 

Testimony was taken from May 1, 

2005, through August 7, 2006. 

SoundExchange presented the 

testimony of the following 14 witnesses: 

(1) John Simson, SoundExchange, 

executive director; (2) Barrie Kessler, 

SoundExchange, chief operating officer; 

(3) James Griffin, One House LLC, chief 

executive officer; (4) Erik Brynjolfsson, 

MIT Sloan School of Management, 

professor of management and director of 

Center for eBusiness at MIT; (5) Michael 

Pelcovits, MiCRA, economic consultant; 

(6) Mark Eisenberg, SONY BMG, senior 

vice president of business and legal 

affairs; (7) Lawrence Kenswil, Universal 

eLabs, a division of Universal Music 

Group, president; (8) Michael Kushner, 

Atlantic Records Group, business and 

legal affairs; (9) Stephen Bryan, Warner 

Music Group, vice president of strategic 

planning and business development; 

(10) Harold Bradley, American 

Federation of Musicians of United 

States and Canada, vice president; (11) 

Jonatha Brooke, songwriter and 

performer, owner of Bad Dog Records; 

(12) Cathy Fink, songwriter and 

performer; (13) Bruce Iglauer, Alligator 


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Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 24085 

1Hereinafter, references to written direct 

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

last name of the witness and followed by the page 

number. References to written rebuttal testimony 

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

of the witness and followed by the page number. 

References to the transcript record shall be cited as 

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

page number and the last name of the witness. 

References to proposed findings of fact and 

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

‘‘PCL,’’ respectively, preceded by the name of the 

party that submitted same and followed by the 

paragraph number. References to reply proposed 

findings of fact and conclusions of law shall be 

cited as ‘‘RFF’’ or ‘‘RCL,’’ respectively, preceded by 

the name of the party and followed by the 

paragraph number. 

2Motions were filed by DiMA, IBS, WHRB, NPR, 

Radio Broadcasters, RLI, Small Commercial 

Webcasters, SoundExchange and CBI. 

Records, an independent blues label, 

founder; and (14) Mark Ghuneim, 

Wiredset, LLC, chief executive officer. 

Royalty Logic, Inc. presented the 

testimony of Ronald A. Gertz, president. 

The Services presented the testimony 

of the following 24 witnesses: Digital 

Media Association and its Member 

Companies: (1) Adam B. Jaffe, Brandeis 

University, professor in economics; (2) 

Christine Winston, America Online, 

executive director of programming 

strategy and planning; (3) David Porter, 

Live365, general manager of business 

development; (4) Jonathan Potter, 

DiMA, executive director; (5) N. Mark 

Lam, Live365, chairman and chief 

executive officer; (6) Robert D. Roback, 

Yahoo! Music, general manager; (7) J. 

Donald Fancher, Deloitte and Touche 

Financial Advisory Services LLP; (8) Jay 

Frank, Yahoo!, programming and label 

relations; (9) Fred Silber, Microsoft, 

business development manager for 

MSN; (10) Eric Ronning, Ronning Lipset 

Radio; (11) Jack Isquith, American 

Online Music, executive director Music 

Industry Relations; (12) Karyn Ulman, 

Music Reports, Inc.; 

Radio Broadcasters: (13) Dan 

Halyburton, Susquehanna Radio, 

research, engineering and programming; 

(14) Roger Coryell, San Francisco 

Bonneville Radio Group, director 

strategic marketing and Internet; (15) 

Russell Hauth, National Radio 

Broadcasters Music Licensing 

Committee, executive director; (16) 

Brian Parsons, Clear Channel Radio, 

vice president of technology; 

Small Commercial Webcasters: (17) 

Kurt Hanson, AccuRadio, president and 

RAIN newsletter, publisher; 

National Public Radio: (18) Kenneth 

Stern, NPR, chief executive officer; 

Intercollegiate Broadcasting System, 

Inc. and Harvard Radio Broadcasting 

Co., Inc.: (19) Frederick J. Kass, Jr., IBS, 

chief operating officer; (20) Michael 

Papish, HRBC, treasurer and Media 

Unbound, president; 

Collegiate Broadcasters, Inc.: (21) 

William Robedee, CBI, past chair and 

KTRU, Rice University, manager; (22) 

Joel R. Willer, KXUL, University of 

Louisiana, Monroe, faculty advisor; 

National Religious Broadcasters 

Noncommercial Music Licensing 

Committee: (23) Eric Johnson, 

NRBNMLC, board member and CDR 

Radio Network, music director; and 

SBR Creative Media, Inc.: (24) David 

Rahn, president. 

C. The Rebuttal Cases 

The participants filed Written 

Rebuttal Statements on September 29, 

2006. Discovery was then conducted on 

the rebuttal evidence. Rebuttal 

testimony was taken from November 6 

through November 30, 2006. 

SoundExchange presented the 

testimony of the following nine 

witnesses: (1) Barrie Kessler, 

SoundExchange, chief operating officer; 

(2) James Griffin, One House LLC, chief 

executive officer; (3) Erik Brynjolfsson, 

MIT Sloan School of Management, 

professor of management and director of 

Center for eBusiness at MIT; (4) Michael 

Pelcovits, MiCRA, economic consultant; 

(5) Mark Eisenberg, SONY BMG, senior 

vice president of business and legal 

affairs; (6) Thomas Lee, American 

Federation of Musicians, president; (7) 

Simon Wheeler, Association of 

Independent Music, chair of New Media 

Committee; (8) Charles Ciongoli, 

Universal Music Group, North 

American, executive vice president and 

chief financial officer; and (9) Tom 

Rowland, Universal Music Enterprises, 

senior vice president, film and 

television music; 

Royalty Logic, Inc. presented the 

testimony of the following two 

witnesses: (1) Ronald A. Gertz, 

president; and (2) Peter Paterno, 

entertainment attorney; 

The Services presented the testimony 

of the following 16 witnesses: 

Digital Media Association and its 

Member Companies: (1) Adam B. Jaffe, 

Brandeis University, professor in 

economics; (2) Christine Winston, 

America Online, executive director of 

programming strategy and planning; (3) 

N. Mark Lam, Live365, chairman and 

chief executive officer; (4) Robert D. 

Roback, Yahoo! Music, general manager; 

(5) J. Donald Fancher, Deloitte and 

Touche Financial Advisory Services 

LLP; (6) Jay Frank, Yahoo!, 

programming and label relations; (7) 

Jack Isquith, American Online Music, 

executive director Music Industry 

Relations; (8) Roger James Nebel, FTI 

Consulting; 

Radio Broadcasters: (9) Keith Meehan, 

Radio Music Licensing Committee, 

executive director; (10) Eugene Levin, 

Radio Music Licensing Committee, 

controller; (11) Brian Parsons, Clear 

Channel Radio, vice president of 

technology; (12) Adam B. Jaffe, Brandeis 

University, professor of economics; 

National Public Radio: (13) Adam B. 

Jaffe, Brandeis University, professor of 

economics; 

Intercollegiate Broadcasting System, 

Inc. and Harvard Radio Broadcasting 

Co., Inc.: (14) Jerome Picard, economics 

professor (ret.); (15) Michael Papish, 

HRBC, treasurer; and 

National Religious Broadcasters 

Noncommercial Music Licensing 

Committee: (16) Eric Johnson, member 

of board. 

At the close of all the evidence, the 

record was closed. In addition to the 

written direct statements and written 

rebuttal statements, the Copyright 

Royalty Judges heard 48 days of 

testimony, which filled 13,288 pages of 

transcript, and 192 exhibits were 

admitted. The docket contains 475 

entries of pleadings, motions and 

orders. 

D. Post-Hearing Submissions and 

Arguments 

After the evidentiary phase of the 

proceeding, the participants were 

ordered to file Proposed Findings of 

Fact and Conclusions of Law on 

December 12, 2006, and Responses to 

those proposals on December 15, 2006. 

The parties were also ordered to submit 

Stipulated Terms on December 15, 2006, 

but none have been filed. Closing 

arguments were heard on December 21, 

2006. Then the matter was submitted to 

the Copyright Royalty Judges for a 

Determination.1

On March 2, 2007, the Copyright 

Royalty Judges issued the initial 

Determination of Rates and Terms. 

Pursuant to 17 U.S.C. 803(c)(2) and 37 

CFR Part 353, the parties filed Motions 

for Rehearing.2 The Judges requested the 

parties to respond to the motions filed, 

in order to know the positions of each 

party on each of the issues raised in the 

motions, and ordered the parties to file 

written arguments in support of each 

motion. The parties filed responses and 

written arguments. Having reviewed all 

motions, written arguments and 

responses, the Judges denied all the 

motions for rehearing. Order Denying 

Motions for Rehearing, In the Matter of 

Digital Performance Right in Sound 

Recordings and Ephemeral Recordings, 

Docket No. 2005–1 CRB DTRA (April 

16, 2007). As reviewed in the said 

Order, none of the grounds in the 

motions presented the type of 

exceptional case where the 

Determination is not supported by the 


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24086 Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 

3 Indeed, copyright owners of musical works have 

enjoyed the performance right since the nineteenth 

century. 

evidence, is erroneous, is contrary to 

legal requirements, or justifies the 

introduction of new evidence. 17 U.S.C. 

803(c)(2)(A); 37 CFR 353.1 and 353.2. 

The motions did not meet the required 

standards set by statute, by regulation 

and by case law. Nevertheless, the 

Judges were persuaded to clarify two 

issues raised by the parties. This Final 

Determination includes a transition 

phase for 2006 and 2007 to use 

Aggregate Tuning Hours (‘‘ATH’’) to 

estimate usage as permitted under the 

prior fee regime. This limited use of an 

ATH calculation option should facilitate 

a smooth transition to the fee structure 

adopted in this Final Determination. 

Next, the regulations are corrected to 

refer to ‘‘digital audio transmissions’’ in 

place of the phrase ‘‘Internet 

transmissions.’’ 

III. The Statutory Criteria for Setting 

Rates and Terms 

A. The Statutory Background 

1. Music Copyright Law in General 

Section 102 of the Copyright Act of 

1976 (the ‘‘Copyright Act’’) identifies 

various categories of works that are 

eligible for copyright protection. 17 

U.S.C. 102. These include ‘‘musical 

works’’ and ‘‘sound recordings.’’ Id. at 

102(2) and 102(7). The term ‘‘musical 

work’’ refers to the notes and lyrics of 

a song, while a ‘‘sound recording’’ 

results from ‘‘the fixation of a series of 

musical, spoken, or other sounds.’’ Id. at 

101. A song that is sung and recorded 

will constitute a sound recording by the 

entity that records the performance, and 

a musical work by the songwriter. 

Another performer may record the same 

song and that performance will result in 

another sound recording, but the 

musical work remains with the 

songwriter. Under these facts, there are 

two sound recordings and one musical 

work as a result of the two recordings 

of the same song. Typically, a record 

label owns the copyright in a sound 

recording and a music publisher owns 

the copyright in a musical work. 5/4/06 

Tr. 24:11–27:16 (Simson). 

Under the 1976 Copyright Act, a 

copyright owner receives a bundle of 

exclusive rights set forth in section 106. 

17 U.S.C. 106. Among them is the right 

to make or authorize the performance to 

the public of a copyrighted work. The 

performance right is granted to all 

categories of copyrighted works with 

one exception: Sound recordings. Thus, 

while the owner of a musical work 

enjoys the performance right, the owner 

of a sound recording does not.3

Congress did not begin to address this 

inequality until the end of the twentieth 

century. 

2. The DPRA 

In 1995, Congress enacted the Digital 

Performance Right in Sound Recordings 

Act (‘‘DPRA’’), Public Law 104–39, 109 

Stat. 336 (1995), which added a new 

section 106(6) to the Copyright Act. 

That provision grants copyright owners 

of sound recordings a limited 

performance right to make or authorize 

the performance of their works ‘‘by 

means of a digital audio transmission.’’ 

17 U.S.C. 106(6). Often referred to as the 

‘‘digital performance right,’’ the right 

was further limited by the creation of a 

statutory license for certain nonexempt, 

noninteractive subscription services and 

preexisting satellite digital audio radio 

services. 17 U.S.C. 114. The statutory 

license permits these services, upon 

compliance with certain statutory 

conditions, to make those transmissions 

without obtaining consent from, or 

having to negotiate license fees with, 

copyright owners of the sound 

recordings they perform. Id. Congress 

established procedures to facilitate 

voluntary negotiation of rates and terms 

including a provision authorizing 

copyright owners and services to 

designate common agents on a 

nonexclusive basis to negotiate 

licenses—as well as to pay, to collect, 

and to distribute royalties— and a 

provision granting antitrust immunity 

for such actions. Id. 

Absent agreement among all the 

interested parties, the Librarian of 

Congress was directed to convene a 

Copyright Arbitration Royalty Panel 

(‘‘CARP’’) to recommend royalty rates 

and terms. Congress directed the CARP 

to set a royalty rate for the subscription 

services’ statutory license that achieves 

the policy objectives in section 801(b)(1) 

of the Copyright Act. Id. 

Under the DPRA, copyright owners 

must allocate one-half of the statutory 

licensing royalties that they receive 

from the subscription services to 

recording artists. Forty-five percent of 

these royalties must be allocated to 

featured artists; 21⁄2 percent of the 

royalties must be distributed by the 

American Federation of Musicians to 

non-featured musicians; and 21⁄2

percent of the royalties must be 

distributed by the American Federation 

of Television and Radio Artists to nonfeatured vocalists. 17 U.S.C. 114(g). 

3. The DMCA 

The new statutory license for digital 

audio transmission of sound recordings 

was expanded in the Digital Millennium 

Copyright Act of 1998 (‘‘DMCA’’), 

Public Law 105–304, 112 Stat. 2860 

(1998). It provided that certain digital 

transmissions and retransmissions, 

typically referred to as webcasting, are 

subject to the section 106(6) digital 

performance right and that webcasters 

who transmit/retransmit sound 

recordings on an interactive basis, as 

defined in section 114(j), must obtain 

the consent of, and negotiate fees with, 

individual owners of those recordings. 

However, webcasting would be eligible 

for statutory licensing when done on a 

non-interactive basis. Accordingly, 

Congress created another statutory 

license in sections 114(d)(2) & (f)(2) for 

‘‘eligible nonsubscription 

transmissions,’’ which include noninteractive transmissions of sound 

recordings by webcasters. 17 U.S.C. 

114(d)(2). To qualify for that license, the 

webcaster must comply with several 

conditions in addition to those that the 

DPRA applied to preexisting 

subscription and satellite radio services. 

As with these service royalties, 

webcaster royalties are allocated on a 

50–50 basis to copyright owners and to 

performers. 

Congress adopted the DPRA voluntary 

negotiation and arbitration procedures 

for the DMCA webcaster performance 

license. 17 U.S.C. 114(e), (f). However, 

it changed the statutory standard for 

determining rates and terms. The new 

standard is to determine what ‘‘most 

clearly represent the rates and terms 

that would have been negotiated in the 

marketplace between a willing buyer 

and a willing seller.’’ 17 U.S.C. 

114(f)(2)(B). 

Congress also recognized that 

webcasters who avail themselves of the 

section 114 license may need to make 

one or more temporary or ‘‘ephemeral’’ 

copies of a sound recording in order to 

facilitate the transmission of that 

recording. Accordingly, Congress 

created a new statutory license in 

section 112(e) for such copies and 

extended that license to services that 

transmit sound recordings to certain 

business establishments under the 

section 114(d)(1)(c)(iv) exemption 

created by the DPRA. Congress retained 

the DPRA voluntary negotiation and 

arbitration procedures for the section 

112 ephemeral license. 17 U.S.C. 

112(e)(2), (3). Congress again applied 

the willing buyer/willing seller standard 

applicable to the section 114 webcaster 

performance license. 17 U.S.C. 

112(e)(4). The webcasting and 


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Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 24087 

ephemeral statutory licenses created by 

the DMCA are the subject of this 

proceeding. 

The two DMCA licenses were the 

subject of one prior proceeding. 

Determination of Reasonable Rates and 

Terms for the Digital Performance of 

Sound Recordings and Ephemeral 

Recordings (Final Rule), 67 FR 45240 

(July 8, 2002) (codified at 37 CFR part 

261) (‘‘Webcaster I’’). After a 

recommendation from a CARP, the 

Librarian applied the statutory standard 

to determine rates and terms. Many of 

the parties in this proceeding 

participated in that prior proceeding. 

4. The Reform Act 

Congress enacted a new system to 

administer copyright royalties with the 

Copyright Royalty and Distribution 

Reform Act of 2004 (the ‘‘Reform Act’’), 

Public Law 108–419, 118 Stat. 2341. 

The Copyright Royalty Judges were 

established to perform the functions 

previously served by the Copyright 

Royalty Tribunal and the Librarian of 

Congress. They were appointed January 

9, 2006, and took over this proceeding. 

B. Section 114(f)(2) 

1. The Statutory Language 

The criteria for setting rates and terms 

for the section 114 webcaster 

performance license are enunciated 

under 17 U.S.C. 114(f)(2)(B), which 

provides in pertinent part: 

* * * Such rates and terms shall 

distinguish among the 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. In 

establishing rates and terms for transmissions 

by eligible nonsubscription services and new 

subscription services, the Copyright Royalty 

Judges shall establish 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. In determining such rates and 

terms, the Copyright Royalty Judges shall 

base [their] decision on economic, 

competitive and programming information 

presented by the parties, including— 

(i) whether use of the service may 

substitute for or may promote the sales of 

phonorecords or otherwise may interfere 

with or may enhance the sound recording 

copyright owner’s other streams of revenue 

from its sound recordings; and 

(ii) the relative roles of the copyright owner 

and the transmitting entity in the copyrighted 

work and the service made available to the 

public with respect to relative creative 

contribution, technological contribution, 

capital investment, cost, and risk. 

17 U.S.C. 114(f)(2)(B). 

The statute further directs the Judges 

to set ‘‘a minimum fee for each such 

type of service’’ and grants the Judges 

discretion to consider the rates and 

terms for ‘‘comparable types of digital 

audio transmission services and 

comparable circumstances under 

voluntary license agreements’’ 

negotiated under the voluntary 

negotiation provisions of the statute. Id. 

2. The Relationship of the Statutory 

Factors to the ‘‘Willing Buyer/Willing 

Seller’’ Standard 

Webcaster I clarified the relationship 

of the statutory factors to the willing 

buyer/willing seller standard. The 

standard requires a determination of the 

rates that a willing buyer and willing 

seller would agree upon in the 

marketplace. In making this 

determination, the two factors in section 

114(f)(2)(B)(i) and (ii) must be 

considered, but neither factor defines 

the standard. They do not constitute 

additional standards, nor should they be 

used to adjust the rates determined by 

the willing buyer/willing seller 

standard. The statutory factors are 

merely to be considered, along with 

other relevant factors, to determine the 

rates under the willing buyer/willing 

seller standard. Webcaster I; In re Rate 

Setting for Digital Performance Right in 

Sound Recordings and Ephemeral 

Recordings, No. 2000–9 CARP DTRA 1 

& 2 (‘‘Webcaster I Carp Report’’). 

3. The Nature of ‘‘The Marketplace’’ 

The parties agree that the directive to 

set rates and terms that ‘‘would have 

been negotiated’’ in the marketplace 

between a willing buyer and a willing 

seller reflects Congressional intent for 

the Judges to attempt to replicate rates 

and terms that ‘‘would have been 

negotiated’’ in a hypothetical 

marketplace. Webcaster I CARP Report 

at 21. The ‘‘buyers’’ in this hypothetical 

marketplace are the Services (and other 

similar services) and this marketplace is 

one in which no statutory license exists. 

Id. See also Noncommercial Educational 

Broadcasting Compulsory License (Final 

rule and order), 63 FR 49823, 49835 

(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 but to license, could truly reflect 

‘fair market value.’ ’’). The ‘‘sellers’’ in 

this hypothetical marketplace are record 

companies, and the product being sold 

consists of a blanket license for the 

record companies’ complete repertoire 

of sound recordings. Webcaster I, 67 FR 

45244 (July 8, 2002). 

4. The Appropriate Willing Buyer/ 

Willing Seller Rate 

As noted, the statute directs us to 

‘‘establish rates and terms that most 

clearly represent the rates and terms that 

would have been negotiated in the 

marketplace.’’ 17 U.S.C. 114(f)(2)(B) 

(emphasis added). 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. Congress surely understood this 

when formulating the willing buyer/ 

willing seller standard. Accordingly, the 

Judges construe the statutory reference 

to rates that ‘‘most clearly represent the 

rates * * * that would have been 

negotiated in the marketplace’’ as the 

rates to which, absent special 

circumstances, most willing buyers and 

willing sellers would agree. Webcaster I, 

67 FR 45244, 45245 (July 8, 2002); 

Webcaster I CARP Report at 25, 26. 

C. Section 112(e) 

The criteria for setting rates and terms 

for the section 112 ephemeral license 

are enunciated under 17 U.S.C. 

112(e)(4), which provides in pertinent 

part: 

The Copyright Royalty Judges shall 

establish rates that most clearly represent the 

fees that would have been negotiated in the 

marketplace between a willing buyer and a 

willing seller. In determining such rates and 

terms, the Copyright Royalty Judges shall 

base their decision on economic, 

competitive, and programming information 

presented by the parties, including— 

(A) whether use of the service may 

substitute for or may promote the sales of 

phonorecords or otherwise interferes with or 

enhances the copyright owner’s traditional 

streams of revenue; and 

(B) the relative roles of the copyright owner 

and the transmitting organization in the 

copyrighted work and the service made 

available to the public with respect to 

relative creative contribution, technological 

contribution, capital investment, cost, and 

risk. 

17 U.S.C. 112(e)(4). As does section 114, 

this section further directs the Judges to 

set ‘‘a minimum fee for each type of 

service.’’ 17 U.S.C. 112(e)(4). Although 

section 112 does not explicitly grant the 

Judges discretion to consider the rates 

and terms for comparable types of 

services, it does explicitly grant 

discretion to ‘‘consider the rates and 

terms under voluntary license 

agreements’’ negotiated under the 

provisions of the statute. 17 U.S.C. 

112(e)(4). Accordingly, while the 

language of the two sections varies in 

minor respects, the Judges interpret the 

criteria for setting rates and terms as 


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4The latter $.0019 per performance rate is to be 

adjusted by the change in the CPI–U from December 

2005 to December 2009 (accordingly, if the CPI–U 

increases by 3% in each of these four twelve-month 

periods, the resulting per performance rate for 2010 

would increase from $.0019 to $.00214). 

5 In addition, SoundExchange proposes an 

adjustment to its revenue alternative based on time 

spent listening to music for so-called ‘‘non-music’’ 

services, a per performance rate of $.002375 to be 

adjusted each year by the change in the CPI–U for 

‘‘bundled services’’ and a 25% premium for 

transmissions terminating on wireless devices for 

nonsubscription services, new subscription services 

and bundled services. 

6The Small Commercial Webcasters are 

AccuRadio, LLC; Digitally Imported, Inc.; 

Radioio.com, LLC; Discombobulated, LLC; 3WK, 

LLC and Radio Paradise, Inc. 

7Radio Broadcasters further propose that the 

structure increase across the board by 4% annually 

over the term of the license. 

8 It must be emphasized that, in reaching a 

determination, the Copyright Royalty Judges cannot 

guarantee a profitable business to every market 

entrant. Indeed, the normal free market processes 

typically weed out those entities that have poor 

business models or are inefficient. To allow 

inefficient market participants to continue to use as 

much music as they want and for as long a time 

period as they want without compensating 

copyright owners on the same basis as more 

efficient market participants trivializes the property 

rights of copyright owners. Furthermore, it would 

involve the Copyright Royalty Judges in making a 

policy decision rather than applying the willing 

buyer/willing seller standard of the Copyright Act. 

essentially identical. See Webcaster I 

Order of July 16, 2001, at 5. 

IV. Determination of Royalty Rates 

A. Application of Section 114 and 

Section 112 

Based on the applicable law and 

relevant evidence received in this 

proceeding, the Copyright Royalty 

Judges must determine rates for two 

licenses, the section 114 webcaster 

performance license and the section 112 

ephemeral reproduction license. The 

Copyright Act requires that the 

Copyright Royalty Judges establish rates 

for each of these two licenses that most 

clearly represent those ‘‘that would have 

been negotiated in the marketplace 

between a willing buyer and a willing 

seller’’ and directs the Copyright 

Royalty Judges to set a minimum fee for 

each license. In the case of both 

licenses, the Copyright Act requires the 

Copyright Royalty Judges to take into 

account evidence presented on such 

factors as (1) whether the use of the 

webcasting services may substitute for 

or promote the sale of phonorecords and 

(2) whether the copyright owner or the 

service provider make relatively larger 

contributions to the service ultimately 

provided to the consuming public with 

respect to creativity, technology, capital 

investment, cost and risk. 17 U.S.C. 

114(f)(2)(B) and 17 U.S.C. 112 (e)(4). 

Having carefully considered the 

relevant law and the evidence received 

in this proceeding, the Copyright 

Royalty Judges determine that the 

appropriate section 114 performance 

license rate is a per performance usage 

rate for Commercial Webcasters and an 

annual flat per-station rate for 

Noncommercial Webcasters for use up 

to a specified cap coupled with a per 

performance rate for use above the cap, 

while the appropriate section 112 

reproduction license rate is deemed to 

be included in the applicable respective 

section 114 license rates. 

The applicable rate structure is the 

starting point for the Copyright Royalty 

Judges’ determination. 

B. The Rate Proposals of the Parties and 

the Appropriate Royalty Structure for 

Section 114 Performance Licenses 

1. Commercial Webcasters 

The contending parties present 

several alternative rate structures for 

Commercial Webcasters. In its final 

revised rate proposal, SoundExchange 

argues in favor of a monthly fee equal 

to the greater of: 30% of gross revenues 

or a performance rate beginning at 

$.0008 per performance in 2006 and 

increasing annually to $.0019 by 2010.4

This fee structure is proposed for 

nonsubscription services and is 

modified to add a third alternative in its 

‘‘greater of’’ formulation of a $1.37 per 

subscriber minimum for new 

subscription services.5 An exception to 

this ‘‘greater of’’ formulation is 

proposed for so-called ‘‘bundled 

services’’ from which SoundExchange 

seeks a per performance rate of $.002375 

to be adjusted each year by the change 

in the CPI–U. SoundExchange’s Revised 

Rate Proposal (filed September 29, 2006) 

at 2–12. 

By contrast, DiMA on behalf of certain 

large commercial webcasters, proposes a 

fee structure under which webcasters 

could elect a fee equal to either $.00025 

per performance or $.0038 per Aggregate 

Tuning Hour (‘‘ATH’’) or 5.5% of 

revenue directly associated with the 

streaming service. However, DiMA 

applies only its per performance usage 

rate to ‘‘bundled services’’ situations 

where the bundle price to the consumer 

is not allocated as between the 

individual component parts of the 

bundle. DiMA PFF at ¶¶ 35–38. 

Smaller commercial webcasters 

present varying proposals. SBR Creative 

Media, Inc., a privately owned 

commercial webcaster, proposes a fee 

structure under which webcasters can 

elect a fee equal to either a use metric 

of $.0033 per Aggregate Tuning Hour 

(‘‘ATH’’) or 4% of gross revenue. SBR 

Creative Media PFF at ¶ 19. The selfstyled Small Commercial Webcasters,6

in contrast to all the other commercial 

parties, propose a pure revenue-based 

metric equal to 5% of gross revenues. 

Small Commercial Webcasters PCL at 

¶ 24. 

Radio Broadcasters propose an annual 

flat fee 7 structure generally related to 

usage as reflected in the format of the 

radio station being simulcast over the 

web. For example, Radio Broadcasters 

propose that music-formatted stations 

pay a fee ranging from as little as $500 

per annum for small stations in low 

revenue ranked markets to as much as 

$8,000 per annum for large stations in 

high revenue ranked markets, but 

further propose that news, talk, sports 

and/or business stations pay $250 per 

annum irrespective of station size in 

low revenue ranked markets and $750 

per annum irrespective of station size in 

high revenue ranked markets. Finally, 

Radio Broadcasters propose that stations 

with mixed music/non-music formats 

pay a percentage of the music format 

fee, depending on the percentage of 

programming identified as music 

programming. Radio Broadcasters PFF 

at ¶¶ 325–338. 

In short, among the parties on both 

sides who have proposed rates covering 

Commercial Webcasters, only Small 

Commercial Webcasters propose a fee 

structure based solely on revenue. 

However, in making their proposal, this 

group of five webcasters clearly is 

unconcerned with the actual structure 

of the fee, except to the extent that a 

revenue-based fee structure especially 

one in which the percent of revenue fee 

is a single digit number (i.e., 5%)—can 

protect them against the possibility that 

their costs would ever exceed their 

revenues.8 Their only witness, Kurt 

Hanson, CEO/President of AccuRadio, 

LLC, in fact, provided testimony 

indicating that the Small Commercial 

Webcasters were, at bottom, concerned 

with the amount of the fee rather than 

the structure of the fee. (‘‘Obviously, 

were there to be a sound recording 

royalty based on performances that was 

at an extremely low rate * * * a 

percentage-of-revenue model might not 

be required. And just as obviously, a 

confiscatory percentage-of-revenue rate 

would not allow these companies [the 

Small Commercial Webcasters] to 

survive.’’) Hanson, WDT at 4 n.2. Small 

Commercial Webcasters’ focus on the 

amount of the fee, rather than how it 

should be structured, is further 

underlined by the absence of evidence 

submitted by this group to identify a 

basis for applying a pure revenue-based 

structure to them. While, at times, they 

suggest that their situation as small 


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9 Indeed, since none of the small commercial 

webcasters participating in this proceeding 

provided helpful evidence about what demarcates 

a ‘‘small’’ commercial webcaster from other 

webcasters at any given point in time, any 

determination that a revenue-based metric was 

somehow uniquely applicable to small commercial 

webcasters would be speculative. 

10 Dr. Erik Brynjolfsson is similarly of the opinion 

that ‘‘the rates paid by a given company should take 

into account that different companies use different 

amounts of music.’’ 11/21/06 Tr. 251:2–18 

(Brynjolfsson). 

11This is illustrated in the SoundExchange rate 

proposal where an additional adjustment is made 

to the proposed revenue rate where services 

conform to a definition of ‘‘non-music services’’ as 

measured by the listening time of end users. By 

contrast, in the same rate proposal no such 

adjustment needs to be made to the proposed usage 

rate for the same services. The added information 

necessary for the adjustment as well as the process 

of adjustment to the revenue-based metric clearly 

would raise the transaction costs of implementing 

a revenue rate structure as compared to the usagebased metric. SoundExchange’s Revised Rate 

Proposal (filed September 29, 2006) at 11–12. 

12Moreover, the mere process of measuring such 

an expansive array of revenues must necessarily 

raise transaction costs for the parties. 

commercial webcasters requires this 

type of structure, there is no evidence in 

the record about how the Copyright 

Royalty Judges would delineate between 

small webcasters and large webcasters.9

Similarly, while Mr. Hanson asserts that 

a percentage-of-revenue is necessary 

because ‘‘this is a nascent industry’’ or 

because small entrepreneurs require 

such a structure, 8/3/06 Tr. 49:12–22 

(Hanson), he offers no evidence to 

support that assertion or to help define 

the parameters of the assertion. 

Furthermore, the only other self-styled 

small entrepreneur to offer testimony in 

this proceeding, SBR Creative Media 

Inc., specifically includes a usage metric 

in its rate proposal and neither SBR 

Creative Media, Inc. nor the Small 

Commercial Webcasters offers any 

evidence to distinguish between their 

respective situations. 

While each of the remaining 

contending parties—SoundExchange, 

DiMA, Radio Broadcasters and SBR 

Creative Media, Inc.—proposes a fee 

structure for Commercial Webcasters 

that contains revenue-based elements as 

well as either usage elements or a usage 

alternative, from the evidence of record, 

the Copyright Royalty Judges conclude 

that numerous factors weigh in favor of 

a per-performance usage fee structure 

for Commercial Webcasters. 

First, as aptly stated by Dr. Adam 

Jaffe, revenue merely serves as ‘‘a 

proxy’’ for what ‘‘we really should be 

valuing, which is performances.’’ Jaffe, 

WDT Section N, Designated Testimony 

(Jaffe WDT in Webcaster I at 22). By 

contrast, a per-performance metric ‘‘is 

directly tied to the nature of the right 

being licensed, unlike other bases such 

as revenue * * * of the licensee.’’ Id. 

(Emphasis in original.) The more 

intensively an individual service is used 

and consequently the more the rights 

being licensed are used, the more that 

service pays and in direct proportion to 

the usage.10 Jaffe, WDT Section N, 

Designated Testimony (Jaffe WDT in 

Webcaster I at 21–22). As Dr. Jaffe 

points out, with a usage metric, the 

resultant ‘‘scaling’’ of the royalty paid to 

the extent of use ‘‘is intuitively 

appealing and is a common feature’’ of 

intellectual property licenses. Jaffe, 

WDT at 32. Dr. Jaffe notes that, by 

contrast, ‘‘Revenue is a less exact proxy 

for the scale of activity, because the 

revenue that a licensee derives, even 

from its music-related activities can be 

influenced by a variety of factors that 

have nothing to do with music.’’ Id. 

Therefore, Dr. Jaffe cautions that a 

revenue-based metric should only be 

used as a proxy for a usage-based metric 

where the revenue base used for royalty 

calculation is ‘‘carefully defined to 

correspond as closely as possible to the 

intrinsic value of the licensed 

property.’’ Id. The Copyright Royalty 

Judges do not find a sufficient clarity of 

evidence based on the record in this 

proceeding to produce a revenue-based 

metric that can serve as a good proxy for 

a usage-based metric. Furthermore, 

there was no persuasive evidence 

offered by any commercial webcasting/ 

simulcasting party to indicate that a 

usage-based metric is not readily 

calculable and, that as a consequence, 

the Copyright Royalty Judges must 

resort to some proxy metric in reaching 

their fee determination. 

Second, percentage-of-revenue 

models present measurement 

difficulties because identifying the 

relevant webcaster revenues can be 

complex, such as where the webcaster 

offers features unrelated to music. 

Webcaster I noted this particular 

difficulty. 67 FR 45249 (July 8, 2002). 

Mixed format webcasters/simulcasters 

continue to make up a significant part 

of the commercial webcasting market 

and, in a number of cases, generate the 

more significant portion of their 

revenues from non-music programming. 

RBX1; RBX7; RBX20; 7/27/06 Tr. 283:7– 

285:12 (Hauth). Clearly, questions 

surrounding the proper allocation of 

revenues related to music use in such 

instances present greater complexity 

than a straightforward use of a usagebased approach.11

Third, percentage of revenue metrics 

ultimately demand a clear definition of 

revenue so as to properly relate the fee 

to the value of the rights being provided, 

and no such clear definition has been 

proffered by the parties. Indeed, the 

definition of revenue has been a point 

of substantial contention between two of 

the parties in this proceeding. 

SoundExchange sought an expansive 

definition of revenue, ostensibly 

covering revenues from subscription 

fees, advertisements (of many kinds 

including advertisements directly and 

indirectly derived from webcasting), 

sales of products and commissions from 

third party sales, software fees and sales 

of data. SoundExchange’s Revised Rate 

Proposal (filed September 29, 2006) at 

12–17. But the Copyright Royalty Judges 

are not persuaded that all the elements 

of the SoundExchange definition of 

revenue have been shown, in every 

instance, to be related to the use of the 

rights provided to licensees.12 For 

example, there is some evidence 

presented by the Radio Broadcasters 

that on-air talent, programming director 

contributions and marketing skills 

impact the revenues of simulcasting 

webcasters. Radio Broadcasters PFF at 

¶¶ 234, 237, 240. DiMA has proposed a 

much more restrictive definition of 

revenue as part of its rate proposal 

which it seeks to support through the 

testimony of its witness, Donald 

Fancher. On the whole, we find little to 

recommend Mr. Fancher’s testimony, 

but the Copyright Royalty Judges do 

observe that even Mr. Fancher conceded 

that, on various points, the DiMA 

proposed definition was unclear. 6/22/ 

06 Tr. 292:11–295:14; 308:1–309:1; 

311:15–312:10; 315:17–317:14 

(Fancher). The absence of persuasive 

evidence of what constitutes an 

unambiguous definition of revenue that 

properly relates the fee to the value of 

the rights being provided militates 

against reliance on a revenue-based 

metric. 

Fourth, the use of a revenue-based 

metric gives rise to difficult questions 

for purposes of auditing and 

enforcement related to payment for the 

use of the license. The per-performance 

approach involves the relatively 

straightforward application of a rate to 

reports of use (recordkeeping) data that 

is already required to be produced by 

the Services. See 37 CFR part 370. 

While audit and enforcement issues 

may arise even with a pure usage 

metric, the alternative use of a revenuebased metric will give rise to additional, 

different issues of interpretation and 

controversy related to how revenues are 

defined or allocated. See, for example, 

Radio Broadcasters PFF at ¶ 258 and 7/ 

31/06 Tr. 78:3–11, 79:1–13 (Parsons). In 

other words, the introduction of 

multiple payment systems will augment 


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13While both SoundExchange and DiMA have 

pointed to a number of agreements covering music 

rights that embody an alternative revenue-based 

metric, they have not shown: (1) Whether those 

agreements have overcome these problems or, (2) if 

so, how those agreements have overcome these 

problems or, (3) most importantly, how their 

proposed rate structures embody comparable 

mechanisms for overcoming these problems. Nor 

have they demonstrated whether these other 

agreements have been negotiated with a revenuebased option in the context of comparable 

circumstances-for example, an agreement 

negotiated with a revenue-based alternative because 

of an inability of some services to account for 

performances would not be comparable to the 

circumstances at hand because of our recordkeeping 

requirements at 37 CFR part 370. 

14 In addition, while SoundExchange proposes a 

third alternative—a per subscription minimum 

dollar amount—to be applied to new subscription 

services, the Copyright Royalty Judges do not find 

the basis for this alternative structure to be 

supported by persuasive evidence. SoundExchange 

cannot be proposing this per subscription 

alternative because of a lack of music usage data 

from subscription services, because the per 

subscription alternative itself requires such usage 

data in order to make a pro rata distribution of the 

per subscription minimum to the record companies. 

See Pelcovits WDT at 22. Nor does SoundExchange 

present persuasive evidence that the availability of 

this per subscription alternative is necessary 

because it is easier to administer and thus will 

reduce transaction costs. Indeed, although 

SoundExchange makes it an alternative to the perperformance fee in its proposed structure, 

SoundExchange presents its purpose as equivalent 

to the function served by the per-performance fee 

in its proposed fee structure. See Pelcovits WDT at 

28–29. Moreover, SoundExchange’s own expert 

economist, Dr. Brynjolfsson, further notes that in 

cases where webcasters ‘‘monetize’’ the value of the 

sound recording license through subscriptions or 

advertising revenue, ‘‘counting the number of plays 

is a good proxy’’ for that value. 5/18/06 Tr. 116:9– 

117:14 (Brynjolfsson). For all these reasons, the 

Copyright Royalty Judges decline to establish such 

a duplicative structure. 

15 Indeed, the use of a revenue-based metric in 

connection with Noncommercial Webcasters may 

further exacerbate transactions costs where defining 

of revenue, accounting for revenue and auditing of 

such accounts involve different concepts for the 

noncommercial, non-profit entities that populate 

this marketplace as compared to the accounting 

concepts and approaches applicable to commercial 

entities. For example, NPR derives significant 

amounts of its revenues from several sources not 

typically found as a source of commercial service 

revenue, such as underwriting, donations, public 

funds and the NPR Foundation. NPR PFF at ¶ 18. 

16NRBNMLC also proposes a decrease in its 

annual fees ‘‘to match the per station fees of NPR 

if the NPR station fees are lower than the abovestated fees.’’ NRBNMLC Fee Proposal August 1, 

2006. 

the transactions costs imposed on the 

parties. 

Fifth, the way that the contending 

parties, in particular SoundExchange 

and DiMA, suggest using a revenuebased metric in their rate proposals does 

not square with the basic notion agreed 

to by their respective experts (Dr. 

Brynjolfsson for SoundExchange and Dr. 

Jaffe for DiMA) that the more the rights 

being licensed are used, the more 

payments should increase in direct 

proportion to usage. See supra at 

Section IV.B.1. SoundExchange seeks to 

use the revenue-based metric to insure 

that it will share in any revenue 

produced by the Services that is greater 

than what it would receive based on a 

usage rate coupled with actual usage. 

Pelcovits WDT at 28. This could result 

in a situation where the Services would 

be forced to share revenues that are not 

attributable to music use, but rather to 

other creative or managerial inputs. 

DiMA, on the other hand, seeks to 

employ a revenue-based metric to 

protect against the failure of revenues 

produced by the Services (particularly 

as they pursue a shift to advertisingsupported business models) to rise to 

the level necessary to pay for music use 

based on actual usage. Winston WDT at 

10. This could result in a situation in 

which copyright owners are forced to 

allow extensive use of their property 

without being adequately compensated 

due to factors unrelated to music use 

such as a dearth of managerial acumen 

at one or more Services. The similar 

potentiality that webcasters might 

generate little revenue and, under a 

revenue-based metric, produce a 

situation where copyright owners 

receive little compensation for the 

extensive use of their property was a 

concern that animated the Librarian to 

approve a per performance metric rather 

than providing for a revenue-based 

payment option in Webcaster I. 67 FR 

45249 (July 8, 2002). 

For all of the above reasons, the 

Copyright Royalty Judges conclude that 

evidence in the record weighs in favor 

of a per-performance usage fee structure 

for Commercial Webcasters. This does 

not mean that some revenue-based 

metric could not be successfully 

developed as a proxy for the usagebased metric at some time in the future 

by the parties if the problems noted 

above were remedied. It does mean that 

the parties to this proceeding have not 

overcome these problems in the context 

of the proposals they have offered in 

this proceeding.13

A further consequence of the 

Copyright Royalty Judges rejecting the 

revenue-based metric as a proxy for a 

usage-based metric is to eliminate the 

need for a rate structure formulated as 

a ‘‘greater of’’ or ‘‘lesser of’’ comparison 

between per performance metrics and 

alternative revenue-based metrics.14

Therefore, the Copyright Royalty Judges 

determine that a per-performance rate 

structure will be utilized for eligible 

nonsubscription transmission services, 

new subscription services and bundled 

services and where such services are 

commercial Services. 

2. Noncommercial Webcasters 

The Copyright Royalty Judges also 

find that a revenue-based metric is not 

a good proxy for a usage-based metric as 

applied to noncommercial webcasters in 

the non-interactive webcasting 

marketplace because, in addition to 

suffering from the same shortcomings 

discussed supra at Section IV.B.1. in the 

context of the Commercial 

Webcasters,15 no evidence of negotiated 

agreements applying a revenue-based 

metric to Noncommercial Webcasters 

has been presented by any of the parties. 

Only one party in this proceeding, 

SoundExchange, proposes that 

Noncommercial Webcasters should be 

subject to a rate structure incorporating 

a revenue-based metric as one 

alternative means of payment. 

SoundExchange specifically proposes 

that Noncommercial Webcasters pay 

according to the same structure and 

rates applicable to Commercial 

Webcasters, previously summarized 

supra at Section IV.B.1. 

The Noncommercial Webcasters 

propose a variety of rates that are (or 

could be read as) per station flat rates. 

For example, NPR proposes a flat fee of 

$80,000 per annum, with successive 

years after the first year increased by a 

cost-of-living adjustment as determined 

by the change in the CPI. NPR proposes 

that this flat fee cover all NPR (798) and 

CPB-qualified stations (estimated at 100 

or 200). Stern WDT at 13; 6/27/06 Tr. 

154:18–155:18 (Stern). 

The NRBNMLC proposes that noncommercial, non-NPR music stations 

pay a flat annual fee consisting of the 

lesser of (a) $200 per Internet simulcast 

and up to two associated side channels 

or (b) $500 per group of up to five 

Internet simulcasts and up to two 

Internet-only side channels per 

simulcast. The NRBNMLC further 

proposes that for news, talk, business, 

teaching/talk, or sports stations the 

aforementioned annual fee alternatives 

drop to $100 and $250 respectively. 

Mixed format stations would pay a pro 

rata share of these annual fees based on 

the demonstrated music-talk 

programming breakdown. Finally, 

NRBNMLC proposes that all five years 

of such fees covering the 2006–2010 

license term be paid in one lump sum 

at the beginning of the term, except that 

a broadcaster that stops streaming before 

the end of the term would be entitled to 

a pro rata refund.16 NRBNMLC Fee 

Proposal August 1, 2006. 

IBS’ amended rate proposal seeks a 

$100 annual rate for large college 

stations and a $25 annual rate for 


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17The IBS rates herein summarized were to be 

applicable only to noncommercial educational 

stations not covered by the annual lump sum 

payment proposed by NPR and CPB. 

18 IBS’ original proposal consisted of a flat fee of 

$500 per year for music stations and $250 per year 

for non-music stations, with additional payments in 

the event that the webcaster exceeded 146,000 

aggregate tuning hours in a month. Kass WDT at Ex. 

A. 

19For example, at one extreme, if no competition 

exists on the seller’s side of the market (i.e., the 

seller is a monopolist), then the degree of 

competition observed describes the number of 

sellers in the marketplace (i.e., there is a single 

seller in the marketplace). 

20 Dr. Jaffe presents some testimony implying 

anti-competitive market share differences and the 

potentially collusive use of ‘‘most-favored-nations’’ 

clauses in the interactive music service 

marketplace. See Jaffe WRT at 6–16. However, the 

Copyright Royalty Judges do not find Dr. Jaffe’s 

testimony persuasive even with respect to this 

Continued 

smaller college stations.17 IBS 

Clarification of Common Rate Proposal 

(August 10, 2006).18 CBI proposed a flat 

annual fee of $175 for educational 

stations. CBI Amended Introductory 

Statement at 6. 

For the reasons discussed infra at 

Section IV.C.2.a., the Copyright Royalty 

Judges determine that Commercial 

Webcasters and certain Noncommercial 

Webcasters represent two different 

segments of the marketplace. In contrast 

to the general commercial marketplace, 

agreements produced by the parties in 

this proceeding covering 

noncommercial services typically 

structured payments as flat fees. See, for 

example, SERV–D–X 157. Furthermore, 

no evidence was presented by the 

parties that could be used in a precise 

way to convert such flat annual fees into 

a reliable per-performance metric. 

Consequently, only a per station metric 

could be ascertained from such flat fees. 

Flat annual fees do not present the 

complexity, measurement difficulties, 

accounting and enforcement issues 

presented by revenue-based alternatives, 

and, as a result, do not increase 

transaction costs beyond what might be 

experienced under a usage-based fee 

structure. On the other hand, flat fees do 

permit increasing usage without 

increasing payment. 

However, as noted infra at Section 

IV.C.2.a, the Copyright Royalty Judges 

have determined that in order to 

preserve the distinction between the 

commercial webcasters and certain 

noncommercial segments of the 

marketplace over the period of the 

license term, a cap on usage must be 

established for certain noncommercial 

webcasters. 

In short, the Copyright Royalty Judges 

conclude that, on balance, the most 

appropriate rate structure for 

noncommercial services that can be 

reliably derived from the record of 

evidence is an annual flat per-station 

rate structure for use by certain 

noncommercial webcasters up to a 

specified cap coupled with a per 

performance rate for use by 

noncommercial services that exceed the 

cap. 

C. The Section 114 Royalty Rates and 

Minimum Fees 

1. Commercial Webcasters 

a. The ‘‘Willing Buyer/Willing Seller 

Standard’’ 

As previously noted hereinabove, 

supra at Section IV.A., the Copyright 

Act requires that the Copyright Royalty 

Judges establish rates for the section 114 

performance license that ‘‘most clearly’’ 

represent those ‘‘that would have been 

negotiated in the marketplace between a 

willing buyer and a willing seller.’’ Both 

the copyright owners and the 

commercial services 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 and both the 

copyright owners and the commercial 

services agree that those rates should 

reflect the rates that would prevail in a 

hypothetical marketplace that was not 

constrained by a statutory license. 

Finally, both copyright owners and 

commercial services agree that the best 

approach to determining what rates 

would apply in such a hypothetical 

marketplace is to look to comparable 

marketplace agreements as 

‘‘benchmarks’’ indicative of the prices to 

which willing buyers and willing sellers 

in this marketplace would agree. 

SoundExchange PFF at ¶¶ 215–219; 

SoundExchange PCL at ¶¶ 4–27; DiMA 

and Radio Broadcasters JPFF at ¶¶ 75– 

80; DiMA and Radio Broadcasters JPCL 

at ¶¶ 28–9; DiMA PFF at ¶¶ 39–45; 

Radio Broadcasters PFF at ¶¶ 296–301; 

SBR Creative Media, Inc. PFF at ¶¶ 17; 

Small Commercial Webcasters PFF at 

¶¶ 24–28. 

However, the parties, to some extent, 

appear to disagree about the degree of 

competition among sellers required by 

law in the hypothetical marketplace, 

resulting in different definitions of the 

sellers in the hypothetical 

marketplace.19 SoundExchange accuses 

the Services of seeking a marketplace 

characterized by perfect competition. 

DiMA and the Radio Broadcasters claim 

that SoundExchange is championing a 

marketplace characterized by monopoly 

power on the seller’s side. 

SoundExchange PCL at ¶ 38; DiMA and 

Radio Broadcasters JPCL at ¶¶ 29, 36. 

We find that these extreme 

characterizations miss the mark. 

The question of competition is not 

confined to an examination of the 

seller’s side of the market alone. Rather, 

it is concerned with whether market 

prices can be unduly influenced by 

sellers’ power or buyers’ power in the 

market. This issue was addressed in 

Webcaster I. An effectively competitive 

market is one in which supercompetitive prices or below-market 

prices cannot be extracted by sellers or 

buyers, because both bring ‘‘comparable 

resources, sophistication and market 

power to the negotiating table.’’ 67 FR 

45245 (July 8, 2002). 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. 

Furthermore, we find that in the 

hypothetical marketplace that would 

exist in the absence of a statutory 

license constraint, the willing sellers are 

the record companies. Any cognizable 

entity smaller than the record 

companies makes little sense because, 

in such cases, the larger buyers among 

the Services would enjoy 

disproportionate market power resulting 

in below-market prices. At the same 

time, if the sellers’ side of the market 

were characterized by so many sellers as 

to be consistent with perfect 

competition, the transaction costs to the 

buyers of the copyrights would likely be 

prohibitive. 

Webcaster I made clear that ‘‘the 

willing buyers are the services which 

may operate under the webcasting 

license (DMCA-compliant services), the 

willing sellers are record companies and 

the product consists of a blanket license 

for each record company which allows 

use of that record company’s complete 

repertoire of sound recordings.’’ 67 FR 

45244 (July 8, 2002) (emphasis added). 

None of the parties has adduced 

persuasive evidence that this definition 

of sellers has been altered in the 

marketplace as a result of greater or 

lesser competition between these sellers 

since Webcaster I was issued. For 

example, no party provided any 

empirical evidence on the elasticity of 

the demand curve facing these firms in 

the market or, more importantly, 

whether it has changed since Webcaster 

I. Similarly, no party produced 

persuasive evidence that market share 

had changed substantially among the 

record companies in the hypothetical 

marketplace since Webcaster I.20


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different marketplace. See infra at Section 

IV.C.1.b.iii.. 

21Although, little effort is made in the 

presentation of this corroborative data to reconcile 

differences that may exist between these markets 

and adjust for such differences. 

As articulated in the Copyright Act, 

the ‘‘willing buyer/willing seller 

standard’’ 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 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 a benchmark approach to 

determining the rates, we agree with 

Webcaster I that such considerations 

‘‘would have already been factored into 

the negotiated price’’ in the benchmark 

agreements. 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. We have further reviewed the 

evidence bearing on these 

considerations to determine if the 

benchmark agreements require any 

further adjustment based on any 

evidence of differences between the 

benchmark market and the target 

hypothetical market. See infra at Section 

IV.C.1.c. 

b. Benchmarks For Setting Market Rates 

Notwithstanding their general 

agreement that a benchmark approach is 

the best way to setting rates in this 

hypothetical marketplace, the parties 

disagree about what constitutes the 

appropriate benchmark indicative of the 

prices to which willing buyers and 

willing sellers in this marketplace 

would agree. SoundExchange maintains 

that the most appropriate benchmark 

agreements, as analyzed by its expert 

economist, Dr. Michael Pelcovits, are 

those found in the market for interactive 

webcasting covering the digital 

performance of sound recordings. 

SoundExchange PFF at ¶ 216. On the 

other hand, DiMA, Radio Broadcasters 

and Small Commercial Webcasters 

argue that the most appropriate 

benchmarks are agreements between the 

performing rights organizations 

(especially, ASCAP and BMI) and 

webcasters covering the digital public 

performance of musical works. DiMA 

PFF at ¶¶ 39–45; Radio Broadcasters 

PFF at ¶ 297; Small Commercial 

Webcasters PFF at ¶¶ 24–26. SBR 

Creative Media, Inc. claims analog overthe-air broadcast music radio as its 

benchmark, with reference to musical 

composition royalties paid by such 

broadcasters to the performing rights 

organizations (‘‘PROs’’). SBR Creative 

Media, Inc. Rahn WDT at 11. 

We find, based on the available 

evidence before us, that the most 

appropriate benchmark agreements are 

those reviewed by Dr. Pelcovits in the 

market for interactive webcasting 

covering the digital performance of 

sound recordings. 

i. The Interactive Webcasting Market 

Benchmark 

The interactive webcasting market is 

a benchmark with 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, as the names suggest, in the 

interactive case the choice of music that 

is delivered is usually influenced by the 

ultimate consumer, while in the noninteractive case the consumer usually 

plays a more passive role. Pelcovits 

WDT at 5–15. But this difference is 

accounted for in Dr. 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 WDT at 37–41. 

In short, the Copyright Royalty Judges 

find the Pelcovits 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).’’). 

ii. SoundExchange’s Proposed 

Corroborative Evidence 

SoundExchange offers additional 

relevant evidence from the marketplace 

for other types of digital music services 

to corroborate Dr. Pelcovits’ analysis by 

showing that, for many types of music 

services, a substantial portion of 

revenue is paid to sound recording 

copyright owners above the current 

statutory rate, just as it would be under 

the rate proposal that Dr. Pelcovits’ 

analysis seeks to support. See, for 

example, summary chart of Universal 

Music Group agreements covering 

various digital music marketplaces at 

SoundExchange PFF at ¶ 338. We find 

these additional voluntary agreements 

covering such digital services as clip 

licenses, permanent audio downloads, 

etc. of some general corroborative value. 

These data show that, in many cases, 

the price paid by buyers for the rights 

to utilize a sound recording in various 

ways is as much as or higher than the 

rate proposed by Dr. Pelcovits as a result 

of his benchmark analysis.21 This shows 

that the prevailing rates in these other 

markets do not appear to undermine his 

analysis—some indication of general 

reasonableness. 

At the same time, SoundExchange 

offered further purportedly 

corroborative testimony by its economic 

expert, Dr. Brynjolfsson, which seeks to 

support its rate proposal based on an 

analysis of costs and revenues related to 

webcasting and of the ‘‘surplus’’ that 

would be generated over the course of 

the license period. Dr. Brynjolfsson 

testified that one approach to 

determining the price a seller would 

obtain in the market is to measure the 

‘‘surplus’’ that would be generated 

when the seller’s input is added to the 

buyer’s service and sold to the public, 

and then to divide that ‘‘surplus’’ 

between the buyer and the seller. In 

order to make the division, it is 

necessary to determine the revenue that 

would be generated by the retail sale of 

the service and the service provider’s 

other costs of providing the service (i.e., 

costs other than expenditures on the 

input sought to be valued). This requires 

certain information about the buyer, the 

seller and the marketplace to determine 

how the ‘‘surplus’’ would be divided. 

We find that the Brynjolfsson analysis 

relies on unsupported assumptions 

about market behavior and how 

negotiations take place in obtaining his 

results. For example, Dr. Brynjolfsson 

makes a questionable assumption that 

conditions in the real world justify the 

use of a 75% licensor to 25% licensee 

ratio in bargaining power in his models 

for this market. 5/18/2006 Tr. 120:1– 

124–3 (Brynjolfsson). No evidence from 

this market was provided to support this 

assumption. A different assumption of 

equal bargaining power would yield a 

different estimate of the proposed 

royalty rate. Similarly, other 

assumptions such as a 20% annual 

growth rate in the sell-out rates for 


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22We do not intend to imply that all of the 

evidence offered by Dr. Brynjolfsson through his 

testimony is without value; rather, we simply find 

that his two formal models taken as a whole suffer 

from significant defects for the purposes at hand. 

23 In other words, a ‘‘competitive’’ price could be 

deemed to have been set in a marketplace where 

sellers and buyers had roughly equal bargaining 

power, because the resulting price would be much 

closer to the perfectly competitive price than to a 

price determined in circumstances where the sellers 

exercised pure monopoly power or the buyers 

exercised pure monopsony power. That is, 

counterveiling power has the effect of yielding a 

more competitive result than does the absence of 

such counterveiling power. 

24Additionally, there was testimony that directly 

contradicts any suggested generalization that the 

repertoires of all four majors are necessary as a 

prerequisite prior to undertaking the operation of a 

consumer music service in the various digital music 

service markets. For example, Mr. Roback testified 

that Yahoo! was able to operate its custom radio 

channels without Universal Music for two years, 

even though Universal may account for nearly onethird of the market in terms of repertoire. 11/9/06 

Tr. 17:13–21 (Roback). 

25At the same time, it should be noted that Dr. 

Pelcovits did review the MFN clauses in the 

agreements in question and concluded they were 

not anti-competitive or collusive. 5/15/06 Tr. 

207:5–16 (Pelcovits). 

banner ads and a 10% annual growth 

rate in the sell-out rate for in-stream 

advertising are not solidly supported. 

DiMA and Radio Broadcasters JPFF at 

¶¶ 206, 208. Different assumptions for 

these numbers would clearly provide 

different bottom-line rate 

determinations in Dr. Brynjolfsson’s 

models. Then too, Dr. Brynjolfsson 

inputs data into his models in a less 

than rigorous fashion. For example, he 

relies on Accustream data as a source 

for certain cost data without examining 

the methodology used by Accustream in 

compiling the data. 5/18/2006 Tr. 

141:1–6 (Brynjolfsson). Dr. Brynjolfsson 

also uses such data to project future 

growth rates even though the source, 

Accustream, does not appear to discuss 

its methodology for collecting their data 

in the written report that supplies the 

data. SERV–D–X 37. Thus, if there is 

error in the original data stemming from 

the way it is collected, that error is 

compounded by applying growth rates 

to an erroneous base. Dr. Brynjolfsson 

also appears to have double-counted or 

miscounted certain types of revenue. 

DiMA and Radio Broadcasters JPFF at 

¶¶ 215, 216. In short, questionable 

assumptions coupled with concerns 

over the reliability of the data used in 

the Brynjolfsson models cause us to 

regard the ultimate findings of these 

models as effectively undeterminable. 

For those reasons, the Copyright Royalty 

Judges find that the Brynjolfsson models 

do not provide additional corroboration 

of SoundExchange’s benchmark analysis 

and the rates proposed.22

iii. Services’ Objections to Pelcovits’ 

Interactive Webcasting Market 

Benchmark Analysis Are Not Persuasive 

The Services’ objections to the 

Pelcovits benchmark analysis are not 

supported by persuasive evidence. Their 

major objections are reflected in Dr. 

Jaffe’s written rebuttal testimony and 

boil down to two: (1) The claim that this 

benchmark market is not adequately 

competitive and (2) certain alleged 

methodological flaws in the Pelcovits 

approach. Jaffe WRT at 4–24. 

As we have indicated hereinabove, 

supra at Section IV.C.1.a., the law does 

not require a perfectly competitive 

target market if that is the thrust of Dr. 

Jaffe’s objections; therefore, neither does 

it require a perfectly competitive 

benchmark market because that would 

not be comparable to circumstances in 

the target market. Indeed, Webcaster I 

emphasizes that buyers and sellers 

participate in a ‘‘competitive’’ market 

for purposes of the law when they have 

comparable resources and market 

power.23 67 FR 45245 (July 8, 2002). 

On the other hand, if the thrust of Dr. 

Jaffe’s concerns are that the benchmark 

market is not sufficiently competitive to 

be similar to the competitive 

circumstances that prevail in the target 

hypothetical market, we find that the 

evidence does not support such a view. 

On the contrary, the evidence 

establishes that the benchmark market is 

sufficiently similar to the target 

hypothetical market to merit 

comparison. There are multiple sellers 

and buyers in each market—indeed 

many are the same buyers and sellers. 

Pelcovits WDT at 12–13. In other words, 

the weight of the evidence supports the 

Pelcovits benchmark analysis. 

Dr. Jaffe’s claim that buyers in the 

market for interactive webcasting face a 

different seller than the record 

companies because they need the 

portfolios of the four major record 

companies in order to provide a service 

to consumers is largely 

unsubstantiated.24 Dr. Jaffe himself 

concedes the possibility for competition 

among the record companies for market 

share in the interactive market. 

SoundExchange PFF at ¶¶ 304–305. 

At the same time, Dr. Jaffe’s 

contention that the interactive 

webcasting benchmark market is highly 

concentrated on the seller’s side is not 

supported by any evidence of a supercompetitive impact on prices in the 

benchmark market. Further 

undermining his contention is Dr. Jaffe’s 

own admission that market 

concentration on one side of the market 

(i.e., among sellers) need not necessarily 

result in an outcome that looks 

markedly different from a competitive 

outcome so long as the buyers in the 

same market have comparable market 

power. SoundExchange PFF at ¶ 196. 

Nor does Dr. Jaffe provide any 

persuasive evidence to support a 

collusion allegation among the sellers in 

the interactive webcasting benchmark 

market. SoundExchange PFF at ¶ 312. 

And he fails to substantiate his claim 

that the presence of so-called most 

favored nations (‘‘MFN’’) clauses in 

certain agreements in the interactive 

webcasting market is suggestive of anticompetitive behavior. MFN clauses are 

not automatically indicative of tacit 

collusion—they may simply reflect the 

need for price flexibility in the face of 

uncertainty in long-term contracts.25

In short, Dr. Jaffe’s concerns that the 

benchmark market is not sufficiently 

competitive to be similar to the 

competitive circumstances that prevail 

in the target hypothetical market 

amount to little more than the 

theoretical speculations of an academic 

offering a quick outline of possible 

criticisms without carefully considering 

the applicable facts or alternative 

explanations. We find that the available 

evidence does not support such a view. 

Apart from his concerns about the 

competitive comparability of the 

interactive webcasting market 

benchmark to the hypothetical target 

market, Dr. Jaffe also raises 

methodological criticisms of the 

projected rate results obtained by Dr. 

Pelcovits from the latter’s use of 

interactive webcasting as a benchmark. 

While raising interesting potential 

issues, Dr. Jaffe’s critique fails in its 

search for persuasive evidence. For 

example, Dr. Jaffe complains that the 

interactivity adjustment made by Dr. 

Pelcovits is based on incorrect and 

internally inconsistent assumptions— 

i.e., the assumption that ‘‘elasticity at 

market equilibrium is the same for 

interactive services and non-interactive 

services.’’ Jaffe WRT at 17. First, it 

should be noted that even if Dr. Jaffe’s 

complaint were supported by the 

record, it would not eliminate the 

interactive webcasting market as an 

appropriate benchmark. As Dr. Pelcovits 

correctly notes, ‘‘if demand elasticity 

were to differ significantly between the 

two markets, it could increase the 

copyright fee or decrease it.’’ Pelcovits 

WRT at 36 n.14. But we are not faced 

with that difficulty here because the 

available evidence tends to support Dr. 

Pelcovits’ assumption that demand 

elasticities were likely to be very close 

in the relevant range of the demand 

curves. SoundExchange RFF at ¶¶ 117– 

118; Pelcovits WRT at 25–27. 


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26 Dr. Pelcovits also noted that a negative royalty 

rate would be unlikely to occur in a dynamically 

adjusting market. Pelcovits WRT at 30. 

27Curiously, at this point in his analysis Dr. Jaffe 

appears to back away from his insistence on a 

‘‘competitive’’ market because to maintain that 

position would lead to a logically inconsistent 

result in his benchmark analysis. Since, in a 

perfectly competitive market situation, price at 

equilibrium is equal to marginal cost, then, 

logically, the price for the rights in question could 

be no higher than zero. Therefore, Dr. Jaffe opts for 

a necessarily different undefined market structure 

by saying that here, even though the price should 

be zero, the resulting royalty would be some greater 

amount apparently determined by the relative 

bargaining power of the buyers and sellers. Jaffe 

WDT at 26. If this benchmark market results in a 

price that is higher than what is expected under 

perfectly competitive conditions, then clearly the 

sellers must be exercising some degree of market 

power. 

28 In other words, this is not just a static process 

concerned with recouping past investment costs, 

but a dynamic economic process concerned with 

obtaining greater resources for future creative 

efforts. 

29 Indeed, even Dr. Jaffe concedes that the costs 

of sound recordings not yet created are not sunk. 

6/28/06 Tr. 99:7–101–7 (Jaffe). 

Dr. Jaffe also contends that Dr. 

Pelcovits improperly extrapolates fees 

for non-subscription or ad-supported 

services from a model based entirely on 

subscription services because 

subscription services only account for a 

small percentage of non-interactive 

services. Jaffe WRT at 22–24. He says, 

without empirical support, that this 

small fraction is not representative of all 

non-interactive listeners. Jaffe WRT at 

22–24. The implication is that adsupported services are the predominant 

business model now for non-interactive 

webcasting and that ad-supported 

services would necessarily pay less than 

subscription services to use the same 

music in their non-interactive services 

because their advertising revenues have 

not yet grown to the point where adsupported services are more lucrative on 

a per-listener hour basis. However, this 

criticism, besides providing no 

information on the degree of 

substitution by consumers between the 

subscription and non-subscription 

options, fails to take into account any 

improvement in ad-supported revenues 

over the term of this licensing period. 

SoundExchange PFF at ¶¶ 320–321, 

323–324. Therefore, to the extent that 

ad-supported revenues may not yet have 

equalized subscription revenues on a 

per-listener hour basis but are expected 

to grow over the term of this applicable 

license, SoundExchange’s proposed 

phase-in of the per-performance rates to 

the level indicated by the benchmark 

analysis represents a wholly reasonable 

approach to dealing with this potential 

issue. 

Finally, Dr. Jaffe contends that one or 

more of the key data items in Dr. 

Pelcovits’ rate analysis must be 

incorrect because their strict application 

would produce a negative royalty rate. 

Jaffe WRT at 20–22. But this criticism 

ignores the profits earned by interactive 

services, or, alternatively, assumes 

without basis that the same dollar 

amount of profit should be earned by 

services in the non-interactive market.26

Jaffe WRT at 20–21; SoundExchange 

RFF at ¶¶ 122–123. We find no merit in 

this flawed critique. 

In sum, the Services’ objections to the 

Pelcovits benchmark analysis are not 

persuasive. This does not mean that Dr. 

Pelcovits’ analysis and presentation is 

without any warts. For example, Dr. 

Pelcovits failed to fully account in his 

written statement for the reasoning 

behind his choice of variables and the 

functional form used in his hedonic 

model to isolate the value of 

interactivity to consumers of online 

music services. But for the fact that he 

subsequently provided most of that 

information orally in response to 

questions from the Copyright Royalty 

Judges, 5/16/2006 Tr. 267:16–276:14 

(Pelcovits), such an omission may have 

led to more serious questions about this 

aspect of his model. And a more 

comprehensive study of the relative 

price elasticities of demand in the 

interactive and non-interactive 

webcasting markets would have been a 

welcome addition to the available 

evidence on this point, even though the 

available evidence weighed in Dr. 

Pelcovits’ favor. On the other hand, the 

Copyright Royalty Judges find that these 

critiques are not sufficient to undermine 

the basic thrust and conclusions of the 

Pelcovits benchmark analysis. 

Moreover, as noted supra at Section 

IV.C.1.b.ii., his analysis benefits from 

some general corroborative evidence. 

iv. A Flawed Musical Works Benchmark 

Offered by Dr. Jaffe 

We have also considered and rejected 

Dr. Jaffe’s offer of agreements from the 

musical works marketplace as a 

benchmark. This benchmark analysis 

appears to be little more than a hasty 

attempt to revive and rehabilitate some 

similar arguments that failed to prevail 

in Webcaster I. 

The Copyright Royalty Judges find 

that the benchmark analysis offered by 

Dr. Jaffe is fatally flawed for several 

reasons. First, Dr. Jaffe’s benchmark 

analysis is based on a marketplace in 

which, while the buyers may be the 

same as in the target hypothetical 

marketplace, the sellers are different 

and they are selling different rights. 

Therefore, contrary to Dr. Jaffe’s 

expectations that the prices paid for the 

rights in each respective market dealing 

with similar rights should be the same, 

substantial empirical evidence shows 

that sound recording rights are paid 

multiple times the amounts paid for 

musical works rights in the markets for 

ring tones, digital downloads, music 

videos and clip samples. Pelcovits WRT 

at 4; Eisenberg WRT at 7–14. 

Second, the Copyright Royalty Judges 

find that Dr. Jaffe’s equivalence 

argument also fails because of his 

reliance on the assumption of ‘‘sunk 

costs’’ as a justification. This 

assumption must be rejected on both 

theoretical and empirical grounds. Dr. 

Jaffe claims that, while the sellers in his 

benchmark market are not the same, 

they come to the negotiation from a 

similar position because in both his 

proposed benchmark market and in the 

hypothetical target market, the costs of 

producing the underlying intellectual 

property are ‘‘sunk.’’ Jaffe WDT at 23. 

According to Dr. Jaffe, this means ‘‘there 

is no incremental cost imposed on 

either the musical work or sound 

recording by virtue of making the 

underlying intellectual property 

available for digital performance.’’ 27

Jaffe WDT at 24. As a matter of theory, 

Dr. Jaffe’s proposed benchmark analysis 

ignores the long-established pattern of 

investment in the recording industry. 

Thus, not only are there some initial 

sunk investments, but there is a 

requirement of repeated substantial 

outlays year after year or, in other 

words, the repeated ‘‘sinking’’ of funds. 

If sellers are faced with the prospect of 

not recovering such sunk costs, then the 

incentive to produce such sound 

recordings is diminished. And the 

record is replete with evidence of a 

substantially greater investment of this 

type in sound recordings as compared to 

musical works. SoundExchange PFF at 

¶¶ 449–461. Furthermore, recording 

companies will necessarily make future 

investment decisions based on their best 

estimates of the revenue sources 

available to them in the future from all 

sources including revenue streams 

derived from the non-interactive 

webcasting of sound recordings.28

SoundExchange PFF at ¶ 478; 

Brynjolfsson WRT at 6–8. Thus, to 

suggest that they ignore such costs in 

their approach to pricing makes little 

sense. It would be tantamount to 

suggesting that services such as Yahoo! 

or AOL or Microsoft would never 

consider the cost of their research and 

development programs when pricing 

their products.29 In short, we decline to 

accept Dr. Jaffe’s ‘‘sunk costs’’ 

justification for his proposed 

benchmark. 


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30For example, the Radio Broadcasters 

strenuously assert that over-the-air-radio is 

promotional and therefore that simulcasting must 

be promotional. But they present no persuasive 

evidence that would be useful for quantifying the 

magnitude of this asserted effect either for over-theair-radio or for non-interactive webcasting and 

deriving a method for translating such magnitudes 

into a rate adjustment. Indeed, the quality of 

evidence presented by the Services on this issue 

consisted largely of assertions, recollections of 

conversations clearly evidencing common 

‘‘puffing’’ in a business context, or anecdotes 

recounting subjective opinions. On a similar record, 

Webcaster I found no basis for a downward 

adjustment of the simulcast rate to account for the 

promotional value associated with over-the-air 

broadcasts because the net impact was 

indeterminate. 67 FR 45255 (July 8, 2002). 

31For the reasons indicated supra at Section 

IV.B.1, only usage rates are determined. 

Third, there is ample empirical 

evidence in the record from other 

marketplaces to controvert Dr. Jaffe’s 

premise that the market for sound 

recordings and the market for musical 

works are necessarily equivalent. 

SoundExchange PFF at ¶¶ 483–495. 

For all these reasons, the Copyright 

Royalty Judges find that Dr. Jaffe’s 

proffered benchmark is not useful to our 

determination of an appropriate 

benchmark from which to derive 

applicable rates. We, therefore, adhere 

to the Pelcovits benchmark analysis as 

a superior tool for that purpose. 

v. Other Proposed Benchmarks Rejected 

One other benchmark was proposed 

in this proceeding by a commercial 

party. SBR Creative Media, Inc. claims 

analog over-the-air broadcast music 

radio as its benchmark, with reference 

to musical composition royalties paid 

by such broadcasters to the performing 

rights organizations. SBR Creative 

Media, Inc. Rahn WDT at 11. We find 

that this is virtually the same 

benchmark as that proposed by Dr. Jaffe 

on behalf of the Services and rejected in 

Webcaster I. 67 FR 45246–7 (July 8, 

2002). SBR does nothing to remedy the 

deficiencies from which this proposed 

benchmark was shown to suffer in 

Webcaster I. Furthermore, this proposed 

benchmark suffers from the same 

deficiencies we find fatal with respect to 

Dr. Jaffe’s proposed benchmark 

discussed supra at Section IV.C.1.b.iv. 

For all these reasons, the Copyright 

Royalty Judges find that the SBR 

Creative Media, Inc. proffered 

benchmark is not useful to our 

determination of an appropriate 

benchmark from which to derive 

applicable rates and, therefore, adhere 

to the Pelcovits benchmark analysis as 

a superior tool for that purpose. 

c. Conclusion: The Interactive 

Webcasting Market Benchmark Provides 

the Best Benchmark for Setting 

Commercial Rates Without Further 

Adjustment for Either Substitution or 

Promotion Factors or the Relative 

Contributions Made by the Copyright 

Owners and Webcasting Services in 

Bringing the Copyrighted Works and the 

Services to the Public 

As discussed supra at Section 

IV.C.1.a., 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 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 a benchmark approach to 

determining the rates, we agree with 

Webcaster I that such considerations 

‘‘would have already been factored into 

the negotiated price’’ in the benchmark 

agreements. 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. Nevertheless, we have also 

further reviewed the evidence bearing 

on these considerations to determine if 

the benchmark agreements require any 

further adjustment based on any 

evidence of differences between the 

benchmark market and the target 

hypothetical market. 

We find that no further adjustment is 

necessary to the Pelcovits benchmark 

analysis to account for any of these 

considerations. Dr. Pelcovits explicitly 

examined the promotion and 

substitution issues and ultimately found 

no empirical evidence to suggest a net 

substitution/promotion difference 

between the interactive and the noninteractive marketplaces. Pelcovits WRT 

at 17–27. Because only the relative 

difference between the benchmark 

market and the hypothetical target 

market would necessitate an 

adjustment, the absence of solid 

empirical evidence of such a difference 

obviates the need for such further 

adjustment. Furthermore, even if the 

absolute levels of promotion/ 

substitution in the non-interactive 

market alone were somehow relevant, as 

the Services appear to suggest, we find 

that the Services presented no 

acceptable empirical basis for 

quantifying promotion/substitution for 

purposes of adjusting rates in that 

market.30

Similarly, the parties’ evidence with 

respect to 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 does not persuade us that any 

further adjustment needs to be made to 

the Pelcovits benchmark to account for 

quantifiable differences related to these 

factors. We find that such factors are 

implicitly accounted for in the rates that 

result from negotiations between the 

parties in the benchmark marketplace. 

Moreover, because only the relative 

difference between the benchmark 

market and the hypothetical target 

market would necessitate an 

adjustment, the absence of solid 

empirical evidence of such a difference 

obviates the need for such further 

adjustment. 

Finally, the Radio Broadcasters seek 

to differentiate their simulcasting 

operations from the operations of other 

commercial webcasters and, thereby, 

obtain a different, lower royalty rate. 

The record before us fails to persuade us 

that these simulcasters operate in a 

submarket separate from and noncompetitive with other commercial 

webcasters. Indeed, there is substantial 

evidence to the contrary in the record 

indicating that commercial webcasters 

such as those represented by DiMA in 

this proceeding and simulcasters such 

as those represented by Radio 

Broadcasters in this proceeding regard 

each other as competitors in the 

marketplace. SoundExchange PFF at 

¶¶ 1107–1110. Therefore, the Copyright 

Royalty Judges do not find a basis for 

setting a different, lower rate for these 

simulcasters as compared to other 

commercial webcasters. Webcaster I, at 

67 FR 45255, 45272 (July 8, 2002), 

reached a similar conclusion in finding 

no basis for treating these simulcasters 

any differently with respect to the per 

performance commercial rate, and we 

find no facts to persuade us of a change 

in circumstance since then. 

d. Rates and Minimum Fees Applicable 

to Commercial Webcasters 

i. Determination of Per Play Rates for 

Commercial Webcasters 

Because we find that the interactive 

webcasting market is a benchmark with 

characteristics reasonably similar to 

non-interactive webcasting, particularly 

after Dr. Pelcovits’ final adjustment for 

the difference in interactivity, the 

Copyright Royalty Judges find that this 

benchmark supports the explicit annual 

usage rates 31 proposed by 


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32Commercial Webcasters include such licensees 

who are eligible nonsubscription transmission 

services or new subscription services, irrespective 

of whether they transmit music in large part or in 

small part. 33The Judges recognize that a smooth transition 

from the prior fee regime to the new fee structure 

adopted by the Judges hereinabove may be aided by 

permitting the limited use of an ATH calculation 

option. Such a transition option enhances the 

ability of some Services to effectuate speedy 

payments and, in so doing, improves the ability of 

copyright owners to more quickly obtain monies 

due. In short, such a transition measure is 

reasonably calculated to facilitate a smooth, speedy 

transition to the new fee structure adopted 

hereinabove by the Judges. Therefore, the usage fee 

structure established in this Final Determination 

will continue use of an ATH option for timely 

payment of fees due for the years 2006 and 2007. 

See table near footnote 33 reference. 

The following Aggregate Tuning Hours (ATH) 

usage rate calculation options will be available for 

the transition period of 2006 and 2007: Note: [See 

table for footnote 33 above] where ‘‘Non-Music 

Programming’’ is defined as Broadcaster 

programming reasonably classified as news, talk, 

sports or business programming; ‘‘Broadcast 

Simulcast Programming’’ is defined as Broadcaster 

simulcast programming not reasonably classified as 

news, talk, sports or business programming; and 

‘‘Other Programming’’ is defined as programming 

other than either Broadcaster simulcast 

programming or Broadcaster programming 

reasonably classified as news, talk, sports or 

business programming. 

34We do not find that the benchmark supports an 

additional Consumer Price Index adjustment to the 

usage rate in 2010. No evidence has been submitted 

by SoundExchange to support this additional 

adjustment by what is, at this point in time, an 

indeterminate amount. 

35We find that a usage rate is more directly 

reflective of the rights being licensed than other 

alternative rate metrics. See supra at Section IV.B. 

Moreover, the evidence presented fails to persuade 

us that receiving a music service as part of a bundle 

of services necessarily results in a higher valuation 

of that music service by the consumer than if it had 

been delivered as a non-bundled service. For 

example, SoundExchange’s claim for an uplifted 

rate for bundled services is supported by only one 

custom radio agreement addressing bundled 

services and that agreement is specifically 

identified by its expert, Dr. Pelcovits, as part of a 

class of agreements that are ‘‘not a good 

benchmark.’’ Pelcovits WRT at 35 n.43. Therefore, 

we find no sufficient basis upon which to 

determine a different usage rate for bundled 

services as compared to non-bundled services. 

36We are also troubled by SoundExchange’s 

proposal to apply the wireless premium even in 

cases where the service cannot ‘‘distinguish 

between transmissions to wireless devices and fixed 

line devices.’’ This proposal is not supported by 

any evidence that a presumption of ‘‘wireless’’ 

transmission ought to apply. To the contrary, 

SoundExchange’s own witness, James Griffin 

admits that, at least in some cases, webcasters 

simply may not be able to distinguish between 

transmissions to wireless devices and fixed line 

devices. Griffin WDT at 32. 

37At the same time, there is evidence that the 

royalty collection and distribution operations 

performed by SoundExchange consist of substantial 

work, such as processing payments and reports of 

use, matching information received from licensees 

with information on copyright owners and 

performers, undertaking related research and 

quality assurance work, allocating and distributing 

royalties and resolving errors or disputes. See 

Kessler WDT at 3–16. 

SoundExchange. Therefore, we find that 

the per play rate applicable to each year 

of the license for Commercial 

Webcasters 32 is as follows: a per play 

rate of $.0008 for 2006, a per play rate 

of $.0011 for 2007, a per play rate of 

$.0014 for 2008, a per play rate of 

$.0018 for 2009 and a per play rate of 

$.0019 for 2010.33

Other programming Broadcast simulcast programming Non-music 

programming 

Prior Fees ............................................ $0.0117 per ATH ................................ $0.0088 per ATH ................................ $0.0008 per ATH. 

2006 ..................................................... $0.0123 per ATH ................................ $0.0092 per ATH ................................ $0.0011 per ATH. 

2007 ..................................................... $0.0169 per ATH ................................ $0.0127 per ATH ................................ $0.0014 per ATH. 

Note: See footnote 33 

We find no basis for making further 

adjustments to this usage rate to reflect 

inflation 34 or bundling.35

We are persuaded by the evidence in 

the record to apply these usage rates 

without any further adjustment for 

wireless transmission to all Commercial 

Webcasters. While SoundExchange’s 

proposed rates included a 25% 

premium for ‘‘wireless services,’’ the 

Copyright Royalty Judges find no 

persuasive basis in the record for such 

a so-called ‘‘mobility premium.’’ The 

proposed wireless premium was not 

grounded on the Pelcovits benchmark 

analysis that underlies 

SoundExchange’s primary rate proposal. 

Indeed, Dr. Pelcovits specifically 

declined to do so because of the absence 

of any data on mobile interactive 

services. Pelcovits WDT at 60–61. The 

alternative data offered by Dr. Pelcovits 

on this issue is not persuasive. Most of 

the relatively limited data he offers fails 

to address salient differences between 

the markets and products represented 

by that data and the non-interactive 

webcasting market and its product 

offerings. In addition, SoundExchange 

fails to provide any persuasive evidence 

that a music service delivered to a 

tethered laptop computer via the 

Internet is valued differently in the 

marketplace than the same music 

service delivered to a laptop computer 

via the Internet over private or public 

wireless Internet networks using 

Wireless Fidelity (‘‘WiFi’’) technology. 

SoundExchange’s proposal to exempt 

wireless transmissions over ‘‘personal, 

short range residential networks’’ from 

its proposed wireless premium also 

underlines its own recognition of the 

absence of a difference. 

SoundExchange’s Revised Rate Proposal 

(filed September 29, 2006) at 7. 

Therefore, on the record before us, we 

do not find a sufficient basis to support 

a proposed premium for the wireless 

transmission of non-interactive 

webcasts.36

ii. Determination of Minimum Fee for 

Commercial Webcasters 

Under 17 U.S.C. 114(f)(2)(B), the 

Copyright Royalty Judges are directed to 

set a minimum fee for each type of 

service. SoundExchange points out that 

the Webcaster I CARP noted that one 

purpose of the minimum fee was to 

‘‘protect against a situation in which a 

licensee’s performances are such that it 

costs the license administrator more to 

administer the license than it would 

receive in royalties’’ and another 

purpose was ‘‘to capture the intrinsic 

value of the licensee’s access to the full 

blanket license, irrespective of whether 

the service actually transmits any 

performances.’’ SoundExchange PFF at 

¶ 1349. We find no evidence in the 

record that establishes an amount for 

such an ‘‘intrinsic value’’ and, therefore, 

focus on the administrative cost issue. 

Here again, we are provided with little 

evidence of the administrative cost per 

licensee,37 especially for a webcaster 

who may be generating few royalties. 

The benchmark marketplace agreements 

generally provide for substantial 

advance annual minimum fees that are 

non-refundable, but recoupable against 

future royalties. As compared to these 

amounts, SoundExchange’s proposal of 

an annual non-refundable, but 

recoupable $500 minimum per channel 

or station payable in advance is a 

substantially smaller amount. 

SoundExchange Revised Rate Proposal 

(filed September 29, 2006). Even though 

its proposed minimum fee is low, 

SoundExchange must anticipate that it 

will cover its administrative costs even 

in the absence of royalties. Therefore, 

we find SoundExchange’s minimum 

annual fee proposal is reasonable and 


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38Webcaster I found a $500 minimum annual fee 

per licensee to be reasonable in light of the CARP’s 

reasoning that the RIAA would not have negotiated 

a minimum fee that failed to cover at least its 

administrative costs. 67 FR 45262–3 (July 8, 2002). 

In the agreement to push forward rates and terms 

in 2003, commercial webcasters and 

SoundExchange agreed that minimum annual fees 

would equal $2500, or $500 per channel or station, 

but in no event less than $500 per licensee. 37 CFR 

262.3(d)(2). Again, it is reasonable to anticipate that 

SoundExchange would not have negotiated a 

minimum fee that failed to cover at least its 

administrative costs. 

39This $500 minimum fee is applicable to each 

individual station and each individual channel, 

including each individual ‘‘side channel’’ 

maintained by broadcasters. ‘‘Side channels’’ are 

channels on the website of a broadcaster that 

transmit eligible transmissions that are not 

simultaneously transmitted over-the-air by the 

broadcaster. Thus, a broadcaster who transmits one 

simulcast over the Internet and also transmits an 

eligible transmission over one side channel is 

subject to a minimum fee of $500 for each 

respective transmission, for a total in this example 

of $1,000. In other words, the minimum fee is 

separately applicable to each side channel. We find 

no basis in the record for distinguishing between 

side channels and other stations or channels with 

respect to a minimum fee that reflects the costs of 

license administration. We have found, 

hereinabove, that SoundExchange’s proposal of a 

$500 minimum fee for such administration is 

clearly reasonable. Further, such administration 

costs will align more clearly with per station or per 

channel reports of use where such reports of use are 

submitted in satisfaction of recordkeeping 

requirements. 

40The ‘‘Joint Noncommercial Proposed Findings 

of Fact and Conclusions of Law’’ were submitted by 

National Public Radio, Corporation For Public 

Broadcasting-Qualified Stations, the National 

Religious Broadcasters Noncommercial Music 

License Committee (‘‘NRBNMLC’’), and Collegiate 

Broadcasters, Inc. 

41See for example, Burkett, John P., 

Microeconomics: Optimization, Experiments and 

Behavior, (Oxford University Press, 2006) at 162 for 

an introductory microeconomic description of price 

discrimination. Typically, the submarket 

characterized by lesser price elasticity will exhibit 

a higher price. All the economists who testified in 

this proceeding for both the Services and the 

copyright owners generally agreed with this 

description. See, for example, 5/16/06 Tr. 222:19– 

223:5 (Pelcovits); 11/21/06 Tr. 14:20–15:11 

(Brynjolfsson); 11/8/06 Tr. 63:4–64:8 (Jaffe); Picard 

WRT at 2–7, 11/13/06 Tr. 191:5–196:1 (Picard). For 

an introductory discussion of price discrimination 

in copyright markets, see Congressional Budget 

Office, Copyright Issues in Digital Media, August 

2004 at 23–24 or Landes, William M. and Richard 

A. Posner, the Economic Structure of Intellectual 

Property Law, (Cambridge, MA: The Belnap Press 

of the Harvard University Press, 2003) at 374–78, 

389–90. 

applicable to Commercial Webcasters.38

Moreover, since this flat dollar 

minimum fee is not adjusted over the 

term of the license to reflect the impact 

of inflation, this minimum fee is likely 

to have a declining financial impact on 

the costs of the Services over the term 

of the license. Therefore, we determine 

that a minimum fee of an annual nonrefundable, but recoupable $500 

minimum per channel or station 39

payable in advance is reasonable over 

the term of this license. 

2. Noncommercial Webcasters 

a. The Willing Buyer/Willing Seller 

Standard Revisited 

As previously noted hereinabove, 

supra at Section IV.A., the Copyright 

Act requires that the Copyright Royalty 

Judges establish rates for the section 114 

performance license that ‘‘most clearly’’ 

represent those ‘‘that would have been 

negotiated in the marketplace between a 

willing buyer and a willing seller.’’ Both 

copyright owners and noncommercial 

services agree that the best approach to 

determining what rates would apply in 

such a hypothetical marketplace is to 

look to comparable marketplace 

agreements as ‘‘benchmarks’’ indicative 

of the prices to which willing buyers 

and willing sellers in this marketplace 

would agree. However, the copyright 

owners and the noncommercial services 

disagree on an appropriate benchmark. 

The copyright owners insist there is 

no basis to apply a benchmark other 

than that used in the commercial 

market; and consequently, they 

maintain that the rates supported by the 

interactive benchmark analysis apply 

with equal force to Commercial and 

Noncommercial Webcasters. 

SoundExchange’s Revised Rate Proposal 

(filed September 29, 2006). The 

Noncommercial Webcasters, on the 

other hand, maintain that they are 

distinguishable from commercial 

services and, as such, require a 

different, lower rate. In effect, they 

claim to be different buyers and, hence, 

a different benchmark should be 

consulted. Joint Noncommercial PFF 40

at ¶ 10; Joint Proposed Findings of IBS 

and WHRB at 9–15. The Noncommercial 

Webcasters propose lower rates, 

described supra at Section IV.B.2., based 

on several alternative benchmarks-(1) 

the musical works rates applicable to 

over-the-air broadcasting pursuant to 

section 118 of the Copyright Act and (2) 

rates loosely related to the 2001 NPR– 

SoundExchange agreement which 

covered streaming from 1998 to 2004 

(SERV–D–X 157). Joint Noncommercial 

PFF at ¶ 35; NRBNMLC PFF at ¶ 52. 

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.41

Certainly, there is a significant history 

of Noncommercial Webcasters such as 

NPR and the copyright owners reaching 

agreement on rates that were 

substantially lower than the applicable 

commercial rates over the 

corresponding period. See, for example, 

the 2001 NPR–SoundExchange 

agreement which covered streaming 

from 1998 to 2004 (SERV–D–X 157). 

And, even though SoundExchange 

offers no formal proposal exempting any 

Noncommercial Webcasters from its 

proposed commercial rates, its own 

economic expert suggests a continuation 

of differentiated rates where the service 

offered by such Noncommercial 

Webcasters does not appear to pose any 

threat of making serious inroads into the 

business of those services paying the 

commercial rate. Brynjolfsson WRT at 

42. Dr. Brynjolfsson suggests a cap on 

listeners beyond which Noncommercial 

Webcasters would no longer enjoy the 

lower rate in order to reduce ‘‘the 

chance that small noncommercial 

stations will cannibalize the webcasting 

market more generally’’ and thereby 

adversely affect the value of the digital 

performance right in sound recordings. 

Id. SoundExchange does not disavow 

Dr. Brynjolfsson’s testimony on this 

point, even citing it in its proposed 

findings of fact. In short, 

SoundExchange can itself envision 

circumstances under which a 

continuation of some regime of 

differentiated prices would continue. 

The Copyright Royalty Judges also can 

envision such circumstances. But, as a 

matter of pure economic rationale based 

on the willing buyer/willing seller 

standard, those circumstances 

undoubtedly must include safeguards to 

assure that, as the submarket for 

noncommercial webcasters that can be 

distinguished from commercial 

webcasters evolves, it does not simply 

converge or overlap with the submarket 


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for commercial webcasters and their 

indistinguishable noncommercial 

counterparts. 

The Copyright Royalty Judges have 

reached this view after a careful 

consideration of the characteristics that 

help to delineate the noncommercial 

submarket, juxtaposed against evidence 

in the record that those characteristics 

may be changing for at least some 

members of the submarket. For example, 

the noncommercial broadcasters cite a 

myriad of characteristics that they claim 

set them apart from commercial 

broadcasters. Noncommercial licensees 

are non-profit organizations. Johnson 

WDT at ¶ 5; Papish WDT at ¶¶ 4, 12; 

Robedee WDT at ¶ 2; 6/27/06 Tr. 63:1– 

21 (Stern); 8/7/06 Tr. 13:11–17, 21:10– 

12 (Kass). The noncommercial 

webcasters’ mission is to provide 

educational, cultural, religious and 

social programming not generally 

available on commercial venues. See, 

for example, Stern WDT at 4 and 8/1/ 

06 Tr. 21:11–22:1 (Johnson). 

Noncommercial webcasters have 

different sources of funding than adsupported commercial webcasters-such 

as listener donations, corporate 

underwriting or sponsorships, and 

university funds. Joint Noncommercial 

PFF at ¶ 20. The implication is that 

noncommercial webcasters do not 

compete with commercial webcasters. 

But as webcasting has developed, some 

of these traits have become blurred. 

Public and collegiate radio stations no 

longer necessarily face a limited 

geographic audience, but rather their 

music programming is geographically 

unbounded so that such stations may 

compete with commercial webcasters 

even ‘‘worldwide.’’ SoundExchange PFF 

at ¶¶ 1105, 1185. Some college radio 

stations use the Live365 service to 

stream their simulcasts, making them 

just another consumer choice available 

on Live365 together with numerous 

commercial stations. SoundExchange 

PFF at ¶ 1186. Commercial Webcasters 

view Noncommercial Webcasters as 

competition for an audience interested 

in listening to music. SoundExchange 

PFF at ¶ 1116. And some 

Noncommercial Webcasters, such as 

NPR, may view Commercial Webcasters 

as their competition for audience as 

well. SoundExchange PFF at ¶ 1170. 

Some noncommercial stations have 

adopted programming previously found 

on commercial stations for use on 

noncommercial side channels or 

expanding the use of side channels as 

music outlets. SoundExchange PFF at 

¶¶ 1117, 1123. Music programming 

found on noncommercial stations 

competes with similar music 

programming found on commercial 

stations. SoundExchange PFF at ¶ 1122, 

SoundExchange RFF at ¶ 284. 

Sponsorships appear to monetize 

webcasting in a fashion similar to 

advertising. SoundExchange PFF at 

¶¶ 1130, 1134, 1166. Some 

noncommercial stations use the 

functional equivalent of marketing 

materials that emphasize the size, 

income and demographics of their 

audience in much the same manner that 

commercial stations make their 

advertising sales pitches. 

SoundExchange PFF at ¶¶ 1135, 1142. 

In other words, as webcasting has 

evolved, some convergence between 

some noncommercial webcasters and 

commercial webcasters can be observed 

ultimately resulting in competition for 

audience. Brynjolfsson WRT at 40–41. 

To the extent such competition occurs, 

market segmentation breaks down, 

obviating the need for a separate lower 

royalty rate. 

b. Proposed Benchmarks and Other 

Relevant Evidence 

The copyright owners take the 

position that the same benchmark 

applies to the noncommercial and the 

commercial services in the marketplace. 

Consequently, they maintain that the 

rates supported by the interactive 

benchmark analysis discussed supra at 

Section IV.C.1.b.i. apply with equal 

force to Commercial and 

Noncommercial Webcasters. Because we 

have found that, up to a point, 

‘‘noncommercial’’ webcasters, may 

constitute a 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, we necessarily find that the 

benchmark proposed by the copyright 

owners is applicable to only some 

Noncommercial Webcasters (i.e., those 

that cannot be clearly distinguished 

from their commercial counterparts). In 

other words, the copyright owners’ 

benchmark does not apply to those 

Noncommercial Webcasters that can be 

said to constitute a distinct submarket 

in the non-interactive marketplace. The 

interactive market benchmark analysis 

is based on agreements in which all of 

the services are Commercial Webcasters. 

There are no agreements that form part 

of that analysis that would adequately 

gauge what a Noncommercial Webcaster 

in a distinctly different submarket 

would be willing to pay as a willing 

buyer for the rights at issue in this 

proceeding. 

The Noncommercial Webcasters offer 

several alternative benchmarks 

applicable to all noncommercial 

Services without distinction as well: (1) 

The musical works rates applicable to 

over-the-air broadcasting pursuant to 

section 118 of the Copyright Act and (2) 

rates loosely related to the 2001 NPR– 

SoundExchange agreement which 

covered streaming from 1998 to 2004 

(SERV–D–X 157). We find neither of 

these approaches adequately deals with 

the segmented marketplace. 

First, the Noncommercial Webcasters 

would apply the rates determined using 

their benchmarks to all noncommercial 

Services, irrespective of whether they 

were part of a submarket in the 

marketplace for non-interactive 

webcasting that was distinctly different 

from commercial non-interactive 

webcasting. 

Second, even within a distinctly 

different submarket, the benchmarks 

proposed by the Noncommercial 

Webcasters suffer from serious flaws. 

For example, the musical works 

benchmark proposed by the Services is 

based on a very different marketplace 

characterized by different sellers who 

are selling different rights. Then too, as 

previously discussed, there is ample 

evidence in the record from other 

relevant marketplaces to controvert the 

underlying premise of this proposed 

benchmark that the market for sound 

recordings and the market for musical 

works are necessarily equivalent. 

SoundExchange PFF at ¶¶ 483–495. 

Similarly, the 2001 NPR– 

SoundExchange agreement covering 

streaming from 1998 to 2004 does not 

provide clear evidence of a per station 

rate that could be viewed as a proxy for 

one that a willing buyer and a willing 

seller would negotiate today—it 

provided for a lump sum amount to 

cover the entire 74-month term of the 

contract with no amount specified for 

different years, and there is nothing in 

the contract or the record to indicate the 

parties’ expectations as to levels of 

streaming or the proper attribution of 

payments for any given year or how 

additional stations beyond the 410 

covered by the agreement were to be 

handled. Moreover, the transformation 

of this proposed benchmark by the 

offering service, the NRBNMLC, into 

proposed rates adds further problems. In 

NRBNMLC PFF at ¶ 57, the entire lump 

sum payable under the 2001 NPR– 

SoundExchange agreement is divided by 

798 stations to arrive at an estimated 

annual fee of less than $60 per station. 

But, as previously noted, the agreement 

in question covered only about half as 

many stations (410) and dividing the 

stated lump sum by 410 stations over 

the stated 74-month term of the 

agreement would yield a per station rate 


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42Receiving the 2003 and 2004 fees well in 

advance of the year earned is more valuable to the 

recipient because it can be invested and earn 

interest that would not be available if paid when 

actually due. 

43Purchasing power loss is complicated by the 

lack of attribution of amounts to particular years in 

the contract. Thus, the amount calculated by the 

NRBNMLC may be, at best, an average for the 

period. Therefore, a higher amount than that 

average would be the proper target for adjustment 

for the erosion in purchasing power since 2004. 

44CBI’s final proposed fees ranged from $25 to 

$175 per station; the NRBNMLC’s proposed fees 

ranged up to $200 per simulcast but with up to two 

associated channels subsumed within that amount. 

NPR’s proposed fees were $80,000 to cover at least 

798 NPR stations (and an undetermined number of 

CPB stations) or approximately $100 per station. 

45Moreover, even in the musical works 

benchmark market proposed by some Services such 

as the NRBNMLC, the minimal amount that a 

webcaster paid to cover the combined works 

administered by the three PROs was $636 for 

college stations in 2006 and $1135 for other public 

broadcasting entities—that is more than the 

minimum rate for a single station determined for 

the section 114 license hereinabove. For a similar 

analogy, see Webcaster I, 67 FR 45259 (July 8, 

2002). 

46This $500 minimum fee is applicable to each 

individual station and each individual channel, 

including each individual ‘‘side channel’’ 

maintained by broadcasters. ‘‘Side channels’’ are 

channels on the website of a broadcaster that 

transmit eligible transmissions that are not 

simultaneously transmitted over-the-air by the 

broadcaster. Thus, a broadcaster who transmits one 

simulcast over the Internet and also transmits an 

eligible transmission over one side channel is 

subject to a minimum fee of $500 for each 

respective transmission, for a total in this example 

of $1,000. In other words, the minimum fee is 

separately applicable to each side channel. We find 

no basis in the record for distinguishing between 

side channels and other stations or channels with 

respect to a minimum fee that reflects the costs of 

license administration. We have found, 

hereinabove, that SoundExchange’s proposal of a 

$500 minimum fee for such administration is 

clearly reasonable. Further, such administration 

costs will align more clearly with per station or per 

channel reports of use where such reports of use are 

submitted in satisfaction of recordkeeping 

requirements. 

47Aggregate Tuning Hours or ATH refers to the 

total hours of programming transmitted to all 

listeners during the relevant time period. Thus, one 

hour of programming transmitted to 20 

simultaneous listeners would produce 20 aggregate 

tuning hours or 20 ATH. The number of ATH in a 

month could be calculated by multiplying the 

average number of simultaneous listeners by the 

average potential listening hours in a month or 730 

(i.e., 365 days in a year multiplied by 24 hours in 

a day then divided by 12 months). Applying this 

calculation to an average of 20 simultaneous 

listeners yields 14,600 ATH per month. 

48 In contrast, the original IBS proposal had a cap 

of 146,000 ATH below which an annual per station 

rate of $500 would apply. Kass WDT at Exhibit A. 

twice the amount calculated by 

NRBNMLC. Furthermore, NRBNMLC’s 

calculation does not add any adjustment 

for the time value of money in the latter 

years of the contract42 nor add any 

adjustment to account for the erosion in 

the purchasing power of the dollar since 

2004.43 Finally, none of the final rate 

proposals 44 of the Noncommercial 

Webcasters would cover the minimum 

annual fee determined for Commercial 

Webcasters. 

In short, we find neither 

SoundExchange’s proposals based on its 

benchmark nor the Noncommercial 

Webcasters’ proposals based on their 

suggested benchmarks adequate to 

provide a basis for determining the rates 

to be applicable to that part of the 

noncommercial market for noninteractive webcasting that can be 

identified as a distinct submarket from 

the commercial market. However, we 

observe that certainly the bare minimum 

that such services should have to pay is 

the administrative cost of administering 

the license. There is no evidence in the 

record to suggest that the submarket in 

which a Noncommercial Webcaster may 

reside would yield a different 

administrative cost for SoundExchange 

as compared to the administrative costs 

associated with Commercial Webcasters 

and SoundExchange, notably, makes no 

distinction between webcasters with 

respect to the $500 minimum fee. 

Webcaster I affirmed the notion that all 

webcasters—all Noncommercial 

Webcasters as well as all Commercial 

Webcasters—should pay the same 

minimum fee for the same license. 67 

FR 45259 (July 8, 2002). We also find no 

basis in the record for distinguishing 

between Commercial Webcasters and 

Noncommercial Webcasters with 

respect to the administrative cost of 

administering the license.45 Therefore, 

we determine that a minimum fee of an 

annual non-refundable, but recoupable 

$500 minimum per channel or station 46

payable in advance is reasonable over 

the term of this license. 

Because this minimum fee of $500 is 

meant to cover administrative costs, it 

does not address actual usage. 

Therefore, it would be reasonable to add 

at least the bare minimum suggested by 

the Services’ proposals as payment for 

usage to the $500 minimum fee for 

administration. However, based on the 

available evidence, we find that past 

practice has been to treat the minimum 

fee as recoupable against usage charges. 

Therefore, we have no basis upon which 

to add a usage element that is not 

recoupable to the minimum fee for this 

distinctive submarket of noncommercial 

webcasters. Moreover, we note that this 

minimum fee corresponds to the $500 

original fee proposal of IBS and, 

therefore, demonstrates that, at least for 

some webcasters in the relevant 

submarket, the $500 amount 

represented a ceiling beyond which they 

would not be willing buyers. Kass WDT 

at Exhibit A. 

We turn next to the derivation of a 

cap to delineate the boundaries of the 

submarket for which the effective $500 

flat fee rate will apply. 

c. Cap To Delineate Submarket and 

Rates and Minimum Fees Applicable to 

the Various Noncommercial Webcasters 

Because there is evidence in the 

record that some Noncommercial 

Webcasters typically have a listenership 

of less than 20 simultaneous listeners— 

see, for example 8/2/06 Tr. 137 

(Robedee) and 8/2/06 Tr. 243 (Willer)— 

Dr. Brynjolfsson suggests a cap of 20 

simultaneous listeners (or about 14,600 

ATH 47 per month) as the boundary for 

the noncommercial webcasting 

submarket to be subject to a lower 

rate.48 At this level of operation, such a 

small Noncommercial Webcaster could 

not be viewed as a serious competitor 

for commercial enterprises in the 

webcasting marketplace. We find Dr. 

Brynjolfsson’s suggested line of 

demarcation too limiting. Size here is 

only a proxy that aims to capture the 

characteristics that delineate the 

noncommercial submarket. See our 

consideration of these characteristics 

supra at Section IV.C.2. And, there is 

evidence in the record that some larger 

Noncommercial Webcasters, such as the 

typical NPR station extant in 2004, may 

also be distinguished from Commercial 

Webcasters. Indeed, the evidence of 

convergence in the record appears to 

apply more clearly to the stations at the 

larger end of the range of NPR station 

size. See, for example, SoundExchange 

PFF at ¶ 1122, SoundExchange RFF at 

¶ 284. 

The 2001 NPR-SoundExchange 

agreement covered the typical NPR 

webcasting station at a rate substantially 

less than the rate that applied to 

Commercial Webcasters as of 2004. 

Based on the available evidence, the 

typical NPR station in 2004, then, 

would not have been treated as the 

functional equivalent of a commercial 

station. This is significant because the 

latest available data on what might 

constitute a typical NPR streaming 

station consists of a survey of NPR 

stations undertaken in 2004. See 

SoundExchange Trial Ex. 67 (NPR 

Digital Music Rights Station Survey, 

2004). According to that survey, the 

NPR stations averaged 218 simultaneous 

streaming listeners per station (or the 

equivalent of 159,140 ATH per month). 

This average (218) or a lesser number of 

listeners was exhibited by 80% of all of 

the NPR stations engaged in streaming 

that responded to the survey—in short, 

it encompassed the experience of all but 

a handful of NPR stations positioned at 

the extreme high end of the listenership 


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49The reason the average (218) or a lesser number 

encompassed so many stations is that several very 

large stations at the upper end of the distribution 

influenced the average. This is statistically apparent 

from a comparison of the average (218) with the 

median number of simultaneous listeners (50). 50The Services also advance various public 

policy considerations which they maintain militate 

in favor of lower rates. However, the Copyright Act 

is clear that we are required to apply a willing 

buyer/willing seller standard in determining rates 

for all types of participants in the marketplace. We 

decline to deviate from this standard. We further 

decline to usurp the authority of Congress to 

consider potential public policy concerns and, if it 

chooses, to establish special nonmarket rates for 

certain noncommercial services. 51On the other hand, a Commercial Webcaster 

with an audience of less than 219 simultaneous 

listeners is, nothwithstanding its size, a direct 

competitor to other Commercial Webcasters. 

52 In effect, payment of the $500 minimum 

administrative fee by Noncommercial Webcasters 

whose monthly ATH is below the cap will satisfy 

the full royalty obligations of such webcasters 

because it fully encompasses the per station usage 

fee. 37 CFR 380.3(b). Therefore, as a practical 

matter, recoupment does not come into play for 

such webcasters. 53Noncommercial Webcasters include such 

licensees who are eligible nonsubscription 

transmission services or new subscription services, 

irrespective of whether they transmit music in large 

part or in small part. 54Subject to the credit attributable to any unused 

balance of the annual minimum fee pursuant to 37 

CFR 380.3(b). 55The Judges recognize that a smooth transition 

from the prior fee regime to the new fee structure 

adopted by the Judges hereinabove may be aided by 

permitting the limited use of an ATH calculation 

option. Such a transition option enhances the 

ability of some Services to effectuate speedy 

payments and, in so doing, improves the ability of 

copyright owners to more quickly obtain monies 

due. In short, such a transition measure is 

reasonably calculated to facilitate a smooth, speedy 

transition to the new fee structure adopted 

hereinabove by the Judges. Therefore, the usage fee 

structure established in this Final Determination 

will continue use of an ATH option for timely 

payment of fees due for the years 2006 and 2007. 

Note: [See table near footnote 55 reference.] 

The following Aggregate Tuning Hours (ATH) 

usage rate calculation options will be available for 

the transition period of 2006 and 2007: where 

‘‘Non-Music Programming’’ is defined as 

Broadcaster programming reasonably classified as 

news, talk, sports or business programming; 

‘‘Broadcast Simulcast Programming’’ is defined as 

Broadcaster simulcast programming not reasonably 

classified as news, talk, sports or business 

programming; and ‘‘Other Programming’’ is defined 

as programming other than either Broadcaster 

simulcast programming or Broadcaster 

programming reasonably classified as news, talk, 

sports or business programming. 

distribution.49 See SoundExchange Trial 

Ex. 67 (NPR Digital Music Rights Station 

Survey, 2004) at CRB–NPR000036, 

CRB–NPR000054–57. Therefore, we find 

that a cap structured to include the 

typical NPR experience that was viewed 

by the parties as not being subject to 

commercial rates, results in a cap of 

159,140 ATH per month. 

Again, we stress that this cap is only 

a proxy for assessing the convergence 

point between Noncommercial 

Webcasters and Commercial Webcasters 

in order to delineate a distinct 

noncommercial submarket in which 

willing buyers and willing sellers would 

have a meeting of the minds that would 

result in a lower rate than the rate 

applicable to the general commercial 

webcasting market.50 Mere size alone, 

without evidence of the other 

characteristics that define membership 

in the noncommercial submarket 

discussed supra at Section IV.C.2.a., 

does not make a webcaster eligible for 

this lower rate. Members of this 

noncommercial submarket, by 

definition, are not serious competitors 

with Commercial Webcasters.51

A careful review of the record also 

does not persuade us to make any 

further adjustment to the lower $500 per 

station rate described hereinabove to 

account for such considerations as (1) 

the promotional or substitution effects 

on CD sales of webcasting by members 

of the noncommercial submarket or (2) 

the relative contributions made by 

copyright owners and webcasting 

services with respect to creativity, 

technology, capital investment, cost and 

risk. There is no showing of a 

quantitative effect of these 

considerations that is not already 

embraced within the lower rate we have 

set. Furthermore, inasmuch as that 

lower rate is also encompassed by the 

minimum fee necessary to support 

administration of the license, no 

showing has been made by any 

Noncommercial Webcaster that such 

administrative costs are somehow 

overborne by such considerations. 

Similarly, with respect to the higher rate 

(i.e., the Commercial Webcaster rate) 

applicable to Noncommercial 

Webcasters above the monthly 159,140 

ATH cap, we find that no further 

adjustment is required for the same 

reasons that we found no such 

adjustment necessary for Commercial 

Webcasters subject to the commercial 

rate we set. See supra at Section 

IV.C.1.c. 

In summary, first, we determine that 

the minimum fee applicable to 

Noncommercial Webcasters is an annual 

non-refundable, but recoupable 52 $500 

minimum per channel or station 

payable in advance. In other words, we 

find no basis for distinguishing between 

Commercial Webcasters and 

Noncommercial Webcasters with 

respect to the minimum fee. See supra 

at Section IV.C.2.b and Section IV.C.2.c. 

Second, the following rates apply to 

Noncommercial Webcasters: 53 (1) an 

annual per station or per channel rate of 

$500 for stations or channels will 

constitute full payment for digital audio 

transmissions totaling not more than 

159,140 ATH per month and (2) if in 

any month a Noncommercial Webcaster 

makes digital audio transmissions in 

excess of 159,140 ATH per month, then 

the Noncommercial Webcaster will pay 

additional usage fees 54 for digital audio 

transmissions of sound recordings in 

excess of the cap as follows: a per play 

rate of $.0008 for 2006, a per play rate 

of $.0011 for 2007, a per play rate of 

$.0014 for 2008, a per play rate of 

$.0018 for 2009 and a per play rate of 

$.0019 for 2010.55 As indicated supra at 

Section IV.C.d.1., we find no basis for 

making further adjustments to the usage 

rates to reflect inflation or bundling. 

Other programming Broadcast simulcast programming Non-music 

programming 

Prior Fees ............................................ $0.0117 per ATH ................................ $0.0088 per ATH ................................ $0.0008 per ATH. 

2006 ..................................................... $0.0123 per ATH ................................ $0.0092 per ATH ................................ $0.0011 per ATH. 

2007 ..................................................... $0.0169 per ATH ................................ $0.0127 per ATH ................................ $0.0014 per ATH. 

Note: See footnote 55 

D. The Section 112 Royalty Rates and 

Minimum Fees 

1. Background 

Section 112(e) of the Copyright Act 

directs the Copyright Royalty Judges to 

establish rates and terms for the making 

of ephemeral copies of digital 

recordings to enable or facilitate the 

transmission of those recordings under 

the statutory license in section 114. As 

is the case with the section 114 license, 

we are tasked with setting rates and 

terms that ‘‘most clearly represent the 

fees that would have been negotiated in 

the marketplace between a willing buyer 

and a willing seller,’’ as well as 

establish ‘‘a minimum fee for each type 


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56See Webcaster I CARP Report at 99–103 

(speculating as to the reasons why the parties 

themselves seemed to attach little importance to the 

section 112 license). 

of service offered by transmitting 

organizations.’’ 17 U.S.C. 112(e)(4). The 

types of ‘‘economic, competitive, and 

programming information’’ that we are 

to examine is the same for the section 

112 license as it is for the section 114 

license. Id. 

Webcaster I set the royalty fee for the 

section 112 license at 8.8% of the total 

royalty fee by a Service under the 

section 114 license. 67 FR 45240, 45262 

(July 8, 2002). This fee, as a separate 

charge, was not part of the 2003 ‘‘push 

forward’’ of the Webcaster I rates 

negotiated by SoundExchange and the 

Services. Rather, the parties agreed to 

incorporate the fee for section 112 

within the rates for section 114 (which 

increased by a modest $0.000062 per 

performance over the Webcaster I rates), 

but the regulations adopting their 

agreement provided that of the total 

section 112/114 fee, 8.8% was 

‘‘deemed’’ to comprise the charge for 

ephemeral recordings. 37 CFR 262.3(c). 

2. Proposals of the Parties 

SoundExchange proposes to carry 

forward the combination of section 112 

and 114 rates from the prior license 

period, including the ‘‘deeming’’ of 

8.8% of the total fee owed by Services 

as constituting the section 112 charge. 

SoundExchange’s Revised Rate Proposal 

(filed September 29, 2006) at 4. DiMA 

agrees with this proposal. DiMA RFF at 

¶ 115. Radio Broadcasters and the 

NRBMLC also believe that the fee for the 

section 112 license should be combined 

with that for section 114, but oppose the 

attribution of an 8.8% value for the 

section 112 license. They argue that the 

effect is to hide an independent value 

for the section 112 license within the 

overall fee even though SoundExchange 

failed, in their view, to provide any 

evidence to justify the 8.8% value. 

Radio Broadcasters ‘‘take no position as 

to the percentage of the overall royalty 

that is to be designated as the portion 

attributable to the making of ephemeral 

copies,’’ but submit that ephemeral 

copies have no economic value separate 

from the value of the performances they 

effectuate. Radio Broadcasters PFF at 

¶ 319. The NRBMLC also contends that 

ephemeral copies have no independent 

economic value, citing the Copyright 

Office’s 2001 DMCA Section 104 Report 

in support. NRBMLC PFF at ¶¶ 60, 62. 

None of the other parties offer specific 

proposals as to section 112 rates. SBR 

Creative Media, Inc. combines section 

112 with section 114 in its request for 

a single fee, while CBI asserts that its 

stations have no need of the section 112 

license. SBR PFF at ¶ 14; CBI PFF at 

¶ 19. 

3. The Record Evidence 

While the record in Webcaster I 

regarding the section 112 license was 

thin,56 it is slimmer still in this 

proceeding. SoundExchange proffers 

that because copyright owners and 

performers agreed to include the section 

112 charge within the section 114 fee in 

the 2003 negotiation provided that there 

was a recognition that section 112 

constituted 8.8% of the total value, this 

is ‘‘strong evidence’’ of what copyright 

owners and performers believe to be the 

value of the section 112 license. 

SoundExchange PFF at ¶ 1370. But see 

SoundExchange PFF at ¶ 1371 

(conceding that ‘‘[t]here has been little 

evidence adduced on the value of 

ephemeral copies * * *’’). 

SoundExchange further contends that 

two marketplace agreements—the 

WMG-Next Radio agreement for a 

custom radio service and the SONY 

BMG-MusicMatch custom radio 

agreement—support its assertion that 

8.8% is within the zone of 

reasonableness. Both of these 

agreements provide that 10% of the 

overall fees for streaming are 

attributable to the making of ephemeral 

copies. SoundExchange Ex. 002 DR; 

SoundExchange Ex. 004 DR. 

Radio Broadcasters and the NRBMLC 

counter that none of SoundExchange’s 

witnesses discussed proposed rates or 

values for ephemeral recordings in 

written or oral testimony. Instead, they 

point to testimony of Adam Jaffe offered 

in Webcaster I that ephemeral copies 

have no independent economic value 

from the value of the public 

performances that they effectuate, Jaffe 

2001 WDT at ¶ 82; Jaffe 2001 WRT at 81; 

2001 Tr. 6556:10–13 (Jaffe), and offer 

the Copyright Office’s 2001 DMCA 

Section 104 Report in support of Dr. 

Jaffe’s view. 

4. Conclusion 

Of the thousands of pages of 

testimony and exhibits submitted by the 

parties in this proceeding, less than 

twenty of the pages are devoted to any 

discussion of the section 112 license 

and ephemeral copies. It is therefore 

evident that the parties consider the 

section 112 license to be of little value 

at this point in time, which may explain 

why SoundExchange is content to roll 

whatever value the license may have 

into the rates for the section 114 license. 

Nevertheless, SoundExchange asks the 

Copyright Royalty Judges to bless its 

proposal that whatever the royalty fee 

for the section 114 may be, 8.8% of that 

fee constitutes the value of the section 

112 license. We decline to accept 

SoundExchange’s invitation for two 

reasons. 

First, the section 112 license requires 

us to determine the rate or rates that 

would have been negotiated between a 

willing buyer and a willing seller. 

SoundExchange’s valuation of 8.8% is 

not a rate. Services will not be paying 

8.8% more in total royalty fees because 

of this valuation, nor will they be 

subtracting 8.8% from their charge if 

they choose not to avail themselves of 

the section 112 license. Rather, the 8.8% 

valuation is nothing more than an effort 

to preserve a litigation position for 

future negotiations that the section 112 

license has some independent value, as 

it did in Webcaster I. It is 

understandable why DiMA would not 

find the 8.8% figure objectionable since 

it does not represent any additional 

charges to its members in this 

proceeding. 

Second, the paucity of the record 

prevents us from determining that 8.8% 

of the section 114 royalties is either the 

value of or the rate for the section 112 

license. SoundExchange’s assertion that 

its 8.8% proposal is ‘‘strong evidence’’ 

of copyright owners’ and performers’ 

belief as to the appropriate rate 

applicable to section 112 is 

bootstrapping. SoundExchange did not 

present any persuasive testimony or 

evidence from copyright owners or 

performers on this point. We also do not 

find the WMG-Next Radio and the 

SONY BMG-MusicMatch agreements to 

be supportive of an 8.8% rate for 

ephemeral copies, which 

SoundExchange asserts are evidence of 

marketplace negotiations and establish a 

‘‘zone of reasonableness’’ for section 112 

rates in the 10% range. These 

agreements are for custom radio, which 

SoundExchange has long avowed is not 

DMCA compliant, and both have 

expired. SoundExchange Ex. 002 DR at 

10 (WMG-Next Radio Solutions 

webcasting agreement); SoundExchange 

Ex. 004 DR at 14 (SONY BMGMusicMatch Internet radio agreement). 

More importantly, the 10% figure in 

both is not a rate but is, like 

SoundExchange’s proposal, a 

proclamation as to how much of the 

total fees paid by Next Radio and 

MusicMatch are attributable to the 

making of ephemeral copies. Since the 

10% figure does not represent any 

actual monies to be paid by Next Radio 

or MusicMatch, it can hardly be argued 

that those agreements are marketplace 

evidence of negotiated royalty rates for 

the section 112 license. 


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57We are mindful that section 112(e)(4) 

prescribes inclusion of a minimum fee for each type 

of service offered by transmitting organizations. 

Because we are determining that the section 112 fee 

is included within the section 114 license fee, we 

are, likewise, based upon the record evidence, 

doing the same for the section 112 minimum fee. 

58Consistent with Webcaster I, we are adopting 

terms for the collection, distribution and 

administration of royalty payments. 

59SoundExchange is now an independent entity. 

SoundExchange PFF at ¶ 72. 

60By the terms of the Copyright Royalty and 

Distribution Reform Act of 2004, the rates and terms 

adopted for the 2003–2004 licensing period were 

extended through the end of 2005. See Copyright 

Royalty and Distribution Reform Act of 2004, Public 

Law 108–419, section 6(b)(3) (transition provisions), 

118 Stat. 2341, 2370 (2004). 

61 Despite an invitation from the Copyright 

Royalty Judges to do so, Royalty Logic was unable 

to identify all the copyright owners and performers 

constituting the ‘‘RLI Affiliates.’’ The list appears to 

include Lester Chambers, North Star Media, Sigala 

Records, ABKCO Music & Records, Inc., the Everest 

Record Group, Metallica and Peter, Paul and Mary. 

62MRI is a for-profit company whose principal 

business is to assist broadcasters in the licensing of 

musical works used in their programming. 11/15/ 

06 Tr. 103:7–20 (Gertz). 

63Royalty Logic also presented written direct 

testimony of Lester Chambers, a recording artist. 

Mr. Chambers, however, did not appear at trial and 

his testimony therefore was not considered. 

We are left with a record that 

demonstrates that, since the expiration 

of section 112 rates set in Webcaster I, 

copyright owners and performers are 

unable to secure separate fees for the 

section 112 license. The license is 

merely an add-on to the securing of the 

performance right granted by the section 

114 license. SoundExchange’s proposal 

to include the section 112 license 

within the rates and minimum fees set 

for the section 114 license reflects this 

reality and we accept it. In so doing we 

decline, for the reasons stated above, to 

ascribe any particular percentage of the 

section 114 royalty as representative of 

the value of the section 112 license.57

V. Terms for Royalty Payments Under 

the Section 112 and 114 Statutory 

Licenses 

A. The Statutory Standard 

Sections 112(e)(3) and 114(f)(2)(A) of 

the Copyright Act, 17 U.S.C., require the 

Copyright Royalty Judges to adopt 

royalty payment terms for the section 

112 and 114 statutory licenses.58 It is 

established that 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 I, 67 FR 45240, 

45266 (July 8, 2002). It is not 

established, however, whether the terms 

adopted must, or should, be 

administratively feasible or efficient. 

In Webcaster I the parties agreed to a 

set of terms and, with the exception of 

a few disputed terms, presented them to 

the CARP for acceptance. In adopting 

the parties’ proposed terms, the CARP 

declined to make a determination as to 

whether they were feasible or efficient 

and deferred to the judgment of the 

Librarian of Congress. Webcaster I CARP 

Report at 129. The Librarian declined to 

address the issue as well and evaluated 

the agreed-upon terms according to the 

‘‘arbitrary or contrary to law’’ standard 

that the Librarian applied to the other 

aspects of the CARP’s decision. The 

Librarian did, however, state that he 

was ‘‘skeptical of the proposition that 

terms negotiated by parties in the 

context of a CARP proceeding are 

necessarily evidence of terms that a 

willing buyer and a willing seller would 

have negotiated in the marketplace,’’ 

and noted that he would not have 

adopted all of the negotiated terms if his 

‘‘task were to determine the most 

reasonable terms governing payment of 

royalties.’’ 67 FR 45266 (July 8, 2002). 

The question therefore remains as to 

whether the Judges should consider 

matters of feasability and administrative 

efficiency in adopting payment terms. 

We conclude the answer is yes, for two 

reasons. 

First, it is an axiom of the copyright 

laws that statutory licenses are designed 

to achieve efficiencies that the 

marketplace cannot. See, H.R. Rep. No. 

94–1476, at 89 (1976). Typically, 

statutory licenses reduce transaction 

costs associated with licensing large 

volumes of copyrighted works from 

multiple rights holders. They guarantee 

access to the use of prescribed 

categories of works to those who satisfy 

the eligibility requirements of a license, 

while providing a return to the owners 

of the works subject to the license. 

Statutory licenses are about 

administrative efficiency. For example, 

they increase the speed and ease with 

which copyrighted works may be used. 

Adopting a set of terms whose operation 

is not practical, or creates additional 

unjustified costs and/or inefficiencies, is 

inconsistent with the precepts of 

statutory licensing, and we must avoid 

such circumstances. 

Second, we observe that rational 

willing buyers and sellers themselves 

will, in their agreements with one 

another, select terms that are practical, 

efficient, and avoid excessive costs. 

Consequently, we have considered the 

terms presented in agreements offered 

by the parties to this proceeding, 

assessed their applicability to the 

blanket license structure of the statutory 

licenses, and adopted those terms that 

will facilitate an efficient collection, 

distribution and administration of the 

statutory royalties. 

B. Collection of Royalties 

1. Background 

Unlike the statutory licenses set forth 

in sections 111, 119, and chapter 10 of 

the Copyright Act where royalty 

payments are submitted directly to a 

government collecting body (the 

Licensing Division of the Copyright 

Office), the section 112 and 114 licenses 

contain no such provision. Read 

literally, the licenses appear to require 

that licensees pay royalties directly to 

each copyright owner and performer. 

Recognizing the costs and inefficiencies 

of such an approach, the parties to the 

first section 112/114 proceeding 

negotiated a payment scheme whereby 

all services paid their royalties to a 

single ‘‘Receiving Agent’’: 

SoundExchange, Inc. See 37 CFR 262.4. 

SoundExchange was, at that time, an 

unincorporated division of the 

Recording Industry Association of 

America.59 SoundExchange was then 

tasked with the responsibility of 

distributing royalties to those identified 

in the regulations as ‘‘Designated 

Agents.’’ By agreement of the parties, 

both SoundExchange and Royalty Logic, 

Inc. were identified as ‘‘Designated 

Agents.’’ The Librarian in Webcaster I 

reluctantly adopted this payment 

scheme. 67 FR 45267 n.45 (July 8, 2002). 

The royalty collection and 

distribution scheme adopted in 

Webcaster I ended with the expiration 

of the 1998–2002 licensing period. In 

negotiations for rates and terms for the 

2003–2004 licensing period, the parties 

retained the Receiving Agent/ 

Designated Agent structure but did not 

recognize Royalty Logic as a Designated 

Agent.60 Royalty Logic objected to the 

parties’ agreement and requested the 

Librarian to convene a CARP on the 

issue of royalty collection and payment. 

However, prior to the convening of the 

CARP, it withdrew from the proceeding. 

RLI PFF at ¶ 46. Royalty Logic now 

requests that the Copyright Royalty 

Judges recognize it in the regulations as 

both a Designated Agent and a 

Receiving Agent for the 2006–2010 

license period. 

2. Royalty Logic 

Royalty Logic, acting as an authorized 

agent for certain copyright owners and 

performers,61 is a for-profit subsidiary of 

Music Reports, Inc. 6/14/06 Tr. 44:21– 

45:22, 50:20–51:1 (Gertz).62 Royalty 

Logic presented the direct testimony of 

Ronald Gertz, its founder, and the 

rebuttal testimony of Mr. Gertz and 

Peter Paterno, Esquire, who represents 

the recording artists Metallica and Dr. 

Dre. RLI PFF ¶ 72.63


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64Section 114(f)(5)(A) does reference the term 

‘‘receiving agent.’’ However, that section of the law, 

which was created by the Small Webcaster 

Settlement Act of 2002, Public Law 107–321, 116 

Stat. 2780 (2002), is no longer in force. 

Furthermore, ‘‘receiving agent’’ was defined by 

reference to § 261.2 of title 37 of the Code of Federal 

Regulations which are the very same rules adopted 

in Webcaster I. 

Royalty Logic contends that it is 

necessary for the Copyright Royalty 

Judges to formally recognize it as a 

‘‘Designated Agent’’—complete with 

direct accounting, reporting, payment 

and auditing rights vis-a-vis the 

Services—in the payment regulations to 

be adopted in this proceeding so that it 

may compete with SoundExchange as a 

royalty collection and distribution 

agent. The claimed need for competition 

is the central feature of Royalty Logic’s 

presentation. According to Royalty 

Logic, Designated Agents can compete 

with one another on multiple levels, 

including: (1) The royalty rates to be 

charged; (2) interpretations of the 

statute; (3) distribution policies; and (4) 

costs. 6/14/06, Tr. 101:5–105:5; 124:14– 

127:20; 314:22–315:19 (Gertz). Royalty 

Logic advocates a payment scheme 

whereby a proportionate share of the 

royalties owed by each Service under 

the section 112 and 114 licenses would 

be allocated to each Designated Agent; 

i.e., it and SoundExchange. Both 

Designated Agents would be entitled to 

direct receipt of statements of account, 

royalty fees and the reports of use of 

sound recordings required by 37 CFR 

part 370. For the initial payment period, 

Royalty Logic proposes that it receive 

five percent of each Service’s royalties, 

which subsequently would be adjusted 

either upwards or downwards 

depending upon the number of 

performances belonging to Royalty 

Logic’s affiliates that were made by the 

Service. The identity and ownership of 

performances (and ephemeral 

reproductions, if any) would be 

determined through examination of 

each Service’s report of use of sound 

recordings. Thereafter, royalty payments 

to Royalty Logic and SoundExchange 

would be based solely upon 

performances of the works of each 

organization’s members, as determined 

by the reports of use from the prior 

payment period. Any disputes between 

the Designated Agents concerning 

royalty allocations would be resolved by 

the Copyright Royalty Judges. RLI PFF 

at ¶ 117(g). 

3. SoundExchange 

SoundExchange is a non-profit 

performing rights organization that 

represents thousands of record labels 

and artists who have specifically 

authorized SoundExchange to collect 

royalties on their behalf. Kessler WDT at 

3. SoundExchange presented the direct 

testimony of John Simson, Barrie 

Kessler, Harold Ray Bradley, and Cathy 

Finks on the matter of royalty collection 

and distribution, as well as the rebuttal 

testimony of Thomas Lee. 

SoundExchange submits that it would 

be inefficient for the Copyright Royalty 

Judges to select more than one agent to 

receive and distribute royalties. 

SoundExchange PFF at ¶ 46. It argues 

that it should be the sole collection and 

distribution agent because it is proven 

and well-run and is the most qualified 

and dedicated to the interests of 

copyright owners and performers. 

SoundExchange PFF at ¶¶ 1558–67. It 

contends that Royalty Logic is 

unsuitable to serve as an agent because 

it is owned by Music Reports, Inc., a 

company that represents licensees of 

musical works, and such connection 

creates a conflict of interest. 

SoundExchange PFF at ¶¶ 50, 51. 

4. Receiving Agents and Designated 

Agents 

At the outset, the Copyright Royalty 

Judges must address a fundamental 

misperception of Royalty Logic, and to 

a somewhat lesser extent 

SoundExchange, regarding Receiving 

Agents and Designated Agents. As noted 

above, Receiving Agents and Designated 

Agents and the terms governing their 

operation were established by 

agreement by the parties in Webcaster I 

and were adopted, reluctantly, by the 

Librarian of Congress. 67 FR 45240, 

45266 (July 8, 2002); See also, 

Determination of Reasonable Rates and 

Terms for the Digital Performance of 

Sound Recordings by Preexisting 

Subscription Services (Final rule), 68 FR 

39837, 39839 n.2 (July 3, 2003) (stating 

that in Webcaster I the Librarian 

‘‘expressed skepticism about the benefit 

of the two-tier structure involving a 

Receiving Agent and more than one 

Designated Agent, which adds expense 

and administrative burdens to a process 

the purpose of which is to make prompt, 

efficient, and fair payments of royalties 

to copyright owners and performers 

with a minimum of expense.’’) The 

entire Receiving Agent/Designated 

Agent structure is a legal fiction with no 

basis or grounding in the statute,64 and 

we are under no obligation to preserve 

it, if we determine that there are sound 

reasons for adopting a different royalty 

collection and distribution system. 

In evaluating the Receiving Agent/ 

Designated Agent system, we share in 

the Librarian’s skepticism that it is an 

effective and efficient means of 

collecting and distributing royalties. 

The system was pressed in negotiations 

by the Services in Webcaster I as a 

means of enabling Royalty Logic to enter 

the business of collecting and 

distributing section 112 and 114 

royalties even though Royalty Logic did 

not represent at the time a single 

copyright owner or performer entitled to 

those royalties. 68 FR 39839 (July 3, 

2003). While Royalty Logic’s 

participation may have presented the 

Services with a potential future benefit, 

it is difficult to determine what, if any, 

benefit was derived by copyright owners 

and performers. Royalty Logic responds 

that the benefit to copyright owners and 

performers is the fruits of competition 

between it and SoundExchange, yet 

there is no evidence in the record that 

demonstrates that any copyright owners 

or performers sought or claimed such a 

supposed benefit. If anything, the record 

reflects that copyright owners and 

performers prefer SoundExchange as the 

sole collection and distribution entity. 

SoundExchange Ex. 239 RP, 240 RP; Lee 

WRT at 4; Bradley WRT at 20; Fink 

WDT at 14. 

We are also troubled by Royalty 

Logic’s contention throughout this 

proceeding that an agent must be 

formally recognized by the Copyright 

Royalty Judges as a Designated Agent 

before it can have any involvement in 

the royalty distribution process. This 

position has no support in the statute. 

Sections 112(e) and 114(e) state that it 

is copyright owners and performers who 

may designate common agents for the 

receipt of royalties. As the Librarian 

observed in the 2003 section 112 and 

114 preexisting subscription service 

proceeding: 

In fact, it is not clear that RLI needs to 

participate in a CARP proceeding or be 

named in a negotiated settlement in order to 

act as a designated agent for purposes of 

collecting royalty fees on behalf of copyright 

owners and performers who are entitled to 

receive funds collected pursuant to the 

section 112 and section 114 licenses. Section 

112(e)(2) and section 114(e) of the Copyright 

Act both expressly provide that a copyright 

owner of a sound recording may designate 

common agents to negotiate, agree to, pay, or 

receive royalty payments. Under these 

provisions, it is plausible that a copyright 

owner or performer could designate any 

agent of his or her choosing (including RLI)— 

whether or not that agent had been formally 

designated in the CARP proceeding—to 

receive royalties from the licensing of digital 

transmissions and, by doing so, limit the 

costs of such agents to those specified in 

section 114(g)(4), as amended by the Small 

Webcaster Settlement Act of 2002. 

68 FR 39840 n.4 (July 3, 2003). 

Given our reservations about the 

Receiving Agent/Designated Agent 


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65A ‘‘Collective’’ is defined in our rules as an 

organization that is designated by the Copyright 

Royalty Judges under section 114 to both collect 

and distribute royalties. 37 CFR 370.5(b)(1). 

66The performing rights organizations do collect 

royalties on behalf of their members for several of 

the statutory licenses in the Copyright Act. 

Participation in royalty collection and distribution 

under these licenses, however, was after they had 

established their direct licensing businesses. 

67The small amount of testimony adduced on this 

point suggests that SoundExchange’s administrative 

costs are lower than those of ASCAP and BMI. 

Kessler WDT at 16; 6/6/06 Tr. 190:1–4 (Kessler). 

scheme, and the fact that none of the 

parties have presented any supporting 

evidence as to why it must or should 

continue, the Judges decline to adopt it 

in this proceeding. Rather, we are 

adopting a system that effectively and 

efficiently collects royalties from 

Services and distributes them to 

copyright owners, performers, and the 

agents that they may designate. 

5. The Royalty Collective 

a. The Need for a Single Collective 65

As noted above, a literal reading of 

the section 112 and 114 licenses 

suggests that the Services pay directly 

each and every copyright owner and 

performer for the use of their respective 

works. No one in this proceeding, 

however, has suggested this 

arrangement, nor do any of the statutory 

licenses in the Copyright Act function 

in that fashion. Direct payments would 

add enormous transaction costs to the 

Services as they would be forced to 

locate and make arrangements with all 

copyright owners and performers for the 

thousands and thousands of sound 

recordings they perform, thereby 

eliminating much, if not all, of the 

efficiencies achieved by statutory 

licensing. Consequently, the royalty 

payment and collection system that we 

adopt must promote administrative 

efficiency and economy and reduce 

transaction costs wherever possible. 

This stated purpose is wholly consistent 

with the willing buyer/willing seller 

standard. 

In adopting an economically and 

administratively efficient royalty 

collection and distribution method, 

Royalty Logic proposes that we look to 

the marketplace for performance rights 

for musical works, which is dominated 

by three principal rights organizations: 

ASCAP, BMI and SESAC. These 

organizations operate on behalf of and 

are paid for by their members. Royalty 

Logic contends that competition among 

the performing rights organizations 

reduces the administration costs for 

collecting and distributing royalties in 

that market and is therefore more 

efficient than a single Collective such as 

SoundExchange. We reject application 

of the performing rights organization 

model to this proceeding for several 

reasons. First, the performing rights 

organizations do not operate exclusively 

within the confines of a statutory 

license. The majority of these 

organizations’ activity is direct licensing 

with users of musical works.66 While 

Royalty Logic’s argument that multiple 

Collectives promote competition on 

pricing may make some sense in the 

direct licensing context where rates and 

terms are set through private agreement, 

it does not make sense where the rates 

and terms are governed by statutory 

licenses. 

Second, performing rights 

organizations are member societies that 

license only the works of their members. 

The statutory licenses are blanket 

licenses that cover the works of all 

copyright owners and performers. 

Forcing owners and performers to 

choose membership in one or more 

Collectives when their works have 

already been licensed does not seem to 

serve a purpose and creates a significant 

practical difficulty in resolving how 

unaffiliated copyright owners and 

performers should receive their royalty 

distributions. 

Third, while Royalty Logic 

vehemently argues that competition 

between it and SoundExchange will 

reduce the overall administrative costs 

in the royalty collection and 

distribution process and therefore result 

in greater returns for copyright owners 

and performers, it never presented 

evidence demonstrating the likelihood 

of such an outcome.67 Further, Royalty 

Logic did not present any evidence 

showing that its administration costs on 

a per copyright owner or performer 

basis will be less than 

SoundExchange’s, merely suggesting 

that they might be. 6/14/06 Tr. 51:9–14 

(Gertz); 11/15/06 Tr. 140:18–21 (Gertz). 

In sum, we find that selection of a 

single Collective represents the most 

economically and administratively 

efficient system for collecting royalties 

under the blanket license framework 

created by the statutory licenses. 

Transaction costs to the users of such a 

license are minimized when they can 

make payment to a single Collective, as 

opposed to allocating their payments 

among several. And there is no credible 

evidence that demonstrates copyright 

owners and performers suffer increased 

costs from a system with a single 

Collective. We now turn to the issue of 

which of the two parties in this 

proceeding, Royalty Logic or 

SoundExchange, will best fulfill the role 

of the Collective for section 112 and 114 

royalties. 

b. SoundExchange vs. Royalty Logic 

SoundExchange, a non-profit 

corporation under 26 U.S.C. 501(c)(6), 

has operated as the royalty collection 

and distribution entity since the 

beginning of the statutory licenses 

involved in this proceeding, and 

collects and distributes the royalties 

paid by preexisting subscription and 

satellite digital audio services under the 

statutory license created by the Digital 

Performance Right in Sound Recordings 

Act of 1995, Public Law 104–39, 109 

Stat. 336 (1995). Kessler WDT at 2. 

SoundExchange is controlled by an 18- 

member Board of Directors comprised of 

equal numbers of representatives of 

copyright owners and performers. 

Copyright owners are represented by 

board members associated with the 

major record companies (five), 

independent labels (two), the Recording 

Industry Association of America (one), 

and the American Association of 

Independent Music (one). Performers 

are represented by one representative 

each from the American Federation of 

Television and Radio Artists; the 

American Federation of Musicians; and 

seven at-large artist seats. Simson WDT 

at 33. Though it is a non-member 

organization, SoundExchange is 

authorized by over 12,000 performers, 

3,000 record labels and 800 record 

companies to collect royalties on their 

behalf. SoundExchange PFF at ¶ 75. 

SoundExchange distributes royalties to 

nearly 15,000 copyright owner and 

performer accounts and, as of 

September 20, 2005, has processed over 

650 million sound recording 

performances. Kessler WDT at 12, 16. It 

is the only organization that directly 

receives reports of use from the Services 

under the licenses in this proceeding. 37 

CFR 370.3(d)(4). 

SoundExchange presented Thomas 

Lee, President of the American 

Federation of Musicians, who testified 

that the structure of SoundExchange’s 

Board provides the necessary checks 

and balances to ensure that performer 

interests are well represented. Lee WRT 

at 4–5. Several performer 

organizations—the American Federation 

of Television and Radio Artists, the 

Music Manager’s Forum, and the 

Recording Artists’ Coalition—wrote to 

Mr. Lee to express their preference and 

support for SoundExchange in these 

proceedings. SoundExchange Exs. 239 

RP, 240 RP, 241 RP; Lee WRT at 4. 

Recording artists Harold Ray Bradley 

and Cathy Fink testified as to their 

preference for SoundExchange as the 

sole collective for section 112 and 114 


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68See, supra, n.63. 

69Mr. Gertz and Mr. Paterno did testify as to their 

awareness of some performers’ dissatisfaction with 

SoundExchange—primarily due to its former ties to 

the Recording Industry Association of America, 

Inc.—but the statements were not corroborated by 

any copyright owner or performer testimony. 

70The Copyright Royalty Judges find the 

testimony of Mr. Paterno an unpersuasive substitute 

for the views and preferences of copyright owners 

and performers. Only one of Mr. Paterno’s clients, 

Metallica, has affiliated with Royalty Logic, and he 

admitted that he has not pressed his other clients 

to affiliate. 11/15/06 Tr. 157:10–18 (Paterno). 

Rather, Mr. Paterno stated that he would advocate 

that clients affiliate with the collective that offered 

the most money, but he has seemingly made no 

inquiries on this matter, preferring instead to ‘‘see 

how things play out.’’ Id. at 157:22–158:10. 

71Our impression on this point is bolstered by the 

royalty agreement negotiated by Royalty Logic with 

DiMA, which adopts a rate (to be adjusted to our 

determination in this proceeding) far below any of 

the rates proposed by SoundExchange and is almost 

identical to the proposal of those commercial 

Services in this proceeding. 

royalties. Bradley WRT at 20; Fink WDT 

at 14. 

Royalty Logic, a for-profit corporation, 

operated as a ‘‘Designated Agent’’ under 

the Webcaster I decision. Gertz WDT at 

5–6; RLI PFF at ¶ 36. Royalty Logic was 

created and is currently managed by the 

principals of Music Reports, Inc. Music 

Reports is in the business of allocating 

royalty payments from television 

stations to performing rights societies 

for musical works performed by those 

stations. Royalty Logic recently received 

a significant investment from Abry 

Partners and may be reorganizing as a 

result. 11/15/06 Tr. 130:16–131:5 

(Gertz). As described in footnote 61, 

supra, the precise number and identity 

of copyright owners and performers 

currently represented by Royalty Logic 

is unclear. Royalty Logic did not present 

any copyright owner or performer 

witnesses 68 in support of its request to 

be a royalty collection and distribution 

entity under the section 112 and 114 

licenses. It did, however, present the 

testimony of Peter Paterno, a lawyer 

representing clients in the music 

publishing and recording business. Mr. 

Paterno testified that one of his clients, 

the rock group Metallica, is affiliated 

with Royalty Logic and that he has 

proposed affiliation to three or four 

other clients. 11/15/06 Tr. 157:10–18; 

181:4–22 (Paterno). Royalty Logic also 

presented as an exhibit a royalty rate 

agreement between it and DiMA for 

performances under the statutory 

licenses, asserting that the agreement 

demonstrated at least one willing 

seller’s preference for Royalty Logic. RLI 

PFF at ¶ 61. 

After considering the presentations of 

both parties, the Copyright Royalty 

Judges conclude that SoundExchange is 

the superior organization to serve as the 

Collective for the 2006–2010 royalty 

period. SoundExchange has a proven 

track record in collecting and processing 

section 112 and 114 royalties, having 

done so since the inception of the 

statutory licenses. Its operational 

practices appear efficient and fair, and 

the Judges were not presented with 

credible evidence of significant failures 

or deficiencies.69 Moreover, we are 

persuaded that the structure and 

composition of SoundExchange’s Board 

of Directors—with equal representation 

for copyright owners and performers— 

provides a greater balance of competing 

interests than that of Royalty Logic, 

which is controlled by one person, Mr. 

Gertz. This was confirmed by the weight 

of performer testimony on this point 

which demonstrated a decided 

preference for the services of 

SoundExchange over those of Royalty 

Logic. As the direct beneficiaries of the 

royalties collected under the statutory 

licenses, the copyright owner and 

performer testimony on this point is 

particularly persuasive. 

This testimony is not outweighed by 

the Royalty Logic/DiMA royalty rate 

agreement offered by Royalty Logic as 

evidence of the Services’ preference for 

Royalty Logic. It is difficult to envision 

any interest that the Services can have 

in the administration and distribution of 

royalties, which are the essential 

functions of the Collective. The 

Services’ views on this subject are not 

reflected in the agreement. More 

importantly, the value of the agreement 

itself is illusory. Signed only by DiMA, 

a trade organization, it does not bind 

any Service to its terms; and, to date, no 

Services have signed on to the 

agreement. 11/15/06 Tr. 108:7–15 

(Gertz). 

The Copyright Royalty Judges also 

have serious reservations about the bona 

fides of Royalty Logic to act as the 

Collective under the statutory licenses. 

Royalty Logic ‘‘is a for profit 

organization whose acknowledged goal 

is to make a profit,’’ 67 FR 45267 (July 

8, 2002), and Mr. Gertz candidly offered 

that his reasons for seeking entrance 

into the royalty collection and 

distribution business was ‘‘to make 

money.’’ 11/15/06 Tr. 89:7–10 (Gertz). 

In addition, Mr. Gertz stated that 

Royalty Logic may decide to pay some 

copyright owners and/or performers 

more than others. 11/15/06 Tr. 79:22– 

80:10 (Gertz). These statements raise a 

concern as to whether Royalty Logic 

will act in the best interest of all 

copyright owners and performers 

covered by the statutory licenses. The 

concern is elevated by the fact that 

Royalty Logic’s participation in 

Webcaster I was championed by the 

Services and is favored more in this 

proceeding by the Services than by 

copyright owners and performers.70 As 

noted above, the Services should have 

little if any interest in the activities of 

the Collective to whom they pay their 

royalties (especially where they are 

relieved of the burden of paying more 

than one Collective) unless they have 

reason to believe that Royalty Logic may 

offer them reduced royalty fees in 

negotiations for future license periods. 

Mr. Gertz’s business with MRI, which 

licenses the performance right for 

musical works on behalf of copyright 

users rather than owners and 

performers, suggests this outcome. 71

Likewise, we have no basis in the 

record to expect that Royalty Logic will 

deduct lower administration fees, and 

therefore return greater royalties to 

copyright owners and performers, than 

SoundExchange. We were not presented 

with any comparison of Royalty Logic’s 

and SoundExchange’s administration 

fees, only an argument that competition 

between Collectives potentially could 

reduce the overall administration fees. 

Given that we are selecting only a single 

Collective, the potential effects of 

competition on administration fees to be 

charged to copyright owners and users 

is not relevant. 

In sum, the Copyright Royalty Judges 

determine that SoundExchange will best 

serve the interests of all copyright 

owners and performers whose works are 

subject to the statutory licenses and, 

therefore, shall be the Collective for the 

2006–2010 royalty period. 

C. Terms 

Having resolved the matter of who 

shall serve as the Collective for the 

2006–2010 licensing period, the 

Copyright Royalty Judges now turn to 

other terms necessary to effectuate 

payment and distribution. Other than 

the few disputed terms, adoption of all 

the terms necessary for payment and 

distribution presents a decidedly 

unfortunate challenge, as is discussed 

below. 

1. Webcaster I 

In Webcaster I, the parties to the 

proceeding presented the CARP with a 

comprehensive, negotiated settlement of 

nearly all the payment, administration 

and distribution terms for the section 

112 and 114 licenses. These terms 

included governing provisions for 

submission of payments and statements 

of account, confidentiality 

requirements, audit and verification of 

statements of account and royalty 

distributions, and unclaimed royalty 


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72The exception is the limited role of the Register 

of Copyrights on questions of law. See 17 U.S.C. 

802(f)(1)(A)(ii), 802(f)(2)(B)(i), and 802(f)(1)(D). 

73 In contrast, 17 U.S.C. 803(b)(6)(B) made the 

procedural rules of the CARP applicable to the 

Copyright Royalty Judges until 120 days after 

appointment of the Copyright Royalty Judges or 

interim Copyright Royalty Judges who were 

required to adopt new regulations. 

funds. The CARP was only called upon 

to resolve two relatively minor disputes 

regarding terms: whether to include four 

definitional provisions related to 

broadcast radio, and what to do with 

royalties for copyright owners who did 

not designate either SoundExchange or 

Royalty Logic to serve as their agent. 

Applying the willing buyer/willing 

seller standard, the CARP adopted 

wholesale the negotiated terms as being 

the best evidence of marketplace 

negotiations, chose not to adopt the 

disputed definitional provisions, and 

determined that willing buyers and 

willing sellers would choose 

SoundExchange for copyright owners 

who failed to choose a Designated 

Agent. Webcaster I CARP Report at 128– 

134. 

The Librarian made significant 

alterations to the CARP’s determination 

regarding terms. While he accepted the 

CARP’s rejection of the broadcaster 

definitional terms and the 

determination that SoundExchange 

should serve as agent for unaffiliated 

copyright owners, he rejected a 

negotiated term limiting agents’ liability 

for improper distributions and a 

negotiated term allowing agents to 

deduct litigation and licensing costs 

from collected royalty fees. 67 FR 

45268–9 (July 8, 2002). He also modified 

a negotiated definition of ‘‘gross 

proceeds’’ and created two new 

definitional provisions: one for 

‘‘Ephemeral Recordings’’ and another 

for ‘‘Listener.’’ Further, he extended the 

right to select a Designated Agent to 

performers in addition to copyright 

owners, granted performers the right to 

audit their Designated Agent, and 

‘‘clarified’’ the negotiated terms for 

allocating royalty payments among 

Designated Agents and for allocation of 

royalties among parties entitled to 

receive such royalties. 67 FR 45270–1 

(July 8, 2002). 

2. Negotiated Terms 

As noted previously, there was no 

CARP proceeding for the 2003–2004 

licensing period. The parties settled 

their differences and offered the 

Librarian a negotiated agreement for 

rates and terms. The proposed 

agreement included the Webcaster I 

terms with some modifications. After 

offering the proposed agreement for 

public comment, the Librarian adopted 

it. See, Digital Performance Right in 

Sound Recordings and Ephemeral 

Recordings (Final rule), 69 FR 5693 

(February 6, 2004). Codified in part 262 

of the Copyright Office’s regulations, the 

effective date of these rates and terms 

was extended by the Copyright Royalty 

and Distribution Reform Act of 2004 

until December 31, 2005, the last day 

prior to the beginning of the rates and 

terms established by this proceeding. 37 

CFR part 262; Copyright Royalty and 

Distribution Reform Act of 2004, Public 

Law 108–419, section 6(b)(3) (transition 

provisions), 118 Stat. 2341, 2370 (2004). 

3. This Proceeding 

The parties’ approach to rates and 

terms was decidedly different in this 

proceeding than in Webcaster I. Even 

though the Copyright Royalty and 

Distribution Reform Act of 2004 

eliminated the CARP system and 

thereby removed the Librarian and the 

Copyright Office from further 

involvement in royalty adjustment 

proceedings, 72 the parties apparently 

operated under the assumption that the 

terms contained in part 262 would 

remain in place for the 2006–2010 

period plus the recommended 

amendments the Copyright Royalty 

Judges adopted. The existence of this 

assumption is confirmed in Part III of 

the written direct testimony of Barrie 

Kessler entitled ‘‘Modifications Needed 

to License Terms,’’ where Ms. Kessler 

only addresses those terms that she 

believed required amendment. The 

Services also refer to the regulations in 

part 262 as the ‘‘current’’ regulations. 

See, e.g. DiMA and Radio Broadcasters 

JPFF at ¶ 300. 

In examining part 262, the Copyright 

Royalty Judges observe that these are the 

regulations of the ‘‘Copyright Office, 

Library of Congress.’’ The Copyright 

Royalty Judges do not have authority to 

amend, alter, or otherwise affect these 

regulations. There is no provision in the 

Copyright Royalty and Distribution 

Reform Act of 2004 that carries forward 

the regulations contained in part 262 or 

makes them applicable to the Copyright 

Royalty Judges. 73 Part 262 is therefore 

not a part of this proceeding. 

Other than testimony and argument 

devoted to amendment of certain 

provisions contained in part 262, no 

other evidence was presented regarding 

terms for payment and distribution. The 

Copyright Royalty Judges anticipated 

that the parties would follow their 

approach from Webcaster I and present 

negotiated terms prior to the close of the 

record. When nothing was forthcoming, 

the Copyright Royalty Judges issued an 

order directing parties to file agreedupon terms no later than the deadline 

for the submission of their reply 

findings of fact and conclusions of law. 

Amendment to Amended Trial Order, 

Docket No. 2005–1 CRB DTRA 

(November 28, 2006). When nothing 

again was filed, the Copyright Royalty 

Judges questioned counsel at closing 

arguments who stated that because of 

the press of time in drafting and filing 

proposed findings and reply findings, 

they were unable to discuss or negotiate 

any terms. Still nothing has been filed. 

The failure to submit negotiated 

terms, coupled with the absence of 

further testimony, places the Copyright 

Royalty Judges in a difficult situation. 

While there is sufficient record 

testimony to resolve the disputed terms, 

see infra, the only evidence for the 

‘‘missing terms’’ is the assumption of 

the parties that the provisions of part 

262, plus our resolution of disputed 

terms, would constitute the terms for 

payment and distribution for the 2006– 

2010 statutory period. The parties’ 

assumption is certainly thin evidence 

on which to proceed. Nevertheless, 

there are sufficient grounds to resolve 

the difficulty of the missing terms. 

First, we observe that in Webcaster I 

the Librarian made several wholesale 

changes to the parties’ negotiated terms 

even though the parties did not propose 

such changes. The Librarian created 

definitions for ‘‘Ephemeral Recordings’’ 

and ‘‘Listener’’ because, in his view, 

their absence from the regulations 

would lead to confusion. 67 FR 45269– 

70 (July 8, 2002). He extended the right 

of choosing a Designated Agent to 

performers as well as copyright owners 

and permitted them to audit Designated 

Agents because he could ‘‘conceive of 

no reason why Performers should not be 

given the same choice’’ as copyright 

owners. 67 FR 45271 (July 8, 2002). It 

is clear that the Librarian took these 

actions so that the regulations governing 

terms would be clearer, more efficient 

and fairer to the parties affected. In 

other words, the Librarian endeavored 

to make the operation of the statutory 

licenses as smooth, efficient, and fair as 

possible. This approach was both 

necessary and proper and we adopt it 

here. It is wholly consistent with our 

conclusion, discussed in Section V.A., 

supra, that it is our obligation to adopt 

royalty payment and distribution terms 

that are practical and efficient. Failure 

to so act would produce statutory 

licenses that are operationally chaotic 

and otherwise unusable, thereby 

frustrating the Congressional intention 

underlying their establishment. 

Second, while an assumption that 

part 262 would apply to the new license 

period is not necessarily the best 


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74We acknowledge that the status of whether 

‘‘custom radio’’ services are DMCA-compliant 

remains unresolved, but resolution of this issue is 

not necessary to our determination. 75We note that Ms. Kessler testified that a 1.5% 

late fee, which is the late fee for the section 114 

license applicable to preexisting subscription 

services, still does not discourage late payments. 

Ms. Kessler did not supply, other than her opinion, 

evidence to demonstrate that 2.5% is the magic 

number that will end, or virtually end, future late 

payments. Further, the Services demonstrated on 

cross-examination of Ms. Kessler that the frequency 

of late payments of the Services in this proceeding 

has not been so rampant as to warrant a much 

higher late fee. DiMA and Radio Broadcasters JPFF 

at ¶ 292. 

evidence of the required terms, it 

nevertheless demonstrates the parties’ 

intention to be bound by that provision 

(including, of course, their proposed 

changes). They certainly had ample 

opportunity to disavow this intention 

and did not do so. Rejection of the 

provisions contained in part 262 would, 

in addition to disrupting the operation 

of the statutory licenses, frustrate the 

demonstrated intention of the parties. 

Consequently, the Copyright Royalty 

Judges are adopting the undisputed 

provisions of part 262 as the baseline for 

terms for the 2006–2010 licensing 

period, subject to the additions and 

changes adopted in this decision. 

Parties to future royalty rate proceedings 

are strongly urged to attach a greater 

importance to the adoption of terms and 

to create a more comprehensive and 

thorough record. 

4. Disputed Terms 

a. Late Payment Fees 

SoundExchange requests that the 

Copyright Royalty Judges establish a fee 

for late payments of statutory royalties 

equal to 2.5% of the total royalty owed 

by the Service for that period. The 2.5% 

late fee represents a substantial increase 

from the 0.75% late fee adopted in 

Webcaster I. 

SoundExchange argues that the 

increase is necessary. Barrie Kessler 

stated that many Services are late with 

their royalty payments and opined that 

a nominal late fee (0.75%) coupled with 

the high cost of bringing an 

infringement action for failure to pay 

royalties actually encourages late 

payments. Kessler WDT at 27–28; 6/8/ 

06 Tr. 261:1–6 (Kessler). Ms. Kessler 

also requested that the late fee be 

doubled every five days beginning 20 

days after SoundExchange sends a 

Service notification of late payment. 

Kessler WDT at 28. 

In support of its request for the 2.5% 

late fee, SoundExchange offers several 

marketplace agreements between record 

companies and services containing, on 

average, a late payment fee of 1.5% per 

month, with a high of 2.0%. 

SoundExchange Ex. 012 DR (UMGMusicNet subscription services 

agreement); SoundExchange Ex. 014 DR 

(UMG-Muze clip license agreement); 

SoundExchange Ex. 017 DR (UMG-Real 

Networks subscription agreement); 

SoundExchange Ex. 021 DR (SONY 

BMG-Muze clip license agreement); 

SoundExchange Ex. 002 DR (WMG-Next 

Radio Solutions webcasting agreement); 

SoundExchange Ex. 004 DR (SONY 

BMG-MusicMatch Internet radio 

agreement). 

Radio Broadcasters and DiMA counter 

that a 0.75% late fee (9% per annum) is 

generous and is greater than the current 

cost of borrowing. DiMA and Radio 

Broadcasters JPFF at ¶ 286. They cite the 

testimony of Eugene Levin of Entercom 

Broadcasting who, while conceding that 

Entercom has agreements with a number 

of suppliers (including ASCAP, BMI 

and SESAC) that provide for late fees 

ranging from 12% to 18% per year, 

testified that late fees are often waived 

so as to promote a positive business 

atmosphere and maintain good 

relations. Levin WRT at 4–5; 11/14/06 

Tr. 38:2–9, 41:5–12 (Levin). Radio 

Broadcasters cite Entercom’s agreements 

with SESAC and Liquid Compass as 

evidence that late fees can be 

discretionary. Radio Broadcasters RFF at 

¶¶ 137–138. 

The Copyright Royalty Judges 

determine that the record evidence does 

not support continuation of a 0.75% per 

month late fee. Although Mr. Levin 

advocated that number, he did not 

provide a single agreement that his 

company had for music service that 

contained such a rate, nor did he state 

that he was aware of any agreements 

containing such a rate. To the contrary, 

Entercom’s agreements with ASCAP, 

BMI and SESAC all provide for late fees 

ranging from 12% to 18% per annum. 

11/14/06 Tr. 38:2–9, 41:5–12 (Levin). 

The agreements cited by 

SoundExchange also fall within this 

range. 

We are not persuaded that contracting 

parties’ ability to waive late fees 

requires rejection of a higher late fee. 

Contract provisions granting discretion 

to waive late fees were present in some 

of Entercom’s agreements but were 

noticeably absent from the record 

company/music service agreements 

cited by SoundExchange. Mr. Levin was 

not aware of industry practices with 

respect to waiver. Moreover, his 

testimony that waiver promotes good 

business relationships with contractees 

is unavailing in the context of statutory 

licensing. While waiving a late fee can 

promote good feelings in a private 

agreement and thereby avoid 

termination of future goods and services 

by the offending party, it has no bearing 

for a statutory license where copyright 

owners and performers cannot, short of 

an infringement determination by a 

federal court, terminate access to their 

works under the license. 

After reviewing the record, the 

Copyright Royalty Judges find that the 

record company/music service 

agreements provided by SoundExchange 

are the best evidence as to the 

appropriate late fee. While these are not 

agreements for DMCA-compliant 

webcasting,74 there is no reason to 

believe that a term governing late 

payment, which is unrelated to the 

specific royalty rates of the agreements, 

would be any different in a DMCAcompliant agreement. The agreements 

establish a range of 1.5% to 2%, with 

the majority of the agreements 

containing the 1.5% figure. We adopt 

the 1.5% figure.75 In doing so, we reject 

SoundExchange’s request for a doubling 

of the late fee every five days when a 

royalty payment is later than 20 days 

because such a provision does not 

appear in any of the agreements, and 

SoundExchange has failed to 

demonstrate the need for such an 

extraordinary measure. 

b. Statements of Account 

i. Late Fee for Statements of Account 

Webcaster I and part 262 of the 

Copyright Office’s rules adopted a late 

fee for royalty payments but not for late 

statements of account. Ms. Kessler 

testified that it is not uncommon for 

SoundExchange to receive late and 

incomplete statements of account from 

Services. 6/6/06 Tr. 137:12–138:20 

(Kessler). She urged the Copyright 

Royalty Judges to adopt a penalty fee for 

late and/or incomplete statements 

calculated as if the Service had failed to 

pay royalties when required. Kessler 

WDT at 29–30. Mr. Levin testified that 

it was inappropriate to assess a late fee 

when a Service did not submit a timely 

statement of account and particularly 

unfair where the statement contained 

good faith errors or omissions. Levin 

WRT at ¶¶ 16,19; 11/14/06, Tr. 44:18– 

45:11 (Levin). 

The Copyright Royalty Judges 

determine that timely submission of a 

statement of account is critical to the 

quick and efficient distribution of 

royalties. The statement of account 

identifies the time period to which the 

royalty payment applies, enables 

SoundExchange to determine what 

music service is being paid for and 

whether the filer has attributed the 

correct royalty fee to the service or 

services it is paying for. Although Mr. 


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76See 37 CFR 262.5(c). 

77This conclusion again is supported by the 

satellite, cable and DART licenses which permit 

copyright owners full and complete access to the 

statements of account of the users of those licenses. 

Levin viewed the timely submission of 

statements of account as burdensome, 

we note that the regulations 

implementing the satellite, cable and 

digital audio recording devices or media 

(DART) statutory licenses require the 

simultaneous submission of royalty 

payments and statements of account. 

See 37 CFR 201.11 (satellite); 37 CFR 

201.17 (cable); 37 CFR 201.28 (DART). 

Failure to timely submit a statement of 

account with the royalty payment 

requires payment of a late fee under 

those licenses. We do not see any 

unique burdens or circumstances for 

Services operating under the section 112 

and 114 licenses that require a different 

outcome. Consequently, we adopt the 

1.5% per month late fee for statements 

of account. 

With respect to the completeness of 

the statement of account, the burden is 

upon the Service to provide as complete 

and error-free a statement as possible. 

All of the information needed to 

complete the statement—which is 

neither complex nor lengthy, see 

SoundExchange Ex. 212 DP—is in the 

possession of the Service. 

Inconsequential good-faith omissions or 

errors should not warrant imposition of 

the late fee. 

ii. Confidentiality 

There is considerable disagreement as 

to whether the information contained in 

statements of account is confidential 

and should be viewed by the Collective 

(SoundExchange) alone and not by 

copyright owners and performers. DiMA 

and Radio Broadcasters assert that a 

confidentiality requirement is necessary 

and is what willing buyers and sellers 

would agree to in a competitive market. 

DiMA and Radio Broadcasters JPFF at 

¶¶ 297, 299. They cite to the 

confidentiality provisions of five 

agreements—SoundExchange Ex. 003 

DR sec. 10(b) (WMG-MusicNet 

subscription services agreement); 

SoundExchange Ex. 004 DR sec. 10.01 

(SONY BMG-MusicMatch Internet radio 

agreement); SoundExchange Ex. 006 DR 

sec. 8.1 (EMI standard wholesale 

agreement for streaming/conditional 

download licenses); SoundExchange Ex. 

017 DR sec. 5(b) (UMG-Real Networks 

subscription agreement); 

SoundExchange Ex. 014 DR sec. 6 

(WMG-Muze clip license agreement)— 

in support of this assertion. Further, Mr. 

Levin testified that the information 

concerning a Service’s total royalty 

payments, listening minutes and 

aggregate tuning hours is not the kind of 

information that Services share with 

their competitors. 11/14/06 Tr. 47:14– 

48:7 (Levin). 

SoundExchange counters that 

precluding copyright owners and 

performers from access to the 

information contained in the statements 

of account not only impedes the 

operation of its Board of Directors 

(which is comprised of owners and 

performers) but is a denial of the 

fundamental information necessary for 

enforcement of the statutory licenses. 

Kessler WDT at 33. Copyright owners 

and performers only see statement of 

account information from prior statutory 

license periods in the aggregate 76 and 

cannot make informed decisions to 

identify and act against Services that, in 

their view, are not satisfying their 

statutory requirements. Id. at 31. 

SoundExchange also views the evidence 

of marketplace activity differently from 

DiMA and Radio Broadcasters, citing 

two marketplace agreements between 

record companies and digital music 

services that require the reporting of 

revenues and number of performances 

so that the copyright owners can verify 

the calculation of the royalty fee owed 

under the agreement. SoundExchange 

Ex. 002 DR (WMG-Next Radio Solutions 

webcasting license agreement); 

SoundExchange Ex. 018 DR (UMGMusic Video Net video agreement). 

Radio Broadcasters counter that even 

these two agreements have a general 

confidentiality provision that prevents 

disclosure to the public of confidential 

business information. Radio 

Broadcasters RFF at ¶ 127. 

The Copyright Royalty Judges are 

troubled by continuing the 

confidentiality restrictions adopted in 

Webcaster I and part 262 of the 

Copyright Office’s regulations. Because 

they were the product of negotiations, 

there was no finding that the types of 

information contained in the statements 

of account were indeed ‘‘confidential’’; 

i.e., that their disclosure would harm 

the business interests of the reporting 

Services. Mr. Levin, the only witness 

offered by the Services on this point, 

did not articulate how the information 

contained in the statements can or could 

injure the competitiveness of a Service, 

or otherwise negatively affect its 

operation. 11/14/06 Tr. 96:11–104:11 

(Levin). Further, he conceded that a 

competitor’s subscription to Arbitron, a 

broadcasting rating and information 

service, would provide much of the 

same information contained in the 

statements. 11/14/06 Tr. 85:20–87:13, 

97:13–99:14 (Levin). The Copyright 

Royalty Judges come to the conclusion 

that while Services may want the 

information contained in statements of 

account to remain confidential, they 

have not demonstrated how disclosure 

of that information is, or is likely to be, 

harmful. 

Even more troubling is how the denial 

of information to copyright owners and 

performers impacts their substantive 

rights under the section 112 and 114 

licenses. Without the information 

contained in a statement of account, a 

copyright owner and/or performer 

cannot begin to make an informed 

judgment as to whether a Service is 

complying with its statutory obligations 

and making the correct payments. 

Permitting the disclosure of the 

information contained in statements of 

account only to the Collective does not 

alter this concern and grants the 

Collective an inordinate amount of 

control as the only party knowledgeable 

of the compliance of each of the 

Services. No support can be found in 

the statute for an arrangement that 

effectively imbues only the Collective, 

or any other agent, with the information 

necessary to pursue an infringement 

action. In sum, copyright owners and 

performers should not be excluded from 

obtaining the information contained in 

a statement of account of a Service that 

performed his or her work.77

Review of the licensing agreements 

cited by Radio Broadcasters does not 

counsel a different result. The 

confidentiality provisions in these 

agreements generally prohibit disclosure 

of ‘‘business’’ information to those not 

party to the agreement, i.e., the public 

at-large. They do not deny the 

licensor—the copyright owner—access 

to this information. And several of the 

cited agreements permit the licensor to 

share obtained business information 

with others, including advisors, 

financial officers, bankers, and 

contractors with a need to know. 

SoundExchange Ex. 004 DR sec. 10.01(a) 

(SONY BMG-MusicMatch Internet radio 

agreement); SoundExchange Ex. 002 DR 

sec. 9.01(a) (WMG-NextRadio Solutions 

webcasting license agreement). In the 

statutory licensing setting, copyright 

owners and performers are the licensors 

of their works to the Services and 

certainly need to know the information 

concerning the Services’ payments. 

Providing the information only to 

SoundExchange, as the Services request, 

is not consistent with these agreements. 

What is consistent with these 

agreements, however, is a prohibition of 

disclosure of statement of account 

information to the general public, and 

we are adopting that restriction. 


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Therefore, access to statements of 

account is limited to copyright owners 

and performers, and their agents and 

representatives identified in the 

regulations, whose works were used by 

a Service under the section 112 and 114 

licenses. Copyright owners, performers, 

and the Collective are directed in the 

regulations to implement the necessary 

procedures to guard against access to 

and dissemination of statement of 

account information to unauthorized 

parties. 

c. Audit and Verification of Payments 

SoundExchange requests four 

‘‘clarifications’’ to the part 262 

regulations regarding verification of 

royalty payments made by the Services: 

(1) That the Services should be required 

to maintain their books and records for 

the three prior calendar years (January 

to December) and the entirety of those 

three years may be audited; (2) persons 

other than Certified Public Accountants 

(‘‘CPAs’’) should be allowed to serve as 

auditors and need only be independent 

from the Service they are auditing; (3) 

individual copyright owners and 

performers, in addition to the 

Collective, should be permitted to audit 

Services; and (4) the threshold for 

allocating the costs of an audit should 

be reduced from a 10% underpayment 

to a 5% underpayment, or if the Service 

underpays by $5,000 or more. 

SoundExchange PFF ¶¶ at 1314, 1342. 

With the exception of the first request, 

the Copyright Royalty Judges decline to 

accept SoundExchange’s proposals. 

By eliminating the requirements that 

an auditor be a CPA and independent 

from SoundExchange, SoundExchange 

is seeking to transform the prior 

verification process into what it calls 

‘‘technical audits.’’ SoundExchange PFF 

at ¶¶ 1327, 1328. Technical audits 

would, in SoundExchange’s view, 

reduce its costs by allowing in-house 

technical experts to conduct the audits 

rather than outside CPAs, who might 

lack the technical capability for the data 

processing and analysis and may be 

more expensive than in-house 

personnel. 6/6/06 Tr. 269:16–273:4 

(Kessler). The Copyright Royalty Judges 

have reviewed the record company/ 

music service agreements submitted by 

the parties and note that some 

agreements permit technical audits. 

SoundExchange Ex. 002 DR sec. 5.02 

(WMG-NextRadio Solutions webcasting 

license agreement); SoundExchange Ex. 

003 DR sec. 4(b) (WMG-MusicNet 

subscription services agreement). 

Others, however, require the auditors to 

be CPAs, (SoundExchange Ex. 001 DR 

sec. 4.01 (WMG-All Media Guide clip 

license agreement), SoundExchange Ex. 

014 DR sec. 3.7 (WMG-Muze clip 

license agreement)), and that the auditor 

be independent of both the licensor and 

licensee. SoundExchange Ex. 001 DR 

sec. 4.01 (WMG-All Media Guide clip 

license agreement); SoundExchange Ex. 

004 DR sec. 6.05 (SONY BMGMusicMatch Internet radio agreement); 

SoundExchange Ex. 007 DR sec. 8(b) 

(EMI—MusicNet nonportable 

subscription services agreement). While 

technical audits by in-house personnel 

might be cheaper for the Collective, we 

conclude that it is more important, in 

the interest of establishing a high level 

of credibility in the results of the audit, 

that the auditor be independent of both 

parties. 11/14/06 Tr. 9:8–11:11 (Levin). 

Likewise, we find that requiring the 

auditor to be certified further raises 

confidence levels in the audit. CPAs 

have experience in the field of 

accounting, are familiar with the 

accepted standards and practices for 

auditing, and are governed by standards 

of conduct. If technical skills are 

required to process the data of a Service, 

the auditor can request assistance. In 

sum, the Copyright Royalty Judges are 

requiring that the auditor be certified 

and independent of both 

SoundExchange and the Service being 

audited. 

The Copyright Royalty Judges are not 

persuaded that all copyright owners and 

performers should have the right to 

audit a Service. It is one thing for a 

Service that enters into a private 

agreement with a copyright owner to 

allow the owner to conduct an audit. 

Kenswil WDT at 10–11; Eisenberg WDT 

at 13. It is an altogether different matter 

to grant the right of audit to copyright 

owners and performers under a 

statutory licensing scheme where there 

is no privity of contract and the 

potential for a significant magnitude of 

audits. We agree with the Services that 

subjecting them to that kind of extensive 

auditing process could seriously impair 

their business operations. Levin WRT at 

¶ 30. 

Likewise, we are not persuaded that 

the underpayment threshold for shifting 

the cost of an audit should be reduced 

from an underpayment of 10% to one of 

5% of the royalty fee due, or $5,000, 

whichever is less. Ms. Kessler stated 

that the 10% figure was too high and 

encourages the Services to deliberately 

underpay their royalties up to 9%, but 

she did not offer any direct evidence of 

this occurring. Furthermore, the 10% 

figure is consistent with several of the 

record company/music service 

agreements. SoundExchange Ex. 003 DR 

sec. 6(f) (WMG-MusicNet subscription 

services agreement); SoundExchange Ex. 

004 DR sec. 6.06 (SONY BMGMusicMatch Internet radio agreement); 

SoundExchange 010 DR sec. 5(c) (EMIMuze clip license agreement). 

Finally, the Copyright Royalty Judges 

agree with SoundExchange that the 

Services should retain their books and 

records for the three calendar years 

prior to the current year. Services need 

to know with precision how long they 

must retain their books and records as 

well as the time period that is 

potentially subject to an audit. 

d. Other Matters 

i. Recordkeeping 

Subsequent to the conclusion of the 

hearings on the direct statements, the 

Copyright Royalty Judges issued an 

Interim Final Rule in Docket No. RM 

2005–2, the docket establishing notice 

and recordkeeping requirements for 

certain digital audio services using the 

section 112 and 114 licenses. Notice and 

Recordkeeping for Use of Sound 

Recordings Under Statutory License 

(Interim final rule), 71 FR 59010 

(October 6, 2006). The Interim Final 

Rule prescribed the format and delivery 

requirements for reports of use of sound 

recordings, thereby completing the 

interim recordkeeping rulemaking 

process begun several years ago by the 

Copyright Office. Several of the parties 

in this proceeding, uncertain as to 

whether such recordkeeping issues 

would be addressed in this docket and 

noting the statutory language that 

permits the Copyright Royalty Judges to 

modify their existing recordkeeping 

rules, 17 U.S.C. 803(c)(3), submitted 

testimony on the matter. Although we 

ruled that recordkeeping matters would 

be addressed through notice and 

comment rulemaking and not in this 

proceeding, we did not strike the 

testimony. Instead, such testimony was 

allowed to remain in the record as 

evidence, if any, of the relative costs to 

the Services and the Collective 

associated with recordkeeping. Order 

Denying Radio Broadcasters’ Motion for 

Clarification, Motion to Strike 

SoundExchange Exhibits 414–418 DP 

and Motion to Set Expedited Briefing 

Schedule, Docket No. 2005–1 CRB 

DTRA (September 8, 2006). 

The costs of recordkeeping to both 

sides did not influence our 

determination of royalty rates in this 

proceeding, nor are we choosing to 

amend our existing recordkeeping 

regulations. See 37 CFR part 370. The 

testimony presented by the Services as 

to the costs associated with 

recordkeeping was vague and 

unsubstantiated and went little beyond 

the assertion that there are some costs 

associated with recordkeeping. Clearly, 


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any recordkeeping, no matter how 

modest, involves some costs. 

Nevertheless, the statute does require 

reporting. 17 U.S.C. 112(e)(4), 

114(f)(4)(A). And despite the fact that 

most of the requirements for creating a 

report of use have been public since 

2002, see Notice and Recordkeeping for 

Use of Sound Recordings Under 

Statutory Licenses (Notice requesting 

written proposals and announcement of 

status conference), 67 FR 59573 

(September 23, 2002), the Services 

failed to quantify either the magnitude 

of the actual overall costs or the average 

costs to individual Services. In any 

event, because our recordkeeping 

regulations are interim and not final, 

there is ample opportunity to again 

address the Services’ costs in a future 

rulemaking. The ability to influence and 

adjust the costs of recordkeeping is far 

more direct in that context than this rate 

determination proceeding and is more 

properly handled there. 

Likewise, there was no persuasive 

testimony compelling an adjustment of 

the current recordkeeping regulations. 

SoundExchange presses for census 

reporting, but the record is incomplete 

as to effectiveness of the current 

periodic reporting requirement. Once 

again, the Copyright Royalty Judges 

conclude that this matter is more 

appropriate for a future recordkeeping 

rulemaking. 

ii. Royalty Distribution 

Having eschewed the Receiving 

Agent/Designated Agent model of the 

prior regulations in favor of a single 

Collective, we are adopting streamlined 

royalty distribution procedures. 

SoundExchange has the responsibility 

of collecting the royalties from the 

Services and distributing them to all 

eligible copyright owners and 

performers, including any agents 

designated by copyright owners and/or 

performers for their receipt. Deduction 

of costs by SoundExchange is governed 

by the statute, 17 U.S.C. 114(g)(3), and 

therefore we have no authority to 

address any resulting inequalities. 

With respect to the distribution 

methodology, the Copyright Royalty 

Judges are retaining the requirement 

that all performances be valued equally 

by the Collective. SoundExchange is 

already familiar with and applies this 

requirement. 6/6/06 Tr. 171:2–172:10 

(Kessler). Copyright owners and/or 

performers are certainly free to agree to 

subsequent distribution methodologies 

once they have received their 

distribution from the Collective. 

VI. Determination and Order 

Having fully considered the record, 

the Copyright Royalty Judges make the 

above Findings of Fact based on the 

record. Relying upon these Findings of 

Fact, the Copyright Royalty Judges 

unanimously adopt every portion of this 

Final Determination of the Rates and 

Terms of 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). The Copyright Royalty Judges 

exercise their authority under 17 U.S.C. 

803(c), and transmit this Final 

Determination to the Librarian of 

Congress for publication in the Federal 

Register, pursuant to 17 U.S.C. 

803(c)(6). 

So Ordered. 

James Scott Sledge, 

Chief Copyright Royalty Judge. 

William J. Roberts, 

Copyright Royalty Judge. 

Stanley C. Wisniewski, 

Copyright Royalty Judge. 

Dated: April 23, 2007. 

List of Subjects in 37 CFR Part 380 

Copyright, Sound recordings. 

Final Regulation 

■ For the reasons set forth in the 

preamble, Chapter III of Title 37 of the 

Code of Federal Regulations is amended 

by adding new Subchapter E to read as 

follows: 

Subchapter E—Rates and Terms for 

Statutory Licenses 

PART 380—RATES AND TERMS FOR 

CERTAIN ELIGIBLE 

NONSUBSCRIPTION TRANSMISSIONS, 

NEW SUBSCRIPTION SERVICES AND 

THE MAKING OF EPHEMERAL 

REPRODUCTIONS 

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. 

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

804(b)(3). 

§ 380.1 General. 

(a) Scope. This part 380 establishes 

rates and terms of royalty payments for 

the public performance of sound 

recordings in certain digital 

transmissions by Licensees 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, 2006, through December 31, 2010. 

(b) Legal compliance. Licensees 

relying upon the statutory licenses set 

forth in 17 U.S.C. 112 and 114 shall 

comply with the requirements of those 

sections, the rates and terms of this part, 

and any other applicable regulations. 

(c) Relationship to voluntary 

agreements. Notwithstanding the 

royalty rates and terms established in 

this part, 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 part to transmission 

within the scope of such agreements. 

§ 380.2 Definitions. 

For purposes of this part, the 

following definitions shall apply: 

(a) 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. 

(b) Broadcaster is a type of 

Commercial Webcaster or 

Noncommercial Webcaster that owns 

and operates a terrestial AM or FM radio 

station that is licensed by the Federal 

Communications Commission. 

(c) Collective is the collection and 

distribution organization that is 

designated by the Copyright Royalty 

Judges. For the 2006–2010 license 

period, the Collective is 

SoundExchange, Inc. 


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(d) Commercial Webcaster is a 

Licensee, other than a Noncommercial 

Webcaster, that makes eligible digital 

audio transmissions. 

(e) Copyright Owners are sound 

recording copyright owners who are 

entitled to royalty payments made 

under this part pursuant to the statutory 

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

114(f). 

(f) 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(f), and subject to the 

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

(g) 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)), 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. 

(h) 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. 

(i) 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). 

(j) 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). 

(k) Qualified Auditor is a Certified 

Public Accountant. 

(l) Side Channel is a channel on the 

website 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 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 are 

as follows: 

(1) Commercial Webcasters: (i) The 

per-performance fee for 2006–2010: For 

all digital audio transmissions, 

including simultaneous digital audio 

retransmissions of over-the-air AM or 

FM radio broadcasts, a Commercial 

Webcaster will pay a performance 

royalty of: $.0008 per performance for 

2006, $.0011 per performance for 2007, 

$.0014 per performance for 2008, $.0018 

per performance for 2009, and $.0019 

per performance for 2010. The royalty 

payable under 17 U.S.C. 112 for any 

reproduction of a phonorecord made by 

a Commercial Webcaster during this 

license period and used solely by the 

Commercial Webcaster to facilitate 

transmissions for which it pays royalties 

as and when provided in this section is 

deemed to be included within such 

royalty payments. 

(ii) Optional transitional Aggregate 

Tuning Hour fee for 2006–2007: The 

following Aggregate Tuning Hours 

(ATH) usage rate calculation options, in 

lieu of the per-performance fee, are 

available for the transition period of 

2006 and 2007: 

Other programming Broadcast simulcast programming Non-music 

programming 

Prior Fees ............................................ $0.0117 per ATH ................................ $0.0088 per ATH ................................ $0.0008 per ATH. 

2006 ..................................................... $0.0123 per ATH ................................ $0.0092 per ATH ................................ $0.0011 per ATH. 

2007 ..................................................... $0.0169 per ATH ................................ $0.0127 per ATH ................................ $0.0014 per ATH. 

(iii) ‘‘Non-Music Programming’’ is 

defined as Broadcaster programming 

reasonably classified as news, talk, 

sports or business programming; 

‘‘Broadcast Simulcast Programming’’ is 

defined as Broadcaster simulcast 

programming not reasonably classified 

as news, talk, sports or business 

programming; and ‘‘Other 

Programming’’ is defined as 

programming other than either 

Broadcaster simulcast programming or 

Broadcaster programming reasonably 

classified as news, talk, sports or 

business programming. 

(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, a Noncommercial 

Webcaster will pay an annual per 

channel or per station performance 

royalty of $500 in 2006, 2007, 2008, 

2009 and 2010. 

(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, a Noncommercial 

Webcaster will pay a performance 

royalty of: $.0008 per performance for 

2006, $.0011 per performance for 2007, 

$.0014 per performance for 2008, $.0018 

per performance for 2009, and $.0019 

per performance for 2010. 

(iii) The following Aggregate Tuning 

Hours (ATH) usage rate calculation 

options, in lieu of the per-performance 

fee, are available for the transition 

period of 2006 and 2007: 


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24112 Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 

Other programming Broadcast simulcast programming Non-music 

programming 

Prior Fees ............................................ $0.0117 per ATH ................................ $0.0088 per ATH ................................ $0.0008 per ATH. 

2006 ..................................................... $0.0123 per ATH ................................ $0.0092 per ATH ................................ $0.0011 per ATH. 

2007 ..................................................... $0.0169 per ATH ................................ $0.0127 per ATH ................................ $0.0014 per ATH. 

(iv) ‘‘Non-Music Programming’’ is 

defined as Broadcaster programming 

reasonably classified as news, talk, 

sports or business programming; 

‘‘Broadcast Simulcast Programming’’ is 

defined as Broadcaster simulcast 

programming not reasonably classified 

as news, talk, sports or business 

programming; and ‘‘Other 

Programming’’ is defined as 

programming other than either 

Broadcaster simulcast programming or 

Broadcaster programming reasonably 

classified as news, talk, sports or 

business programming. 

(v) The royalty payable under 17 

U.S.C. 112 for any reproduction of a 

phonorecord made by a Noncommercial 

Webcaster during this license period 

and used solely by the Noncommercial 

Webcaster to facilitate transmissions for 

which it pays royalties as and when 

provided in this section is deemed to be 

included within such royalty payments. 

(b) Minimum fee. Each Commercial 

Webcaster and Noncommercial 

Webcaster will pay an annual, 

nonrefundable minimum fee of $500 for 

each calendar year or part of a calendar 

year of the license period during which 

they are Licensees pursuant to licenses 

under 17 U.S.C. 114. This annual 

minimum fee is payable for each 

individual channel and each individual 

station maintained by Commercial 

Webcasters and Noncommercial 

Webcasters and is also payable for each 

individual Side Channel maintained by 

Broadcasters who are Licensees. The 

minimum fee payable under 17 U.S.C. 

112 is deemed to be included within the 

minimum fee payable under 17 U.S.C. 

114. Upon payment of the minimum fee, 

the Licensee will receive a credit in the 

amount of the minimum fee against any 

additional royalty fees payable in the 

same calendar year. 

§ 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 paragraph (b)(2) of this section, 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. A Licensee 

shall make any payments due under 

§ 380.3 by the 45th day after the end of 

each month for that month, except that 

payments due under § 380.3 for the 

period beginning January 1, 2006, 

through the last day of the month in 

which the Copyright Royalty Judges 

issue their final determination adopting 

these rates and terms shall be due 45 

days after the end of such period. 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: 

(1) Payment due under § 380.3(b) for 

2006 and 2007 shall be due 45 days after 

the last day of the month in which the 

Copyright Royalty Judges issue their 

final determination adopting these rates 

and terms. 

(2) 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 is 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 

(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 


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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 § 370.3 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 this section within 3 

years from the date of payment by a 

Licensee, 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. 

(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 

part, ‘‘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(f) 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(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. 

§ 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 Board 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 

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 


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24114 Federal Register / Vol. 72, No. 83 / Tuesday May 1, 2007 / Rules and Regulations 

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. 

§ 380.8 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 part, 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: April 23, 2007. 

James Scott Sledge, 

Chief Copyright Royalty Judge. 

[FR Doc. E7–8128 Filed 4–30–07; 8:45 am] 

BILLING CODE 1410–10–P 


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