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A Guide to Internet Music Licenses

June 15, 2001

I. Internet Music License Issues

  • There are now almost 2,800 radio stations streaming their broadcasts over the web.
    • This represents a 65 % increase from the 2nd quarter of last year;
    • And this does not even include an additional 4,200 stations having some presence on the web.
  • Copyright law recognizes the exclusive right of the copyright owner, e.g., the composer, to publicly perform works; however, there is no such right for the owner of sound recordings. The owner of a sound recording can control the reproduction and distribution of its sound recordings - that is, to control the actual sounds in the original recording - but not its public performance.
  • There are three copyrights at issue in the transmission of Internet streaming by terrestrial radio stations.
    • The right of public performance only applies to compositions, not to sound recordings: the three U.S. performance rights societies (ASCAP, BMI and SESAC) manage this right for most composition copyright owners.
    • The exclusive right to reproduce copyrighted works applies to both musical compositions and sound recordings. The right to reproduce compositions is managed by the Harry Fox Agency. The right to reproduce sound recordings is (typically) managed by the record companies.
    • The right to publicly perform by means of a digital audio transmission, created by the Digital Performance Right in Sound Recordings Act of 1995 ("DPRA") belongs to the copyright owner of the sound recording only and is typically managed by the record companies.

    A. Performance Right Licenses

  • Internet streaming by terrestrial radio stations requires the radio station to obtain licenses for the public performance of compositions.
  • To perform a work "publicly" means, among other things, to transmit or otherwise communicate a performance of the work to the public - including music on the web.
  • All three music licensing organizations (ASCAP, BMI and SESAC) have blanket Experimental Internet Licenses available. These licenses grant the licensee the ability to publicly perform using the Internet any of the musical works available in the organizations' repertory.1 This type of transmission is considered to be a separate performance, distinct from the public performance of the terrestrial broadcast.
    • Therefore, to the extent any of your radio stations use musical compositions licensed by the three U.S. societies, your company should obtain blanket Internet performance licenses from them - and you can generally do this online.
    • Depending on the nature and type of musical compositions used by your radio stations, however, you may not need to obtain licenses from all three societies.
    • If there is any question in your mind about whether your station (or stations) carry music licensed by all three societies, you should undertake to determine the nature of the musical works broadcast on your station and compare them to the repertoire lists provided by ASCAP, BMI and SESAC on their web sites.

    ASCAP

    • ASCAP's minimum fee is $264 per year but ASCAP has a RateCalc feature on its web site designed to help you select the most economic alternative rate schedules of which there are three: ingeniously named options A, B and C:
    • Rate Schedule A is the default and was intended for web sites that are "music intensive." The annual fee under this option is the greater of 1.615% of your web site revenue or $0.00048 of your web site sessions, or the minimum fee - whichever is greater.
    • Rate Schedule B is intended for those web sites with a limited amount of music. The annual fee under this option is 2.42% of a fraction of your web site revenue that is music related, or $0.00073 of your Music Sessions, or the minimum fee - whichever is greater.
    • Rate Schedule C is designed for those web sites that can, and do, track performances of ASCAP music in particular. In this case, the fee is based only on the value derived from performances of ASCAP music on the site and is the greater of 4.46% of a fraction of your web site revenue that is ASCAP music related, or $0.00134 of your Music Sessions that are ASCAP music related.
          Note: ASCAP allows you to alter the Rate Schedule each year if you choose.

    BMI

    • BMI's minimum fee ranges from $250 to $500 per year, depending on which of the two following license agreements you select. And this minimum fee is due annually on January 1. BMI's two basic options include:
    • First, for standard web sites - generally, commercial entities that generate revenues from the operation of the web site - a Music Performance Agreement. Here, you can base your fee either on a gross revenue calculation (calculated at 1.75%) or on the basis of "music area revenues" - essentially, this would generally reduce your fee by factoring (at 2.5%) the traffic to pages with music in relation to your total web site traffic.
      - The minimum fee is geared to gross revenues - from a $250 minimum to $500 if gross revenues exceed $18,500.

      - You can change your calculation method quarterly if you want to.

    • Second, BMI makes available what it terms a web site Corporate Image License, which is intended to address web sites that promote the business of a company and generate little, or have indirectly attributable, revenue. In this case, the fee calculation is premised on the total number of page impressions/1000 times $.40, or the total number of music impressions/1000 times $.60. (A music impression is a page impression of a music page multiplied by the number of music file titles on that page.)
      - The minimum fee is based upon the number of page impressions - that is, a transfer request for a single web page. The minimum $250 fee is charged for up to 500,000 page impressions per year, and increases to $500 for more than 875,000 page impressions per year.

    SESAC

    • SESAC's fee options are a little simpler and depend solely upon whether your web site carries advertising or not.
    • For web sites with advertising, the fee is premised on the average number of monthly page requests x .0075; for each six month period, the minimum fee is $75 and the maximum is $1,500.
    • For those web sites that do not carry advertising, the fee is calculated by multiplying the average number of monthly page requests by 1.3, and then by .0075; for each six month period, the minimum fee is $75 and the maximum is $1,950.
      - A page request is the number of requests for HyperText Markup Language documents which result in being viewed by a browser.
  • Your license fees are payable quarterly: January 1, April 1, July 1 and October 1.
  • In any case, you must obtain a license. If you believe that none of these rate schedules fits your needs, you may obtain a license merely by writing a letter to ASCAP, BMI or SESAC requesting it. If you can not negotiate a satisfactory arrangement, you have the right to institute a performance right lawsuit in New York federal court.
  • Remember, the license you presently hold for the broadcast of music over your station does not cover the separate performances of the same music on the web.

    B. Reproduction Right Licenses

  • Some in the industry are asserting that the copying of a copyrighted musical work or sound recording onto your server (as when you load the file containing the work), constitutes exploitation of the reproduction right for which authorization may be required from the Harry Fox Agency for the musical composition and from the owners of the sound recordings (usually the record label or producer) for the sound recording itself.
  • Arguments are being made on both sides concerning whether terrestrial radio stations engaging in Internet streaming are required to obtain licenses for the right to reproduce compositions and sound recordings.
    • As it currently stands, licenses for the right to reproduce compositions and sound recordings are not required in order for terrestrial radio stations to stream their broadcasts over the Internet if done on a non-interactive basis.
    • The record labels have not yet taken a position on the necessity of obtaining a license for the right to reproduce a sound recording in connection with Internet streaming.
    • The Harry Fox Agency does take the position, on the other hand, that the creators of interactive Internet streamings (i.e. where the viewer can select which song or artist to hear next) are required to obtain a license for the reproduction and distribution that occurs when the user receives and downloads the song onto their computer.

    C. Digital Transmission Performance Right Licenses

  • As described earlier in the panel, litigation is currently underway regarding whether Internet streaming by terrestrial radio stations involves the public performance right by means of a digital audio transmission created by the Digital Performance Right in Sound Recordings Act and whether it therefore falls under the compulsory licensing system created by the Digital Millennium Copyright Act ("DMCA").
  • After the passage of the DMCA, the Copyright Office adopted rules requiring stations then currently streaming their broadcasts to file a notice with the Copyright Office that they desire to secure the benefits of the Copyright law's ยง114 statutory license.
    • Without in any way binding the station to an admission of liability, this Initial Notice of Digital Transmission of Sound Recordings was required to be filed by October 15, 1999.
    • Stations which commenced streaming after that date - if they want to come within the statutory license (and on the assumption that it applies) - are required to submit the same notice at any time prior to the initiation of streaming.2
  • Importantly, if you are streaming your radio broadcast on the Internet and have not submitted such a notice, you should - notwithstanding that you may not be in compliance with the Copyright Office's rules. As your lawyer will not doubt advise you, it is always possible to seek a waiver of any administrative rule.
  • If terrestrial radio stations are subject to the digital performance right in sound recordings, no one today, of course, knows what that liability may be.
    • One of the contentious issues in the current negotiations with the RIAA is its demand for higher royalties in cases where the broadcaster substitutes ads in the streaming content different from what is broadcast over-the-air.
    • For the public performance of sound recordings by nonexempt pre-existing subscription digital transmission services, the initial royalty rate was set at 6.5% of gross revenues resulting from residential services provided in the United States.3
    • In the current U.S. Copyright Office arbitration royalty proceeding, the RIAA is asking for $0.004 per spin, which is 28 times higher than what webcasters are urging is appropriate (based, in part, on the royalties for composers in over-the-air broadcast situations) of $0.00015.
    • But wait, there is more bad news. If the digital performance right is applied to broadcasters' streaming of their content, detailed reports will have to be submitted to one or more designated collection organizations monthly.
  • Thus, there is one thing that we do know now - whatever the rate, it will take time and effort, and cost money, to comply.
    • For example, Section 201.36 of the Rules of the Copyright Office spell out what specific information is required for each monthly report filed pursuant to the statutory compulsory license:
      • the station's Intended Playlists for each channel and each day of the month;
      • each Playlist shall include a consecutive listing of every recording scheduled to be transmitted, and must contain the following information:
      - sound recording title;
      - featured recording artist, group, or orchestra;
      - the retail album title;
      - the recording label;
      - the catalog number;
      - the International Standard Recording Code (ISRC) embedded in the sound recording (where available and feasible);
      - the date and time of transmission; and, finally
      - in the event of system failure, the date, time and duration of any deviation from the Intended Playlists.
    • Like FCC filings, each report must be signed by an appropriate officer of the company and is submitted under penalty of perjury.
    • The collective agencies utilizing these monthly reports must maintain their confidentiality and can not use them for any purpose other than royalty determination.
    • Finally, the web site service must retain each report for a period of 3 years.

               And you thought FCC ownership reports were a pain!

  • As you probably know from your own experience, radio broadcasters are handling this matter in different ways:
    • CBS, for example, is not streaming its broadcasts at all; but, in large part, this is due to a decision that a valid business case cannot support it, and not from any concerns relating to retroactive copyright liability.
    • Entercom, on the other hand, is streaming its broadcast content, notwithstanding the potential retroactive liability.
    • And the Tarzian group is not streaming at all because of the copyright issues.

II. Other Contractual Issues

  • Music is not your only problem when streaming on the Internet. You need to carefully review each of your content agreements to determine what rights you do have to retransmit the program material on the web. This includes numerous items:

  • Traffic
  • Weather
  • Syndicated programs
  • Associated Press and other news feeds
  • Sports agreements
  • Advertising agreements

  • In recent weeks, there have been many press reports that the Screen Actors Guild and AFTRA consider the streaming of any commercial matter over the Internet, whether it be active or passive, to require a payment to all talent in the commercial. The advertising agencies' Joint Policy Committee, negotiating on the other side, believes that payment should be due only in active streaming situations; that is, when the advertiser has advance knowledge of the streaming and has approved or authorized it.

    But this is nothing new; SAG and AFTRA have long taken this position - the fact is that most broadcast stations streaming their content have ignored it. The current contracts now require - and the advertisers are enforcing these provisions - that for radio broadcast streaming (or "move overs" in the union jargon), three session fees are due ($660) for unlimited use of the commercial during a 12 month period. If the commercial is developed solely for the Internet, the fee is the same, but the term is for a single calendar quarter only.

    In any case, future contracts need to address this issue.

    • At the end of last month, one agency notified all of the broadcast stations it does business with that the "station does not have permission to stream any of [its] clients' commercials on the Internet.
    • And a press report two weeks ago indicated that all Los Angeles radio stations stopped their streaming as a result of AFTRA's action seeking to enforce these provisions of the Recorded Commercials Contract. Clear Channel has since ceased all Internet streaming until a satisfactory technical solution can be found. And it was reported in the Washington Post on April 11, that ABC Radio and Bonneville intended to do the same.
    • There are, apparently, technical solutions available to address this problem. Lightningcast, StreamAudio and RadioWave all claim to have simple to use software that will delete broadcast commercials and insert other content.
  • If you have any doubts about your rights under any of these types of agreements, have your lawyer review them. The last thing you need is a copyright infringement lawsuit over the issue of whether your present agreement has moved at the speed of technology.

Footnotes

1 For example, you can access an extensive, online database of ASCAP performed works, the ASCAP Clearance Express, at www.ascap.com/ace/ACE.html.

2 A $20 fee, payable to the Register of Copyrights, must accompany the notice.

3 Gross Revenues in this context generally consists of any subscription fees or advertising payments (including promotional consideration and infomercials) made to the service provider in connection with the subscription service itself.