Music Royalties Payments for Streamed Internet Broadcasts

As widely reported, the Copyright Office adopted rules providing that all entities that have streamed music over the Internet must make royalty payments.  Those entities include broadcasters and "pure" Internet non-broadcasters.  Requests for a stay of the payments made by large broadcasters and the National Association of Broadcasters ("NAB") were denied recently, and legislation that may stop or amend the payments required of broadcasters has not been enacted as of this writing.  Therefore, by October 20, 2002, radio stations and other Web casters who stream music performances over the Internet are required to pay license fees for the period of October 28, 1998, through August 31, 2002, unless the courts or Congress intervene.  Going forward, payments will be due by the 45th day after the end of each month, i.e. the royalty payments for September 2002 are due by November 14, 2002.

Failure to make required payments constitutes copyright infringement subject to statutory damages.  Since there are three types of license fees that are required for music streamed over the Web, it is important for broadcasters to understand each type and ensure appropriate payments are made.  Note this license to stream is different from and in addition to the traditional ASCAP, BMI and SESAC licenses, which permit a station to broadcast music.

Copyrights Encompassed in Streamed Broadcasts

Under the Copyright Law, there are now three types of licenses that may be required for streaming (a “performance”) of musical recordings:

• a performance license applicable the streaming of the underlying words (lyrics) and music (score)
• a performance license applicable to the streaming of the sound recording which is the source of the music
• a "storage" license applicable to the passage of a sound recording through a computer file server^[1]

The right to stream granted by composers of lyrics and musical scores under the third license must be obtained from ASCAP, BMI and SESAC.  Musical works of composers who died in 1922 or before are currently in the "public domain" and therefore free for use (that date is extended by one year each January 1st, for example works of a composer who died in 1923 enter the public domain on January 1, 2003).  Therefore BMI, ASCAP and SESAC are not entitled to royalties on the works of Brahms, Beethoven, Mozart and many other composers who died before the end of 1922.

The other two licenses for “digital audio transmission” (streaming of sound recordings and "storage" licenses) may be obtained by a broadcaster based upon rates set by federal regulation.^[2]   For Internet broadcasts that are not "interactive"^[3] and are made by either traditional broadcasters or pure Webcasters, statutory licenses are available under rates recently set by the Copyright Office.

The copyright license scheme requires all Webcasters, including broadcasters and pure-streaming entities, who are entitled to take advantage of the statutory (compulsory) license for performance of sound recordings must register with the Copyright Office.

Royalty Amounts

For simultaneous or non-simultaneous, non-interactive streaming by commercial broadcasters, the compulsory license royalty is .07 cents ($0.0007) per performance (a performance being transmission of one musical work to one computer) plus 8.8% of the total royalty for storage of the music on a computer file server, or at least a $500.00 minimum royalty per year.

For non-commercial, non-interactive broadcasters, the compulsory license royalty for simultaneous transmission is .02 cents ($0.0002) per performance (again, a "performance" being transmission of one musical work to one computer), but for non-simultaneous transmission the royalty of .07 cents per performance is owed.   The additional 8.8% of the total royalty, which is for storage of the music on a computer file server, also would be owed by non-commercial broadcasters.  Non-commercial stations that do not have music formats would owe the $500.00 minimum annual royalty.

If the total number of actual musical performances is unavailable, there are formulas in the federal regulations for computation of the "estimated" number of musical performances broadcast.  Talk radio, news, sports and business stations may estimate the number of musical performances at one performance per hour.  All other radio stations with different formats are expected to estimate their number of performances at 12 per hour for simulcasts.  (The estimate for Webcast-only streaming of music formats is 15 performances per hour but may be subject to a different payment formula.) 

The number of performances per hour (whether actual or estimated) must be multiplied by the "aggregate tuning hours," which is defined as the total of Internet listener hours.  For example, if 10 computers^[4] simultaneously connected to the stream for one hour, then the aggregate tuning hours would be 10.  Similarly, if one computer connected for 10 hours, then the aggregate tuning hours also would be 10.  (The general formula would be performances per hour x aggregate tuning hours x hours per day offered x days per year offered.  Thus, a 24/7 music station with an estimated 12 performances an hour and 25 aggregate tuning hours would owe about $2,000 per year.)  In any event, any radio service that has streamed over the Internet for any part of a year is required to pay at least the minimum $500.00 annual royalty. 

Payments are to be made to an agent of  the Recording Industry Association of America called "SoundExchange," as follows:

SoundExchange

Attn:  Royalty Department

1330 Connecticut Avenue, N.W.

Suite 300

Washington, DC 20036

In addition, a duplicate of the royalty statement, without the payment, must be mailed to:

Royalty Logic, Inc.

405 Riverside Drive

Burbank, CA 91506

Many broadcasters have entered into arrangements with Internet service providers, or other Web content providers, which provide for the indemnification of the broadcaster from the liability for the royalty fees.  Such agreements should be reviewed carefully before making any royalty payment.  Interactive broadcasters such as on-demand or personalized Internet-based music services do not qualify for statutory licenses and must negotiate licenses directly with the recording industry.

Forms for calculating royalties due for the performance of music and other information may be found on the SoundExchange Web site,  www.soundexchange.com.

Additional information regarding music royalties and limitations on Webcasting music may be found on the Recording Industry Association of America's Web site, riaa.com/Licensing-Licen-3a.cfm.

ASCAP/BMI/SESAC License Payments

The rates for ASCAP, BMI and SESAC audio streaming licenses are set by those organizations.  ASCAP has established a standard agreement that may be used to calculate the royalties and is found on its Web site at www.ascap.com/weblicense/ascap.pdf.