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371

Public Performance Royalty-Rate


Disparity: Should Congress Pamper
Pandoras Pandering?

BY ROBERT J. WILLIAMS, JR.


ABSTRACT
As technological advancements create new mediums for music
consumption, the increased availability of this music allows for a larger
listenership and more diverse listening experiences. But beyond this basic
understanding lies a complex system of copyright protection. Without
continued profitability for all platforms, the number of methods by which
the everyday listener can consume his or her daily dose of music will stop
expanding and most likely shrink. Internet radio is at the core of this
predicament. Internet radio exposes listeners to artists they may not hear
elsewhere, and this promotional benefit likely leads to greater profitability
for copyright holders. Yet, while this exposure element is recognized and
rewarded when it comes to traditional radio, the current copyright royalty
scheme overlooks the same effect for digital broadcasters. Due to the
disproportionality of the current scheme, there have been several attempts
to amend. This Note examines two of these: The Internet Radio Fairness Act
of 2012 and the Performance Rights Act. The only way to discontinue the
seemingly endless legislative battle is by adopting a royalty payment
structure that most parties would accept as fair. Part I of this Note provides
background information about the current copyright royalty-rate system.
Part II analyzes the dual standard that the Copyright Royalty Board uses to
determine digital-radio royalties. Part III examines the IRFA and PRA.
Lastly, Part IV of this Note argues that the issues facing the current royalty-
rate system must be addressed in a fashion that garners more support from
each side.

Candidate for Juris Doctor, New England Law | Boston 2014. B.A. Political Science, cum
laude, Kent State University 2011. I would like to thank my family and friends for always being
there when I needed them. Furthermore, I would like to thank the earth for letting me live on
it.

372 Ne w Engl and Law Revi e w v. 48 | 371
INTRODUCTION
For most Americans, music is a part of everyday life.
1
The ease at which
music is currently available is a major factor in why music is a part of
everyday life.
2
As technological advancements create new mediums for
music consumption, its increased availability allows for a larger listenership
and more diverse listening experience.
3
Beyond this basic understanding,
however, lies a complex system of copyright protection.
4
This system
attempts to regulate how and how much copyright owners are compensated
for their creations and performances
5
and who may present these musical
creations to the public for just compensation.
6
Complex may be an
understatement.
7
One thing is for certain: without continued profitability for
all platforms, the number of methods by which the everyday listener can
consume his or her daily dose of music will stop expanding and likely
shrink.
8

Internet radio is at the core of this predicament.
9
Since its advent,
Internet radio has broken barriers that confined traditional terrestrial
radio (AM/FM) broadcasters.
10
Terrestrial broadcasters, bound to the
confines of a single listenership for the duration of a program, must attract
listeners by playing similar enough music to keep the audience engaged.
11


1
See Laura Houston Santhanam et al., Audio: By the Numbers, STATE OF THE MEDIA,
http://stateofthemedia.org/2012/audio-how-far-will-digital-go/audio-by-the-numbers/ (last
visited Jan. 6, 2014) (stating that over one million Americans are registered users of Pandora,
which is still growing, while traditional broadcast radio dominates the market with an even
larger group of Americans listening in).
2
Id. The way in which we get our music is changing, and with this change Americans
expect the availability of music and other media to continue to adapt. Id.
3
See About The Music Genome Project, PANDORA, http://www.pandora.com/about/mgp (last
visited Jan. 6, 2014). The Music Genome Project is a process that Pandora uses to classify each
song in its catalogue. Id. Trained music analysts categorize each song in Pandoras database
allowing the program to recognize[] and respond to a listeners selection and adapt the
listener's own radio station to create a much more personalized radio experience. Id.

4
See generally 17 U.S.C. 106, 801 (2012); 37 C.F.R. 260.2 (2002).
5
See 17 U.S.C. 106, 801; 37 C.F.R. 260.2.
6
See 17 U.S.C. 106, 801; 37 C.F.R. 260.2.
7
See generally 17 U.S.C. 106, 801; 37 C.F.R. 260.2.
8
Cf. Support the Internet Radio Fairness Act, PANDORA (Nov. 24, 2012),
http://web.archive.org/web/20121124063021/http://www.pandora.com/static/ads/irfa/irfa.html
(A more reasonable rate standard will drive greater investment and growth in internet radio,
which is the one medium that truly plays a broad catalogue and can enable a vibrant middle
class in the music industry.) (click on Visit the FAQ for more information) .
9
See id.
10
See id.
11
See About Radio Advertising, STRATEGICMEDIA, http://www.strategicmediainc.com/radio

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 373
In contrast, Internet radio broadcasting allows listeners to select from a list
of genreswithout changing the channelthus giving rise to more diverse
content and a more connected listenership.
12
Internet radio exposes listeners
to artists they may not hear elsewhere and this promotional benefit most
likely leads to greater profitability for copyright holders.
13
Yet this exposure
element is part of all the available platforms today.
14
While promotion is
recognized and rewarded when it comes to traditional radio stations, the
current copyright royalty scheme overlooks the same effect for digital
broadcasters.
15

Both traditional broadcast radio and Internet radio stations pay royalties
for playing a public performance of a musical composition.
16
These royalties
are paid to performing rights organizations (PROs), such as the American
Society of Composers, Authors, and Publishers (ASCAP),
17
Broadcast
Music, Inc. (BMI),
18
and SESAC, Inc. (formerly the Society of European
Stage Authors and Composers).
19
However, digital-radio providers,
including digital cable radio, satellite radio, and Internet radio, also pay
royalties to the owner of a sound recording for the public performance of a
song.
20
Originally created by the Digital Performance Right In Sound

-advertising.php (last visited Jan. 6, 2014) (An advertising medium must reach your target
customers or it provides no benefit.).
12
E.g., SLACKER, www.slacker.com (last visited Jan. 6, 2014). Directly from Slacker
Radios homepage a user can search by entering any artist, song, album or preferred station in
the search bar. Id.
13
Support the Internet Radio Fairness Act, supra note 8.
14
Cf. WILLIAM W. FISHER III, PROMISES TO KEEP: TECHNOLOGY, LAW, AND THE FUTURE OF
ENTERTAINMENT 5859 (2004) (discussing payola, a now-illegal practice that involved paying
terrestrial broadcasters to play particular recordings for exposure); Andrew Stockment, Internet
Radio: The Case for a Technology Neutral Royalty Standard, 95 VA. L. REV. 2129, 214143 (2009)
(Just as the recording industry has long recognized for broadcast radio, Internet radio also has
a promotional value.).
15
See 17 U.S.C. 106(6) (2012); see also David Nimmer, Ignoring the Public Part I: On the
Absurd Complexity of the Digital Audio Transmission Right, 7 UCLA ENT. L. REV. 189, 18992 (2000).
16
17 U.S.C. 106(4). The holder of a copyright in a musical compositionnot the holder of
a copyright in a sound recordingenjoys the exclusive right of public performance. Id. This is
the basis for compensation to songwriters, composers, and music publishers from traditional
radio play. See David v. Showtime/Movie Channel, Inc., 697 F. Supp. 752, 758 (S.D.N.Y. 1988)
(citing 17 U.S.C. 106(4)) (noting that under the Copyright Act, plaintiffs are entitled to
compensation if a defendant publicly performed the relevant works).
17
ASCAP, www.ascap.com (last visited Jan. 6, 2014).
18
About, BMI, www.bmi.com/about (last visited Jan. 6, 2014).
19
About SESAC, SESAC, www.sesac.com/about/about.aspx (last visited Jan. 6, 2014).
20
17 U.S.C. 106(6); see David v. Showtime/The Movie Channel, Inc., 697 F. Supp. 752, 758
(S.D.N.Y. 1988) (noting that under the Copyright Act musicians are entitled to compensation
where a broadcast company publicly performs their work).

374 Ne w Engl and Law Revi e w v. 48 | 371
Recordings Act of 1995 (DPRA),
21
and further amended by the Digital
Millennium Copyright Act of 1998 (DMCA),
22
the purpose of this
additional payment is to ensure [the] protection for sound recordings . . . as
new technologies affect the ways in which their creative works are used.
23

However, the royalty imposed by 114 and 112 of the Copyright Act
creates an unfair system that is contested by almost all parties involved
except the exempt traditional radio broadcasters.
24

Due to the current schemes disproportionality, there have been several
attempts at reform.
25
The most recent, the Internet Radio Fairness Act of 2012
(IRFA), attempts to lower rates for Internet radio services but lacks the
support of copyright holders because it fails to address the overarching
issues within the current rate setting system.
26
The only chance to end
continuous litigation between the differing radio providers and copyright
holders lies in adaptation.
27
This Note will examine the IRFA and the
Performance Rights Act (PRA).
28
Each Act represents proposed changes to
the current copyright royalty scheme and has both support and opposition.
29

The only way to discontinue the seemingly endless legislative battle is
through adopting a royalty payment structure that most parties accept as
fair.
30
This Note argues that the only viable option for lawmakers is to create
a new technologically unbiased standard that no longer exempts traditional

21
Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39, 23,
109 Stat. 336, 340 (1995) (codified as amended at 17 U.S.C. 106, 114).
22
Digital Millennium Copyright Act, Pub. L. No. 105-304, 114, 112 Stat. 2860, 2890902
(1998) (codified as amended at 17 U.S.C. 114).
23
S. REP. NO. 104-128, at 10 (1995).
24
See, e.g., Damon Krukowski, Making Cents, PITCHFORK (Nov. 14, 2012) http://pitchfork.
com/features/articles/8993-the-cloud/ (discussing frustration with the current digital royalty
regime from a musicians point of view noting that the regime does not allow for musicians to
earn wages through their recordings); NO MORE Internet Radio?! What?, GODSHOMIES,
http://godshomies.wordpress.com/controversial-issues/no-more/no-more-internet-radio-
what/ (last visited Jan. 6, 2014) (A more reasonable rate standard will drive greater investment
and growth in internet radio, which is the one medium that truly plays a broad catalogue and
can enable a vibrant middle class in the music industry.).
25
See Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. (2012); Performance
Rights Act, H.R. 848, 111th Cong. (2009); Congressman Jerrold Nadler, Interim Fairness in Radio
Starting Today Act of 2012: Discussion Draft, NADLER.HOUSE.GOV (Aug. 7, 2012, 3:36 PM),
http://www.nadler.house.gov/sites/nadler.house.gov/files/documents/NADLER_153_xml.pdf.
26
H.R. 6480; see infra notes 133, 142 and accompanying text.
27
See Vanessa Van Cleaf, A Broken Record: The Digital Millennium Copyright Acts Statutory
Royalty Rate-Setting Process Does Not Work for Internet Radio, 40 STETSON L. REV. 341, 34445
(2010).
28
H.R. 848; see infra Part III.
29
See supra notes 2425 and accompanying text.
30
See Stockment, supra note 14, at 216567.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 375
radio.
31

Part I of this Note provides background information about the current
copyright royalty-rate system. Part II analyzes the dual standard that the
Copyright Royalty Board uses to determine digital-radio royalties. Part III
examines the IRFA and PRA. Lastly, Part IV of this Note argues that the
issues with the current royalty-rate system must be addressed in a fashion
that garners more support from each side. A technologically unbiased
standard that uses the 801(b)(1) factors embodies the necessary changes.
I. The Public Performance Right and Congresss Digital Distinction
A. The Important Distinction Between Musical Compositions and
Sound Recordings
When an author creates a song, federal copyright law recognizes two
separate copyrightable works: a musical composition and a sound
recording.
32
The musical composition is the arrangement of notes and lyrics
put together by the composer or songwriter.
33
The sound recording is the
recorded performance of the musical composition by the artist.
34
This
performance is what listeners hear on the radio.
35
An easier way to
understand this distinction is in the realm of cover songs.
36
When you hear
the song Hurt by Nine Inch Nails there are two separate copyrights: (1)
ownership of the musical composition by Trent Reznor because he wrote the
music and lyrics; and (2) ownership of the sound recording, which most
likely goes to Reznors record company.
37
When you hear Hurt by Johnny
Casha cover of Reznors musical compositionthere are still two
copyrights: (1) Reznor still owns the musical composition; and (2) Universal

31
See Nimmer, supra note 15, at 18991; infra Part IV.C.
32
See Copyright Act, 17 U.S.C. 102 (2012).
33
See FISHER III, supra note 14, at 39.
34
See 17 U.S.C. 101; Recording Indus. Assn of Am. v. Librarian of Cong., 608 F.3d 861,
863 (D.C. Cir. 2010); LAWYERS FOR THE CREATIVE ARTS, LEGAL ISSUES INVOLVED IN THE MUSIC
INDUSTRY (Peter J. Strand, et al. eds., 2005), available at http://law-arts.org/pdf/Legal_Issues_in_
the_Music_Industry.pdf.
35
See 17 U.S.C. 101; LIBRARY OF CONGRESS, COLLECTIONS OF POLICY STATEMENTS, 1 (rev.
2008), available at http://www.loc.gov/acq/devpol/soundrec.pdf. The sound recording is the
fixation of sounds, including a recording of someone playing or singing a musical composition.
17 U.S.C. 101. Usually, a publisher owns the copyright for a musical composition and a record
label owns the copyright for a sound recording. Brief of Petitioner-Appellant at 2, Digital Media
Assn v. Copyright Royalty Bd., No. 07-1172 (D.C. Cir. June 4, 2007) , 2007 WL 1724183.
36
See, e.g., Casey Lynn, Music Royalties for Dummies, GEEKSARESEXY (July 21, 2009),
http://www.geeksaresexy.net/2009/07/21/music-royalties-for-dummies-or-ascap-is-not-the-
riaa/ (explaining the mechanics of music royalties).
37
Id.

376 Ne w Engl and Law Revi e w v. 48 | 371
Music Group, Cashs record label, owns the sound recording.
38
Universal owns
only the sound recording because Cash sang the lyrics and performed the
music Reznor originally created.
39
In most cases, the artist (author) owns the
copyright for a musical composition while his or her then-current record
label owns the copyright for the sound recording.
40
The digital transmission
of a sound recording over the Internet involves the performance of both the
sound recording and underlying musical composition.
41

B. History of the Copyright Owners Exclusive Rights and Introduction
to the DPRAs and DMCAs Digital Distinction
1. Section 106s Exclusive Rights
To put the exclusive rights into perspective and understand the current
royalty-rate dispute, we turn to 106 of the Copyright Act of 1976 (1976
Act).
42
Section 106 grants a holder of certain copyrights six exclusive
rights.
43
A work subject to 106 gives the copyright owner the sole ability to:
reproduce the work,
44
make derivative works,
45
distribute copies of a sound
recording of a musical work,
46
publicly display or perform a musical
composition,
47
and perform a copyrighted work publicly by means of a
digital audio transmission.
48
Two rights, however, are particularly
relevant.
49
Traditionally, only the copyright holder of a musical
compositionand not copyright holder of a sound recordingheld the
right to demand permission (payment) for the public display and

38
Id.
39
Id.
40
Id.
41
Copyright Act, 17 U.S.C. 101, 106(4), (6) (2012).
42
106.
43
Id.
44
106(1). This means only the copyright holder shall record, publish, or otherwise copy
the song without the copyright holders permission. Id.
45
106(2).
46
106(3). No one may distribute copies or phonorecords, defined by 101 as a sound
recording of a musical work to the public by sale or other transfer of ownership, or by rental
lease or lending [without permission]. Id. This right is limited by the first-sale doctrine, which
says that [o]nce a person has lawfully acquired [a] copy of a song (including a sound
recording) that person may dispose of the copy as he or she pleases. FISHER III, supra note 14, at
40. However, the owner of a phonorecord (owner of sound recording) may not rent it to the
public for commercial advantage without permission from the holder of the copyright in the
musical composition. Id.; 17 U.S.C. 109.
47
106(4)(5).
48
106(6).
49
114(a), 106(4)(5).

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 377
performance of his or her work.
50
This meant that the owner of the sound
recording did not receive royalties when songs were played over traditional
broadcast radio.
51

2. Congresss Digital Distinction
With the advent of digital radio, the DPRA added (and the DMCA
amended) the sixth right: the right to perform a copyrighted work publicly
by means of a digital audio transmission.
52
While traditional radio is
exempt from paying the owners of sound recordings under this addition to
106, satellite radio and digital cable radio must pay royalties to the owners
of sound recordings.
53
Congress intended, and the statute expresses, that
royalties payable to copyright owners of musical works for the public
performance of their works shall not be diminished in any respect as a result
of the rights granted by the creation of the digital audio transmission
right.
54
Therefore, these rights are wholly separate, and payment for either
does not affect cost or payment of the other.
55

C. Licensing: Paying Your Way to Public Play
1. Paying for It: Music Licensing for Musical Compositions
For a traditional radio station to play a song that it would otherwise be
barred from performing publicly, it must obtain a license for the musical
composition.
56
A compulsory license is one type of exception to the exclusive
rights that copyright holders enjoy.
57
This license permits people to engage
in activity that would otherwise violate one of the exclusive rights.
58
The
DPRA and the Digital Millennium Copyright Act of 1998 (DMCA) created
a compulsory license regime for digital audio transmissions.
59
In contrast,

50
114(a), 106(4)(5); FISHER III, supra note 14, at 4041.
51
Nimmer, supra note 15, at 190.
52
Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39, 23,
109 Stat. 336 (codified as amended at 17 U.S.C. 106, 114 (2012)).
53
See id.
54
17 U.S.C. 114(i) (License fees payable for the public performance of sound recordings
under section 106(6) shall not be taken into account in any administrative, judicial, or other
governmental proceeding to set or adjust the royalties payable to copyright owners of musical
works for the public performance of their works.).
55
Id.
56
See id. 101, 115(a)(1), 115(c)(3)(J)(i).
57
FISHER III, supra note 14, at 41, 4346 (discussing some of the exceptions, including the fair-
use doctrine).
58
See 17 U.S.C. 112(a)(1), 112(e)(1)(A)(D), 114(f), 115(a)(c).
59
Digital Millennium Copyright Act, Pub. L. No. 105-304, 405, 112 Stat. 2860 (1998)
(codified as amended at 17 U.S.C. 114); Digital Performance Right in Sound Recordings Act

378 Ne w Engl and Law Revi e w v. 48 | 371
broadcasting (performing) a song through digital audio transmission
requires three licenses: a license for the public performance of the musical
composition
60
(typically obtained from a Performing Rights Organization or
PRO
61
); a license for the public performance of the sound recording via
digital audio transmission;
62
and a license to create ephemeral copies of the
sound recording used in the transmission process.
63
Digital broadcasters,
unlike traditional radio stations, pay for licenses to publicly perform the
musical composition and pay for the right to digitally transmit the audio
sound recording.
64

In the United States, three PROs facilitate licensing and collecting
royalties for the public performance of musical compositions: ASCAP, BMI,
and SESAC.
65
The primary function of the PROs is to issue blanket
performance licenses for all of the songs in [the PROs] catalogues to radio
and television stations, which are obtained by paying a single fee to each
organization.
66
Broadcast radio stations typically pay a flat percentage of
their gross revenue, about two percent each, for ASCAP, BMI, and SESAC.
67

In addition to the rates developed for broadcast radio, the PROs
establish rates for the performance of musical compositions through digital
transmissions over the Internet.
68
ASCAP requires licensees to pay the
greater of 1.85% of revenue, or $0.0006 multiplied by the total number of
sessions, with a minimum annual fee of at least $288.
69
In 2012, ASCAP
negotiated a fee agreement with the Radio Music Licensing Committee,
which represents large broadcasters like Clear Channel, under which they
will pay 1.7% of gross revenue minus deductions based on advertising
commissions.
70
BMI offers two licensing options for a digital broadcaster

of 1995, Pub. L. No. 104-39, 23, 109 Stat. 336 (1995) (codified as amended at 17 U.S.C. 106,
114).
60
17 U.S.C. 115(a)(1), (c)(3)(J)(i).
61
FISHER III, supra note 14, at 50.
62
17 U.S.C. 114(d)(2).
63
17 U.S.C. 112(e)(1).
64
Digital Performance Right in Sound Recordings Act of 1995, 3(d)(1)(B)(g)(2).
65
FISHER III, supra note 14, at 50.
66
Id. Licensees do not need to obtain blanket licenses from all three PROs but typically do
anyways. See id.
67
Id.
68
See, e.g., ASCAP Experimental License Agreement for Non-interactive ServicesRelease 5.2,
ASCAP, http://www.ascap.com/~/media/Files/Pdf/licensing/digital/Non-InteractiveLicense
AgreementR5_2.pdf (last visited Jan. 6, 2014) [hereinafter ASCAP Release 5.2].
69
Id.
70
Don Jeffrey, Pandora Media Sues ASCAP Seeking Lower Songwriter Fees, BLOOMBERG (Nov.
5, 2012, 5:30 PM), http://www.bloomberg.com/news/2012-11-05/pandora-media-sues-ascap-
seeking-lower-songwriter-fees.html.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 379
whose revenue from music exceeds $2,000: (1) a License Fee which equals
1.75% of gross revenue; or (2) a Music Revenue Calculation based off of
the revenue generated from the copyrighted music (not gross revenue) or
$0.12 per every 1,000 visits to the pages that include copyrighted music
(Music Page Impressions).
71
Both BMI options carry a $342 minimum
annual fee.
72
The SESAC license rate is $0.0057 multiplied by the amount of
distribution, advertising, and other revenue created by the music, with a
minimum semi-annual fee of $225.
73
Aggregate annual royalty payments for
ASCAP, BMI, and SESAC total approximately $2 billion.
74
These payment
structures may seem confusing now, but as will be explained, the rates
which the PROs set for the digitally transmitted public performance of
musical compositions are substantially lower than the rates currently paid
for the digital audio transmissions of sound recordings.
75

2. Paying for It: Licensing 114s Digital Audio Transmission
Royalty
Beyond licensing the rights of musical compositions to digital
broadcasters, the DPRA and the DMCA created 114 and 112 of the Act.
76

In turn, Congress created compulsory licensing schemes for the public
performance of sound recordings via digital audio transmissions
77
and the
creation of ephemeral copies of sound recordings used in digital audio
transmissions.
78
Section 114 divides digital-radio services into four

71
BMI Web Site Music Performance Agreement, BMI, http://www.bmi.com/forms/licensing/
newmedia/internet.pdf (last visited Jan. 6, 2014).
72
Id.
73
SESAC Internet Performance License, SESAC, http://www.sesac.com/pdf/Internet_2012a.
pdf (last visited Nov. 13, 2013).
74
John Villasenor, Digital Music Broadcast Royalties: The Case for a Level Playing Field, 19 ISSUES
IN TECH. INNOVATION 1, 2 (2012), available at http://www.brookings.edu/~/media/
research/files/papers/2012/8/07%20music%20royalties%20technology%20villasenor/cti_19_vill
asenor.
75
See infra Part II.
76
See 17 U.S.C. 112, 114 (2012).
77
114(d)(2).
78
112(e). Section 112(e) entitles a transmitting organization (broadcaster for our
purposes) to make a phonorecord of a sound recording for certain uses in the ordinary course
of its business, such as background music played in offices, retail stores, and restaurants, so
long as the business recipient does not retransmit the transmission outside of its premises or
the immediately surrounding vicinity . . . . 112(e), 114(d)(1)(C). The other permitted usage
allows a broadcaster to transmit the public performance of a sound recording under a statutory
license in accordance with section 114(f). 112(e)(1). Coupled with 114(f), this scheme allows
a broadcaster to create copies of a phonorecord for transmittal purposes (copies transmitted to
each user) with authorization from the copyright owner. See id.

380 Ne w Engl and Law Revi e w v. 48 | 371
categories: (1) preexisting subscription services (digital cable radio); (2)
preexisting satellite digital audio radio services (satellite radio); (3)
eligible nonsubscription transmissions (Internet radio); and (4) new
subscription services (digital radio by satellite TV).
79

The Copyright Royalty Board (CRB) is the permanent legal body
responsible for determining and adjusting the rates and terms of these
statutory licenses.
80
The CRB also distributes royalties from the royalty pools
that the Library of Congress administers.
81
Comprised of three Copyright
Royalty Judges (CRJs) that serve staggered six year terms, the CRB not
only determines the rates for compulsory licenses, but also oversees and
certifies any rates agreed upon through voluntary negotiations between the
PROs and broadcasters.
82
The CRB holds hearings every five years to
determine rates for the next five year period.
83
Most recently, the CRJs
announced their final determination for the rates and terms for statutory
licenses under 114 and 112, for the period beginning January 1, 2011, and
ending on December 31, 2015.
84
The CRB currently uses two standards to
determine 114 performance royalties: (1) the 801(b)(1)
85
standard for
digital cable radio and satellite radio; and (2) the willing buyer, willing
seller standard for Internet radio and digital radio by satellite TV.
86

Royalties for Internet radio determined under the willing buyer, willing
seller standard are much higher than royalties determined for other forms
of digital radio determined under the 801(b)(1) standard.
87
Additionally,
the CRB determines 112 royalties using the willing buyer, willing seller
standard.
88
The 112 royalty has always been significantly lower priced than
the 114 license, and both licenses are usually determined together in a
single rate.
89


79
114(d), (f), (j).

80
17 U.S.C. 801.
81
United States Copyright Royalty Board, LIBR. OF CONGRESS, http://www.loc.gov/crb/back
ground/ (last visited Jan. 6, 2014).
82
Id.; 17 U.S.C. 805.
83
17 U.S.C. 801(b)(2), 804(b)(1); see, e.g., Digital Performance Right in Sound
Recordings and Ephemeral Recordings, 76 Fed. Reg. 13,026 (Mar. 9, 2011) (to be codified at 37
C.F.R. pt. 380).
84
Digital Performance Right in Sound Recordings and Ephemeral Recordings, 76 Fed. Reg.
at 13,026.
85
114(f)(1)(B).
86
114(f)(2)(B).
87
Cf. Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. (2012) (attempting to
replace the current willing buyer, willing seller standard for the 801(b)(1) standard used for
satellite radio and digital cable services to achieve significantly lower rates).
88
17 U.S.C. 112(e)(4).
89
Stockment, supra note 14, at 2139.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 381
3. SoundExchange
In 2003, the Librarian of Congress and the CRB appointed
SoundExchange as the sole collector and distributor of the sound recording
performance royalties established by the CRB.
90
Furthermore,
SoundExchange is responsible for negotiating on behalf of copyright
owners in royalty-rate setting proceedings.
91
SoundExchange is an
independent, non-profit organization created by the Recording Industry
Association of America (RIAA) that originally functioned as a division of
the company before turning non-profit.
92
As of September 2013,
SoundExchange represents 28,000 registered copyright holder accounts and
90,000 registered performer accounts.
93
Its representation includes signed
and unsigned artists from record companies of all sizes (as well as unsigned
musicians) and it is responsible for paying out over $1.5 billion in royalties
through 2012.
94
Under the Act, sound recording performance royalties
collected under statutory licenses are distributed as follows: 50% to the
copyright holder of the sound recording (usually the record label); 45% to
the featured recording artist; and 5% to any nonfeatured artists (2.5% to
nonfeatured musicians and vocalists).
95

ANALYSIS
II. The Current Royalty-Rate System for the Digital Public Performance
of Sound Recordings Is Unsatisfactory for Willing Buyer, Willing
Seller Digital Broadcasters
A. The Double Standard
The main source of debate, litigation, and frustration in the current
copyright royalty scheme lies within the DMCA: extending the digital audio
transmission right to cover webcasting and creating the willing buyer,
willing seller standard now found in 114.
96
When the DPRA originally

90
Notice of Designation as Collective Under Statutory License, U.S. COPYRIGHT OFFICE,
http://www.copyright.gov/carp/notice-designation-collective.pdf (last visited Jan. 6, 2014);
About, SOUNDEXCHANGE, http://www.soundexchange.com/about (last visited Jan. 6, 2014)
[hereinafter About SoundExchange].
91
Stockment, supra note 14, at 213940.
92
Id.
93
Our Work, SOUNDEXCHANGE, http://www.soundexchange.com/about/our-work/
(last visited Jan. 6, 2014).
94
About SoundExchange, supra note 90.
95
17 U.S.C. 114(g)(2)(A)(D) (2012).
96
See Digital Millennium Copyright Act, Pub. L. No. 105-304, 405, 112 Stat. 2860, 2896
(codified as amended at 17 U.S.C. 114); 17 U.S.C. 114(f)(2)(B) (directing the Copyright Board

382 Ne w Engl and Law Revi e w v. 48 | 371
extended the new exclusive right of digital audio transmission in sound
recordings to copyright owners, it directed the Library of Congress to
determine the rates under the longstanding 801(b)(1) standard.
97
While the
roots of the 801(b)(1) standard extend back to the 1976 Act, the legislative
history provides little explanation for why Congress developed the new
willing buyer, willing seller standard for Internet radio.
98
While all of these
services perform the same functionproviding digital radio to consumers
the royalty rates imposed by the CRB are dramatically different across
technologies.
99
Satellite and cable providers pay between 6% and 15% of
annual revenue while Internet radio providers pay 60% or more of their
annual revenue.
100

1. The 801(b)(1) Standard
Section 801(b)(1) directs the CRB to calculate royalties to achieve four
objectives: (1) [t]o maximize the availability of creative works to the
public; (2) [t]o afford the copyright owner a fair return for his or her
creative work and . . . a fair income under existing economic conditions; (3)
[t]o reflect the relative roles of the copyright owner and copyright user in
making the product available to the public, including each partys respective
creative and technological contribution, their ability to open new markets,
and the costs and risks; and (4) [t]o minimize any disruptive impact on the
structure of the industries involved and on generally prevailing industry
practices.
101
This standard attempts to strike a balance for the public,
copyright owners, and copyright users.
102

Section 801(b)(1) adopts copyright policy favoring the availability of
creative works in public and explicitly directs the CRB to consider the value
of allowing use.
103
It also explicitly directs the CRB to avoid setting royalty

to establish rates similar in a marketplace between a willing buyer and a willing seller); see
also Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. (2012) (attempting to rid Internet
radio of the willing buyer, willing seller standard).
97
405, 112 Stat. at 2895.
98
Internet Streaming of Radio Broadcasts: Balancing the Interests of Sound Recording Copyright
Owners with those of Broadcasters Before the H. Subcomm. on Courts, the Internet and Intellectual Prop.
and the H. Comm. on the Judiciary, 108th Cong. (2004) (testimony of Jonathon Potter,
Executive Director, Digital Media Association), available at http://www.judiciary.house.gov/
legacy/94917.pdf [hereinafter Potter Hearing].
99
See infra notes 121122 and accompanying text.
100
See infra notes 121122 and accompanying text.
101
17 U.S.C. 801(b)(1).
102
See id.; see Stockment, supra note 14, at 2163; Support the Internet Radio Fairness Act, supra
note 8.
103
801(b)(1).

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 383
rates that threaten to shut down the industry using the copyrighted works.
104

As stated, the 801(b)(1) standard originated in the 1976 Act.
105
This
standard has consistently been used to determine licensing royalties for
copyright owners.
106
Most importantly, it is used for 115s compulsory
license that allows artists to make covers of another artists song.
107
Once a
recording of a musical composition has been distributed to the public, 115
provides that anyone else may make and distribute another recording of the
composition upon paying a royalty determined by the CRB using the
801(b)(1) standard.
108
The current rate is the greater of either 9.1 per play or
1.75 per minute of playing time for each physical phonorecord or
permanent digital download.
109
This is somewhat troublesome for Internet
radio because the 115 royalty is the rate that other artists pay to use
composers songs.
110
In turn, Internet radio providers argue that the
recording industry pays lower rates to artists under the 801(b)(1) standard,
but collects (as the primary holder of sound recording rights) from Internet
broadcasters using the more favorable (and costly) willing buyer, willing
seller standard.
111

2. The Willing Buyer, Willing Seller Standard
Section 114(f)(2)(B) directs the CRB to 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.
112

Furthermore, the CRB is to base its decision on the economic, competitive,
and programming information presented by the parties, including: (1)
whether the use of the service could substitute for or promote sales of the
phonorecord, or interfere with the sound recording owners revenue;
113
and
(2) the relative roles of the sound recording owner and the broadcaster of the
work, including the creative and technological contribution, investment,

104
801(b)(1)(d).
105
Determination of Rates and Terms for Preexisting Subscription Services and Satellite
Digital Audio Radio Services, 73 Fed. Reg. 4080, 408182 (2008) (to be codified at 37 C.F.R. pt.
382) [hereinafter CRB Satellite Decision 1].
106
See id.
107
See Joshua Keesan, Let It Be? The Challenges of Using Old Definitions for Online Music
Practices, 23 BERKELEY TECH. L.J. 353, 35455 (2008) (stating that a cover is to create a new
version of a pre-existing musical composition, not the sound recording).
108
17 U.S.C. 115(a), 115(c)(3)(D), 801(b)(1).
109
See 37 C.F.R. 385.3 (2009).
110
See 17 U.S.C. 115(a).
111
See Potter Hearing, supra note 98.
112
114(f)(2)(B).
113
Id.

384 Ne w Engl and Law Revi e w v. 48 | 371
cost, and risk.
114
Section 114(f)(2)(B) also states the that CRB [i]n establishing
such rates and terms . . . may consider the rates and terms for comparable
types of digital audio transmission services and comparable circumstances
under voluntary license agreements.
115

Thus, the willing buyer, willing seller standard encompasses only half
of the considerations of the 801(b)(1) standard.
116
Additionally, in applying
this standard, the CRB tends to disregard the portion of the test it is
supposed to apply concerning the rates and terms that a willing buyer
would pay in negotiating a license with the sound recording owner
(seller).
117
This is because the rates paid by Internet radio stations are much
higher than those paid under the 801(b)(1) standard, even though all
providers essentially offer the same servicemusic by radio.
118

Furthermore, not only are the rates higher for Internet radio providers, but
traditional broadcast radio is also completely exempt from compensating
sound recording rights holders.
119

The CRBs interpretation of these two different standards yields
disparate results.
120
When the CRB determines royalties using the 801(b)(1)
standard, it assigns rates around 6% to 8% of revenues.
121
Conversely, when
the CRB uses the willing buyer, willing seller standard, focusing on the
interests of the recording industry, it assigns rates ranging from 15% for
digital radio via satellite to 60% or more for Internet radio providers.
122

III. The Possible Future of Sound Recordings Compensation: The
Internet Radio Fairness Act of 2012 and the Performance Rights Act
A. The Internet Radio Fairness Act of 2012
In September 2012, House lawmakers introduced a bill aimed at

114
Id.
115
Id.
116
114(f)(2)(B), 801(b)(1)(B)(C). The CRB only considers the fair return of the copyright
owner for his creative work and the contributions, investment, cost, risk, and ability to open
new markets for the willing buyer, willing seller standard, which is only half of the 801(b)(1)
test. See id.
117
See Stockment, supra note 14, at 214143.
118
Cf. Nimmer, supra note 15, at 18990.
119
See Matt Jackson, From Broadcast to Webcast: Copyright Law and Streaming Media, 11 TEX.
INTELL. PROP. L.J. 447, 454 (2003).
120
See Villasenor, supra note 74, at 1, 12.
121
Id. at 8.
122
Id. at 1, 12. John Villasenor of the Brookings Institute states: Internet radio companies
can be compelled to pay over 60% of their revenue in sound recording performance royalties.
By contrast, Sirius XM satellite radio currently pays only 8% of gross revenue. Id. at 1.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 385
lowering fees paid by Internet radio services.
123
The bill, which would affect
online providers including services like Pandora,
124
proposes to change the
way that the CRB calculates the rates that Internet radio services must pay
for sound recordings.
125
Named the Internet Radio Fairness Act of 2012,
126

the bill would amend the DMCA with respect to the standards that the CRJs
are to apply.
127
Also referred to as the Pandora Bill,
128
the IRFA substitutes
the willing buyer, willing seller standard with the 801(b)(1) standard.
129

The IRFA sets forth the same rate-setting methodology for the compulsory
licenses of ephemeral recordings.
130

In erasing the willing buyer, willing seller standard, the IRFA aims to
replace the current test used for Internet service providers with the four
objectives used to determine royalties for digital cable radio and digital
satellite radio.
131
In addition, the IRFA adds a definition for competitive
market circumstances to the DMCA: circumstances in which a licensee
enters into a license for the noninteractive performance of sound recordings
with a licensor that does not possess market power resulting from the
aggregation of copyrights, either by a licensing collective or individual
copyright owners.
132
Lastly, the IRFA requires the CRJs to establish license
fee structures that foster competition among the licensors of sound
recordings and prohibits the CRJs from disfavoring percentage-of-revenue-
based fees.
133
Substituting the Internet radio rates for the 801(b)(1) rate
would substantially lower Internet radios royalty costs.
134

Supporters of the bill are primarily Internet radio broadcasters,
including Pandora radio, one of the most successful independent Internet

123
See Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. 3(a)(1)(B) (2012).
124
See id. 1.
125
See id. 3(a)(1)(B).
126
Id. 1.
127
See id.
128
Paul Gallant, A Potential Radio Royalty Pain: Guggenheim Says the Internet Radio Fairness
Act has a 30% Chance of Passing, BARRONS (July 26, 2013), http://online.barrons.com/article/
SB50001424052748704755304578629912036102002.html.
129
See Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. (2012).
130
See id.
131
Id.
132
Id.
133
Id. Currently, under the willing buyer, willing seller standard, Internet radio
providers pay a per-stream rate, which is not connected to the amount of revenue generated by
a provider and is based off of the number of people who listen to the music. See Stockment,
supra note 14, at 214550. This disconnection causes higher rates for Internet radio providers
without taking into account the revenue generated at all. See id. at 2147.
134
See Support the Internet Radio Fairness Act, supra note 8.

386 Ne w Engl and Law Revi e w v. 48 | 371
radio providers and primary lobbyists behind the IRFA.
135
That isnt all
thoughsome artists have expressed support for the IRFA.
136
Internet radio
broadcasters support the bill for obvious reasons including, but not limited
to, the bills potential to lower the current royalty rates they pay by
staggering amountssometimes upwards of 40% or more.
137
Independent
artists support the IRFA because of the exposure that digital play
generates.
138
Patrick Laird, one of three cellists in the instrumental rock
group Break of Reality explains, in the first twelve months of being
included in Pandoras music library, our digital album sales increased by
290 percent from the year prior. In the subsequent 12 months, sales rose 406
percent from our pre-Pandora days.
139
Laird also said that after personally
polling his fans on Facebook, 44% admitted to discovering the bands music
through Internet radio, 31% through live performance, 15% from a friend,
and 9% through YouTube and other Internet outlets.
140
Importantly,
traditional broadcast radio is not even mentioned.
141
It is clear that the
effectiveness of internet (sic) radio with regard to both product sales and
promotional power is overwhelming, and the success and expansion of these
companies are of the utmost importance for the future . . . .
142

This is not to say that the music industry widely accepts the IRFA.
143
In
fact, supporters of the proposed act face strong opposition.
144
And, since its
referral to the Subcommittee on Intellectual Property, Competition and
Internet, little has happened to suggest that the bill is making a charge
towards enactment.
145
Opposition to the IRFA includes the American
Association of Independent Music, American Federation of Labor and
Congress of Industrial Organizations (AFL-CIO), the Recording

135
See Ethan Smith & John Letzing, At Pandora, Each Sale Drives Up Its Losses, WALL ST. J.,
Dec. 6, 2012, at B1 (Pandora has aggressively lobbied Congress for a law that would
significantly cut those royalties. The [IRFA] as the proposed legislation is known, may be the
companys only chance at robust profits.).
136
Patrick Laird, Why I Support the Internet Radio Fairness Act, THE HILLS CONGRESS BLOG
(Nov. 28, 2012), http://thehill.com/blogs/congress-blog/technology/269837-why-i-support-the-
internet-radio-fairness-act.
137
See Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. 3 (2012).
138
Laird, supra note 136.
139
Id.
140
Id.
141
See id.
142
Id.
143
See Stop IRFA, MUSICFIRST, http://www.musicfirstcoalition.org/stop_irfa (last visited
Jan. 6, 2014).
144
See id.
145
See Major Actions: H.R. 6480112
th
Congress (2011-2012), CONGRESS.GOV, http://beta.
congress.gov/bill/112th-congress/house-bill/6480/actions (last visited Jan. 6, 2014).

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 387
Academy, NAACP, Screen Actors Guild American Federation of Television
and Radio Artists (SAG-AFTRA), SoundExchange, RIAA, and countless
artists.
146

B. The Performance Rights Act
The Performance Rights Act (PRA) is another bill with its sights set on
overhauling royalties calculations for sound recordings.
147
The PRA,
introduced to the House of Representatives in February 2009, attempts to
address the issue of nonpayment of sound recording royalties by terrestrial
broadcasters.
148
The bill proposed to amend the 106(6) exclusive right to
publicly perform by means of a digital audio transmission by deleting the
words a digital and replacing them with an.
149
This simple substitution
would have caused 106(6) to read: in the case of sound recordings, to
perform the copyrighted work publicly by means of an audio
transmission.
150
If the PRA had succeeded, traditional broadcast, as well as
any future broadcasting technologies
151
performing a sound recording,
would have been subject to pay royalties to sound recordings rights
holders.
152
In attempting to integrate traditional radio and Internet radio for
sound recording compensation purposes, the PRAs royalty setting standard
allows the CRJs to determine both rates according to the willing buyer,
willing seller standard.
153
Currently, however, the PRA has been shelved.
154

In stark contrast, most IRFA opponents support the PRA.
155
This
includes most musicians and all of the aforementioned organizations they
support.
156
This is mainly because, unlike the IRFA, the PRAs framework
could exponentially increase compensation for sound recordings.
157
Not

146
Stop IRFA, supra note 142.
147
Performance Rights Act, H.R. 848, 111th Cong. (2009).
148
See id. 2(b)(c).
149
Id. 2(b)(1).
150
Id. 2(a).
151
See id. 3(a)(1). The PRA included an amendment to 17 U.S.C. 114(f)(2) that would have
struck the current subparagraph and created a procedure that would allow a sound recording
owner to petition for royalty rates to be imposed on any new type of music service. Id.
152
17 U.S.C. 114 3(a)(1).
153
See H.R. 848, 3(a)(1).
154
See Major Actions: H.R.848111th Congress (2009-2010), CONGRESS.GOV, http://beta.
congress.gov/bill/111th-congress/house-bill/848/actions (last visited Jan. 6, 2014).
155
See The Performance Rights Act: The Facts Every Artist Needs to Know, MUSICFIRST, http://
www.musicfirstcoalition.org/performancerights (last visited Jan. 6, 2014) [hereinafter The Facts
Every Artist Needs to Know].
156
See id.
157
Id.; A Race to the Bottom: The Proposed Internet Radio Fairness Act Makes the Digital Music
Market Less Fair and Is a Step Backwards for Music Creators, MUSICFIRST, http://www.musicfirst

388 Ne w Engl and Law Revi e w v. 48 | 371
only would Internet broadcasters pay using the willing buyer, willing
seller standard, so too would traditional broadcasters.
158
With an estimated
weekly listenership of 241.6 million, traditional radio listenership far
overshadows that of Internet radiofor now.
159

Lastly, it is worth mentioning that compensation is what most artists
and record companies are seeking.
160
Whether by defending the current
system for Internet radio or lobbying to change traditional radios
exemption, ensuring an increase to revenue streams is the only way to attract
the recording industry.
161

IV. The Current Royalty-Rate System Must Be Addressed and the New
Regime Requires Support from Most Parties
A. Combating Royalty-Rate Disparity Through a Less Complex System
and Gaining the Support of Internet Radio Providers
1. Replacing the 801(b)(1) and Willing Buyer, Willing
Seller Distinction With a Single Rate Calculation Would
Create Less Rate Disparity
The current use of the double standard creates royalty-rate disparity and
therefore must be addressed to create a fair royalties scheme.
162
After
acknowledging that all providers that pay for the performance of a sound
recording provide essentially the same servicedigital radio to
consumersit is difficult to discern legitimate reasons for using separate
standards for the same service.
163
Furthermore, the standard is only the initial
test used to determine the rate.
164
In developing the willing buyer, willing
seller standard, Congress created a different set of criteria to determine
rates under the new standard.
165
This differing criterion creates the dramatic
uptick in Internet radio providers rates.
166
If Internet radio broadcasters
were subject to the 801(b)(1) standard instead of the willing buyer, willing

coalition.org/irfa (last visited Jan. 6, 2014) [hereinafter A Race to the Bottom].
158
Performance Rights Act, S. 379, 111th Cong. 7 (2009), available at http://www.gpo.gov/
fdsys/pkg/CRPT-111hrpt680/pdf/CRPT-111hrpt680.pdf.
159
See Radio Attracts Another 2.1 Million Weekly Listeners According to Radar 108, ALL ACCESS
(Mar. 16, 2011, 9:03 AM), http://www.allaccess.com/net-news/archive/story/88738/radio-
attracts-another-2-1-million-weekly-listener; see also Santhanam, supra note 1.
160
Cf. The Facts Every Artist Needs to Know, supra note 155.
161
Cf. id.; A Race to the Bottom, supra note 157.
162
See infra Part IV.A.1.
163
See generally Stockment, supra note 14.
164
17 U.S.C. 801 (2012).
165
114(f)(2)(B).
166
See supra Part II.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 389
seller standard, the same rates would not necessarily apply.
167
The CRB
would still use the four factors outlined in 801(b)(1) to calculate the
appropriate rates for Internet radio and new subscription services.
168

In fact, the CRB already determines multiple rates using the 801(b)(1)
factors: (1) maximizing the availability of creative works; (2) affording a fair
return to copyright owners under existing market conditions; (3) weighing
the relative roles of copyright owners and copyright users; and (4)
minimizing the disruptive impact on generally prevailing industry
practices.
169
The CRBs most recent decision in Determination of Rates and
Terms for Preexisting Subscription Services and Satellite Digital Audio Radio
Services is evidence that the CRJs are able to competently apply the
801(b)(1) factors and identify each factors importance for each distinct type
of provider.
170
In the CRBs determination, the CRJs set the sound recording
royalty rates for digital cable radio providers and Sirius XM (digital satellite
radio) for 20142017.
171
Using the 801(b)(1) factors, the CRJs set sound
recording royalties for Sirius XM at 9% of Gross Revenues
172
for 2013, 9.5%
for 2014, 10% for 2015, 10.5% for 2016, and 11% for 2017.
173
Using the same
factors, the CRJs concurrently set sound recording royalties for digital cable
radio providers at 8% of Gross Revenues for 2013 and 8.5% for 20142017.
174

In arguing against the willing buyer, willing seller standard, Internet
service providers are asking the CRJs to evaluate sound recording licenses
for all digital-radio providers using these same factors.
175
As previously
mentioned, royalties determined using the 801(b)(1) standard range from
8% to 15% of gross revenue, while Internet service providers pay rates as
high as 60%.
176
Until the willing buyer, willing seller standard is
eliminated, Internet providers will continue to blame this seemingly
arbitrary distinction between digital providers as the reason for higher

167
See Determination of Rates and Terms for Preexisting Subscription Services and
Satellite Digital Audio Radio Services, 78 Fed. Reg. 23054, 23054 (2013) (to be codified at 37
C.F.R. pt. 382), available at http://www.loc.gov/crb/proceedings/2011-1/rates/Public-Majority-
Final-Determination.pdf [hereinafter CRB Satellite Decision II].
168
Id. at 23055.
169
Id.
170
See id.
171
Id.
172
Id. The CRB defines Gross Revenues for 801(b) purposes as all monies derived from
the operation of the programming service of the Licensee and includes monies derived from
all advertising and sales in connection with the use of the sound recording license. 37 C.F.R.
382.2 (2013).
173
CRB Satellite Decision II, supra note 167.
174
Id.
175
See Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. 3(a) (2012).
176
See Villasenor, supra note 74, at 1.

390 Ne w Engl and Law Revi e w v. 48 | 371
rates.
177
Therefore, in eliminating the willing buyer, willing seller
standard, Congress would dispose of Internet radios argument that it is
treated unfairly.
178
If the CRJs then analyze Internet radio providers under
the 801(b)(1) standard and determine that the current rates are sufficiently
justified, it would be easier for all parties to understand their justifications.
179

Right now, there is little to compare to the willing buyer, willing seller
standard because it was created solely to determine royalties under the
801(b) standard.
180
If all digital providers were evaluated under the same
standard, each interested party could more readily compare the CRJs
reasoning for the rate determinations.
181

The recording industry argues that Internet radio poses a unique threat
because it reduces music sales and therefore requires a different rate.
182

Record companies and artists opposing the IRFA distinguish digital radio
from traditional broadcast radio by the scarcity of broadcast-radio
frequencies, which limit the number and variety of songs played.
183
In
contrast, the number of Internet radio stations is unlimited and allows
consumers to listen to very specific programs that feature a narrow range
of artists and recordings.
184
The recording industry argues that Internet
radio is therefore more likely to substitute for purchasing music.
185
For some
listeners, Internet radio probably does serve as a substitute for purchasing
music, but other forms of digital radio and traditional broadcast radio likely
do the same to some degree.
186


177
See Music and Radio in the 21st Century: Assuring Fair Rates and Rules Across Platforms
Before the S. Comm. on the Judiciary, 110th Cong. (2008) (testimony of Joe Kennedy, President &
CEO of Pandora Media, Inc.), available at http://www.judiciary.senate.gov/hearings/testimony.
cfm?id=e655f9e2809e5476862f735da13f186a&wit_id=e655f9e2809e5476862f735da13f186a-2-4.
178
See id.
179
See id.
180
See Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39,
23, 109 Stat. 336, 336, 34041 (1995) (codified as amended at 17 U.S.C. 106, 114 (2006)).
181
Stockment, supra note 14, at 2168.
182
Jackson, supra note 118, at 45051.
183
Id.
184
Id. at 451.
185
Id. at 45051; Douglas MacMillan, The Music Industrys New Internet Problem,
BLOOMBERG BUSINESSWEEK (Mar. 6, 2009), http://www.businessweek.com/stories/2009-03-
06/the-music-industrys-new-Internet-problembusinessweek-business-news-stock-market-and-
financial-advice (stating that researchers and industry consultants say online music sites are
being used by a growing number of listeners as a substitute for purchasing music, rather than
serving as a catalyst for more purchases).
186
See MacMillan, supra note 184; see Alex Mindlin, Drilling Down: Radio Listeners Seem to Buy
Less Music, NYTIMES (July 23, 2007), http://www.nytimes.com/2007/07/23/business/media/
23drill.html?pagewanted=print.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 391
Regardless of whether Internet radio substitutes for purchasing music,
three of the four 801(b)(1) factors already adequately address this concern
for digital cable radio and digital satellite radio providers by: affording a fair
return to copyright owners under existing market conditions; weighing the
relative roles of copyright owners and copyright users; and minimizing the
disruptive impact on generally prevailing industry practices.
187
If these
factors adequately address the concerns of copyright owners concerning
digital satellite radiowhich unlike traditional broadcast radio is unbound
in many of the same ways as Internet radioit is unsurprising that Internet
radio challenges the willing buyer, willing seller standard.
188

B. The 801(b)(1) Factors Accurately Achieve the Primary Purpose of
U.S. Copyright Law and Should Be Applied Universally
1. The Primary Purpose of Copyright Protection
In the United States, the basis of copyright protection is the promotion
of progress of knowledge, learning, and the creation of new works.
189
The
underlying principle of all U.S. copyright policy is found in the intellectual
property clause of the U.S. Constitution, which authorizes Congress [t]o
promote the Progress of Science and useful Arts, by securing for limited
Times to Authors and Inventors the exclusive Right to their respective
Writings and Discoveries.
190
At the time the Constitution was written,
science was synonymous with knowledge and learning.
191
The U.S.
Supreme Court has further interpreted this clause to limit Congresss
authority, holding that the Copyright Act must be construed in light of its
basic purpose of promoting broad public availability of literature, music,
and the other arts.
192

If the basis of copyright protection lies in promoting knowledge and

187
17 U.S.C. 801(b)(1) (2012).
188
See Brian Flavin, A Digital Cry for Help: Internet Radios Struggle to Survive a Second
Royalty Rate Determination Under the Willing Buyer/Willing Seller Standard, 27 ST. LOUIS U. PUB. L.
REV. 427, 45253 (2008). Much like Internet radio, satellite radio is not bound by the same
narrow listenership and content issues that traditional broadcast radio faces. See, e.g., Channel
Lineup, SIRIUSXM, http://www.siriusxm.com/channellineup (last visited Jan. 6, 2014). Sirius
Radio offers hundreds of radio stations including music stations of all genres. Id.
189
Lydia Pallas Loren, The Popes Copyright? Aligning Incentives with Reality by Using
Creative Motivation to Shape Copyright Protection, 69 LA. L. REV. 1, 6 (2008).
190
U.S. CONST. art. I, 8, cl. 8.
191
Edward C. Walterscheid, To Promote the Progress of Science and Useful Arts: The
Background and Origin of the Intellectual Property Clause of the United States Constitution, 2 J. INTELL.
PROP. L. 1, 51 (1994); see also MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT
1.03A (2012).
192
Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 156 (1975).

392 Ne w Engl and Law Revi e w v. 48 | 371
learning, Congress should have focused on creating a technologically
neutral standard.
193
Disfavoring one technology over another can hardly
promote the progress of science and useful arts.
194
Copyright policy
should not discriminate on the basis of technology by imposing higher
royalties for digital radio delivered by the Internet when the same music is
delivered by a satellite transmission.
195
But this is exactly what has
happened.
196
Therefore, because the 801(b)(1) factors accurately represent
the founding principles of copyright law in the United States, the 801(b)(1)
standard should replace the willing buyer, willing seller standard.
197


2. Maximizing the Availability of Creative Works to the
Public
198

Under this 801(b)(1) factor, licensees provide evidence that their
services offer further exposure and increased availability to the copyrighted
works.
199
The CRJs consider this evidence, along with any other promotional
efforts, and determine the weight given to support an adjustment to the
current royalty rate.
200
Even when applying this factor, the CRJs analyze
whether the output of music from record labels has been impacted
negatively as a result of the . . . rate.
201
This consideration is completely
absent in the willing buyer, willing seller standard.
202
Although the
Constitution directs Congress to provide copyright protection, it clearly
emphasizes the importance of the availability of the creative work.
203

Without such consideration, rates for Internet radio services greatly exceed
their digital counterparts evaluated under the 801(b)(1) standard.
204

3. Affording Fair Return/Fair Income Under Existing Market

193
Stockment, supra note 14, at 2167.
194
Id. (quoting U.S. CONST. art. I, 8, cl. 8).
195
Id.
196
See id. at 213839, 214144.
197
See id. at 213839, 216266.
198
17 U.S.C. 801(b)(1)(A) (2012).
199
See, e.g., CRB Satellite Decision II, supra note 167, at 2022.
200
Id.
201
Id.
202
17 U.S.C. 114(f)(2)(B), 801(b)(1)(A) (2012).
203
See U.S. CONST. art. I, 8, cl. 8.
204
See supra Part II.A.2.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 393
Conditions
205

Another factor absent from the willing buyer, willing seller standard
is afford[ing] the copyright owner a fair return for his or her creative work
and a fair income under existing economic conditions.
206
With respect to
fair return to copyright owners under the 801(b)(1) standard, the CRJs
examine the services planned or possible expansion and the potential
increased revenue resulting from this expansion.
207
In determining a fair rate
for current 801(b)(1) digital providers, the CRJs take into consideration the
maturity of the market.
208
While the recording industry argues that Internet
radio is a unique threat to record sales, this element focuses on whether
copyright owners will be compensated for increased usage of their works.
209

It is widely accepted that, at the moment, copyright owners see dismal
returns from all digital providers licensing proceeds.
210
But holding select
digital providers to a different royalties-rate-setting standard only
complicates the issue.
211

This further supports that a technologically unbiased standard does not
necessarily mean equal royalty rates for all digital services.
212
Instead, the
constitutional basis for copyright policy (and similarity in services) calls for
a neutral royalty-rate across all technologies.
213
Even in applying the same
standard, different royalty rates may be appropriate for different types of
technology.
214
Furthermore, the willing buyer, willing seller standard
completely overlooks the promotional value of Internet radio.
215
Section
801(b)(1) captures the constitutional purpose of copyright law better than

205
17 U.S.C. 801(b)(1)(B) (2012).
206
801(b)(1)(B); see 114(f)(2)(B).
207
CRB Satellite Decision II, supra note 167, at 23.
208
Id. at 24.
209
Jackson, supra note 119, at 45052; CRB Satellite Decision II, supra note 167, at 2324
(Dramatically expanded usage without a corresponding expectation of increased
compensation suggests an upward adjustment to the existing statutory rate . . . .).
210
See, e.g., Krukowski, supra note 24 (discussing frustration with the current digital
royalty regime from a musicians point of view).
211
Cf. Jeff Price, The State of the Music Industry & the Delegitimization of Artists, TUNECORE
BLOG (Oct. 14, 2010), http://blog.tunecore.com/2010/10/music-purchases-and-net-revenue-for-
artists-are-up-gross-revenue-for-labels-is-down.html (The reality is . . . [m]ore musicians are
making money off their music now then (sic) at any point in history. The cost of buying music
has gotten lower but the amount of money going into the artists pocket has increased.).
212
See, e.g., CRB Satellite Decision II, supra note 167, at 1.
213
See id.
214
See, e.g., id.
215
See 17 U.S.C. 114(f)(2)(B) (2012) (lacking the maximizing the availability of creative
works factor).

394 Ne w Engl and Law Revi e w v. 48 | 371
the willing buyer, willing seller standard.
216
The former balances the
interests of copyright owners, copyright users, and the public.
217
The latter
focuses primarily on maximizing the copyright owners (recording
industrys) stream of revenue.
218
This standard directs the CRB to consider
the streams of revenue of the copyright owner (willing seller) without
any regard for the copyright users income (willing buyer).
219
In
incorporating the maximization of availability and fair return factors, the
801(b)(1) standard directs the CRB to calculate a rate that affords both the
copyright owner and copyright user a level playing field.
220

C. The New Royalty-Rate System Should Incorporate Terrestrial
Broadcasters
1. A Truly Unbiased Standard Should Incorporate Terrestrial
Broadcasters in Order to Garner Support from Artists and
the Recording Industry
The PRA proposes a technologically neutral standard that would
incorporate traditional broadcast radio, causing terrestrial broadcasters to
pay royalties to sound recording owners and eliminating the digital
distinction.
221
Therefore, royalty payments would have been applicable to
analog sound recording copyright owners as well as digital sound recording
owners.
222
Proponents of the PRA and the incorporation of traditional
broadcasters argue that it is only equitable for performers to be paid
royalties for the use of their work.
223
In addition, broadcast radio audiences
still greatly outnumber those of Internet radio.
224
Radio stations make
billions of dollars each year in advertising, which is based on a number of
factors, including genre and number of listeners.
225
These factors are directly

216
See supra notes 19096 and accompanying text.
217
See 17 U.S.C. 801(b)(1)(B).
218
See 114(f)(2)(B).
219
See id. While the willing buyer, willing seller standard directs the CRJs to 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, the rates are nowhere near the
rates determined under the 801(b)(1) standard. See supra notes 12632 and accompanying text.
220
See supra note 122 and accompanying text.
221
Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. 3(a) (2012); Performance
Rights Act, H.R. 848, 111th Cong. 2 (2009).
222
Internet Radio Fairness Act of 2012, H.R. 6480, 112th Cong. 3(a) (2012); Performance
Rights Act, H.R. 848, 111th Cong. 2 (2009).
223
Musicians Want Radio Stations to Pay to Play Tunes, L.A. TIMES (Feb. 25, 2009),
http://articles.latimes.com/2009/feb/25/business/fi-music25.
224
See The Facts Every Artist Needs to Know, supra note 155.
225
See Santhanam, supra note 1, at 1, 35, 89.

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 395
related to the music that the stations play.
226
But opponents argue that artists
and record labels must take into consideration the benefit radio play has on
record sales.
227
Furthermore, broadcasters argue that the promotional value
radio stations provide to new music fairly compensates performers.
228

Congress even noted this exposure value, stating, [T]he sale of many sound
recordings and the careers of many performers have benefitted considerably
from airplay and other promotional activities provided by . . . free over-the-
air broadcasting.
229
Congress further lamented this notion by stating that
the DPRA should do nothing to change or jeopardize the mutually
beneficial economic relationship between the recording and traditional
broadcasting industries.
230

Inadvertently, Congress cherishes the promotional value broadcast
radio provides and seems to punish new digital technologies for creating
another outlet for authors.
231
Not only do satellite and Internet radio provide
exposure for musiciansbut to a large extent they also furnish exposure for
different owners of sound recordings.
232
This is because broadcast radio
must play music that will attract the targeted audience while Internet radio
does not (and satellite radio to a lesser extent than broadcast radio).
233
Artists
that may otherwise have never gained notoriety develop fan bases through
purely online sources.
234
Therefore, Congress may be correct to recognize
that broadcast radio promotes copyright owners interests, but in doing so,
they punish digital broadcasters.
235
If copyright law is to be fair, all sound
recording users should be treated equally.
236
Because the 801(b)(1) standard
contemplates the maximization of the availability of works to the public, it
is the correctand fairstandard that should apply to all sound recording

226
Christopher Knab, How Record Labels and Radio Stations Work Together, MUSIC BIZ
ACADEMY (Mar. 2010), http://www.musicbizacademy.com/knab/articles/radiostations.htm.
227
See Marc Fisher, Listener: Musicians Vs. Radio in Big Money Fight, WASH. POST (Sept. 1,
2007, 8:45 AM), http://voices.washingtonpost.com/rawfisher/2007/09/listener_musicians_vs_
radio_in.html.
228
See id.
229
S. REP. NO. 104-128, at 1415 (1995).
230
Id. at 15.
231
See Digital Performance Right in Sound Recordings Act of 1995, Pub. L. No. 104-39,
23, 109 Stat. 336 (codified as amended at 17 U.S.C. 106, 114 (2012)); S. REP. NO. 104-128, at
15 (1995).
232
Cf. Laird, supra note 136; Channel Lineup, supra note 188.
233
See About Radio Advertising, supra note 11.
234
Laird, supra note 136.
235
See S. REP. NO. 104-128, at 1415 (1995). The Senate notes the promotional value of
broadcast radio and, at the same time, imposes a new royalty on digital radio that provides a
very similar service through a different medium. Id.
236
See Nimmer, supra note 15, at 18992.

396 Ne w Engl and Law Revi e w v. 48 | 371
users.
237

Lastly, to attract record companies and most artists, any new standard
must result in an overall monetary gain.
238
The sheer size of broadcast radio
has the potential to fill this requirement.
239
And again, applying the same
801(b)(1) standard does not mean that broadcast radio will pay the same rate
as other types of radio.
240
It only means that the CRJs will apply the same
factors to determine the appropriate rate for traditional broadcasters.
241
In
2011, total radio revenues increased by around 1%, reaching $17.4 billion.
242

Spot advertising, which is primarily broadcast radio revenue dominated,
accounted for 81% of the total revenue.
243
But this comes with a grain of
saltthe rate for spot advertising was stagnant.
244
In 2012, overall radio
revenue grew again, but the digital sector saw a yearly gain of 8% while spot
advertising revenue gained only 1%.
245
Under the 801(b)(1) standard,
broadcast radio is in a mature market and is potentially providing the
maximum availability possible for creative works.
246
This calls for a lower,
more stable rate.
247
A low, stable rate would be sustainable for traditional
broadcasters and, because of its large market share, acceptable for record
companies and artists.
248
In contrast, digital radio is in a young market and
the extent of availability of creative works it will provide is still in the
making.
249
Similar to digital satellite radio, Internet radio would most likely
see a higher rate (but still lower than the almost-all-consuming current
rates), increasing incrementally each year.
250


237
Cf. Support the Internet Radio Fairness Act, supra note 8.
238
Cf. The Facts Every Artist Needs to Know, supra note 155.
239
See Santhanam, supra note 1.
240
See CRB Satellite Decision II, supra note 167, at 1.
241
Cf. id.
242
Santhanam, supra note 1.
243
See id.
244
See id.
245
RADIO RECORDS 3RD STRAIGHT YEAR OF UPWARD MOMENTUM: Q4 SURGE REPRESENTS
HIGHEST QUARTERLY GAIN IN 2 YEARS, RADIO ADVERTISING BUREAU 1 (2013), available at
http://www.rab.com/public/pr/RevenueReportQ42012Final.pdf.
246
Supra Part IV.B.2; see CRB Satellite Decision II, supra note 167, at 2024.
247
See CRB Satellite Decision II, supra note 167, at 2024. Because terrestrial broadcasters
have seen slim to no gains and a constant yearly market value, the CRJs would probably
determine a rate similar to Music Choice (digital cable radio). See id.; Santhanam, supra note 1.
Accordingly, the CRJs set the rate at 8% of Gross Revenues with only a .5% increase through
2017much less than satellite digital radio. See CRB Satellite Decision II, supra note 167, at 20
24.
248
See Musicians Want Radio Stations to Pay to Play Tunes, supra note 222.
249
See Santhanam, supra note 1.
250
See CRB Satellite Decision II, supra note 167. The state of Internet radio is more like

2014 Publ i c Pe rf or manc e Royal t y- Rat e Di spar i t y 397
CONCLUSION
Every type of music service plays its own vital role in providing content
to listeners and creating profitable avenues for authors and artists. But the
current royalty-rate setting system overlooks this. Instead, it opts for a
categorical approach that evaluates payment to the creators and copyright
owners by different standards depending on the means of delivery. Until
Congress adopts a standard that is technologically unbiased and
incorporates traditional broadcast radio, widespread disparity between
royalty rates will continue. The only way to garner enough support for
comprehensive restructuring is to incorporate changes that benefit most
parties. To gain support from Internet radio, Congress must include the
changes suggested in the IRFAincluding the universal application of the
801(b)(1) standard. To bring in the record companies and artists, the
traditional broadcasters exemption from sound recording payment must be
replaced with the 801(b)(1) standard as suggested by the PRAnot the
willing buyer, willing seller standard. This compromise requires
broadcast radio to pay for the use of sound recordings. But in applying the
801(b)(1) standard to broadcast radio, the CRJs be required to perform the
necessary analysis and issue an appropriate rate. A technologically unbiased
standard that uses the 801(b)(1) factors stands as Congresss best chance
for reformation.


digital satellite radio and the CRJs set sound recording royalties for Sirius XM (digital satellite
radio) at 9% of Gross Revenues for 2013, 9.5% for 2014, 10% for 2015, 10.5% for 2016, and 11%
for 2017. See id.; Santhanam, supra note 1.