Looks like Pandora is about 6.25% of total US music revenue.
I recently read an article by Northwestern Law professor Peter DiCola entitled, “Copyright Equality: Free Speech, Efficiency, and Regulatory Parity in Distribution” 93 Boston University Law Review 1837 (2013) available here. Prof. DiCola offers an interesting take on the disparity between royalty rates and rate setting standards for different music distribution platforms: these disparities violate the First Amendment. How does Prof. DiCola reach this conclusion?
Unequal treatment, moreover, threatens freedom of speech and freedom of the press. The distinct features of each distribution technology represent several choices about what content will be available, in what sequence, with what user interface, and so on. For example, the playlists of AM and FM radio are vastly different than the playlists of webcasting services. By allowing some technologies, like traditional and satellite radio, to pay lower royalties, Congress is implicitly favoring the kind of content that those media tend to provide. By treating different media for music distribution unequally, both procedurally and substantively, Congress is shaping the public sphere and implicitly favoring some types of content over others. This violates the principles developed in two lines of First Amendment Supreme Court cases. Thus, the unequal treatment of the distributors of copyrighted works is not just arcane, bureaucratic, and complicated; it is also inefficient and a violation of free speech values. (page 1842)
Prof. DiCola compares the “distortion of consumers’ choices among [music distribution platforms] … [to] an unjustified tax or subsidy that favors certain firms or industries and disfavors others. One can think of the differential royalty rates in the music industry as analogous to farm subsidies, which have caused an overemphasis on corn and other “base crops.” In the music industry, copyright’s policy on music distribution has had the effect of propping up traditional and satellite radio while hampering webcasting and on-demand streaming. Congress, in short, has been picking winners in the music industry. (page 1841)
Prof. DiCola offers three ways in which these disparities can be reduced:
First, copyright should contain a general performance right in sound recordings to require AM and FM radio to pay royalties to sound recording copyright owners. This legislative change is necessary to achieve parity with all the other music distribution services. Second, Congress should direct the Copyright Royalty Board to determine the sound recording royalty rates for different types of radio – AM, FM, satellite, cable, webcasting, and on-demand streaming – under the same process and based on the same standard. Congress mandating equality of the process would not necessarily produce equal royalty rates, but it would ensure that any deviations from equality are justified. Finally, differences in substantive royalty rates resulting from this process should have a basis in substantial evidence that could survive heightened First Amendment scrutiny. (page 1895)
I found the argument very compelling.
As readers of this blog will recall, aging rockers Flo & Eddie filed three separate lawsuits alleging that Sirius XM has infringed certain state- or common law copyrights of a class of owners of sound recordings fixed prior to 1972. Sirius XM has filed a motion to transfer the California case, which was transferred from state to federal court, and the Florida case to the Southern District of New York. While this legal maneuver is relatively uninteresting, the motion does indicate at least one defense that is likely to feature prominently in this and the related case filed by the so-called “major” record companies, – titled Capitol Records, LLC et al. v. Sirius XM Radio Inc., No. BC520981 – in California state court raising similar issues: laches.
Laches, an equitable defense based on the doctrine of estoppel, is the unreasonable delay in pursuing a right or claim that prejudices the opposing party. According to Sirius XM’s motion,
Plaintiff apparently has become aggrieved by the distinction drawn by Congress in withholding copyright protection from its Pre-1972 Recordings; thus now, after decades of inaction while a wide variety of music users, including radio and television broadcasters, bars, restaurants and website operators, exploited those Pre-1972 Recordings countless millions of times without paying fees, it asserts a purported right under the law of various states to be compensated by Sirius XM for comparable unlicensed uses. Plaintiff’s multiple court filings constitute a form of lawsuit lottery in search of an elusive new state-law right that would radically overturn decades of settled practice.
The laches defense raises a number of interesting issues. For example, since at least the late 1980s, almost all terrestrial radio stations have used digital copies stored on servers to originate performances; i.e., the days of “disc jockeys” spinning vinyl have been gone for decades. Presumably, under Flo & Eddie’s complaint, these terrestrial radio broadcasters needed a license to make copies of Pre-72 recordings and, potentially, to perform them.
Terrestrial radio stations have been simulcasting performances over the internet for nearly 20 years, presumably implicating the right of performance by digital audio transmission that Flo & Eddie allege exist under certain state laws for Pre-72 recordings. Has SoundExchange, which collects and distributes royalties under certain statutory licenses for the public performance of sound recordings by digital audio transmission, been collecting royalties from these terrestrial radio broadcasters and remitting such payments to Pre-72 artists? Because federal copyright doesn’t apply to Pre-72 recordings, if SoundExchange were collecting such royalties it would owe the terrestrial radio simulcasters a refund. If SoundExchange hasn’t, why hasn’t Flo & Eddie sued terrestrial radio?
Flo & Eddie will undoubtedly respond that they had no way of knowing that they weren’t getting paid by Sirius XM until the most recent Copyright Royalty Board proceeding, at this pre-72 recordings were a significant issue.
[The allegations raised by SoundExchange against Sirius XM that Sirius XM was inappropriately deducting revenue from its royalty calculation to account for Pre-72 recordings are inapplicable in the context of a per-song royalty, where each Pre-72 recording can be identified and appropriately excluded from royalty calculations. Per-song royalties have existed since at least 2008.]
The motion is here.