new-nab-logo.gifThe National Association of Broadcasters is a bit upset over the royalty decisions made by the Copyright Royalty Board (CRB) on broadcasts over the Internet. This is no surprise, as many Internet streamers, inclusive of Sirius and XM now face higher royalty rates for Internet streams of covered content. Many smaller Internet radio companies argued that the cost of the fees would doom their services. Terrestrial Radio's streaming of content gives them a national platform, and is a burgeoning part of their business model. The crux of the NAB argument is that there should be a separation for companies that broadcast in traditional methods and "simulcast" that content on the web. Ironically, Sirius and XM would likely benefit if the National Association of Broadcasters is successful.

SUMMARY OF ARGUMENT

The Board’s threshold ruling that terrestrial radio stations that stream their stations on the Internet (“Simulcasters”) must pay a per-performance, per-listener royalty, instead of an annual flat fee royalty, was unlawful. The Copyright Act requires the Board to determine the rates and terms that a willing buyer and willing seller would have negotiated in the marketplace, and it separately requires the Board to identify the different “types” of webcasters that should pay different rates. Simulcasters submitted extensive evidence showing that these statutory tests required an annual flat fee royalty, because that is what Simulcasters have negotiated in other similar marketplace contexts and because a per-performance fee structure would undermine Simulcasters’ business models. The Board’s Order never addresses any of Simulcasters’ arguments. See Order at 17-25 (JA__). This is a fundamental violation of basic principles of administrative law. Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (decision must be reversed if it “entirely failed to consider an important aspect of the problem”).

Even if the Board could have justified a per-performance fee structure for Simulcasters, the Board’s determination of the precise royalty rates was unlawful for four principal reasons.

First, the Board’s decision to use royalty agreements between record companies and interactive webcaster services as benchmarks was arbitrary and violated the Act’s “willing buyer/willing seller” standard. Although the statute permits the Board to look at rates and terms from market agreements involving “comparable types of digital audio transmission services,” interactive services are not remotely “comparable” to the non-interactive services at issue here.

Second, the Board’s brief discussion of why Simulcasters should not pay a lower per-performance rate than Internet-only webcasters was arbitrary and failed to consider the record evidence.

Third, the mathematical model on which the Board relied in its attempt to adjust for indisputably significant distinctions between interactive and non-interactive services produces absurd results, and the Board’s one-sentence rejection of Simulcasters’ criticisms was patently arbitrary.

Fourth, the Board did not consider the record evidence in refusing to permit Simulcasters to use the alternative “aggregate tuning hours” method for calculating royalties.

[ Via NAB Press Release ]

Position - Long Sirius, XM.