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On February 5, 2019, the Copyright Royalty Board's Determination of Royalty Rates and Terms for
Making and Distributing Phonorecords (Phonorecords III) was
published in the Federal Register, making effective the Board's
final determination raising mechanical royalty rates for
interactive streaming for the five-year period from 2018-2022, a
determination that brings substantial royalty improvements for the
entire songwriting and music publishing industries.
Pryor Cashman represented the Copyright Owners (music publishers
and songwriters represented by their trade organizations the
National Music Publishers' Association and the Nashville
Songwriters Association International), throughout the
proceeding.
"This proceeding pitted songwriters and music publishers
against technology giants Apple, Google, Amazon, Spotify and
Pandora. Each of these five technology companies was represented by
a separate law firm, but they were united in the effort of seeking
to reduce the royalties to be paid to those who create the songs
without which these companies' music streaming services would
not exist," said Frank Scibilia, a partner on the Pryor Cashman
trial team and Co-Chair of the firm's Copyright Practice.
"Our focus at trial was not only to begin correcting the
unfairly low royalties that were being paid to those who create and
own the rights to the music, but also to protect those owners and
creators against the tech companies' business strategies that
unfairly reduced the reportable revenues on which royalties have
been based. We are pleased that the majority of Judges agreed on
both counts, and the final determination is now
effective."
The proceeding began in 2016 and culminated in a five-week
hearing before the three Copyright Royalty Judges in Washington
D.C. in 2017. After an initial determination issued in January 2018
indicating the higher rates, opposition by the streaming services
continued. Four streaming services filed motions for rehearing in
February 2018, and all five services made separate submissions
asking the Register of Copyrights to challenge the determination as
part of its review for legal error in December 2018. The Pryor
Cashman team successfully opposed all of these efforts to undermine
the determination.
"The final determination that became effective today is
even stronger than the initial determination, as the Judges
clarified an important definition during the rehearing motion
phase, providing additional protection against streaming services
using product bundling to exclude revenues from the royalty
pool," said Benjamin Semel, a partner on the Pryor Cashman
trial team who delivered the closing arguments for the Copyright
Owners at the hearing. "The baseline statutory royalty rate
for using musical works in interactive streaming will rise 44
percent by 2022, but the improvements in this determination go
beyond just that. Just as importantly, the new royalty rate
structure offers more protection against royalty dilution. The
royalty pool will now be the greatest of three different metrics:
(1) an annually rising percentage of revenue, (2) an uncapped and
annually rising percentage of the amounts paid by the services to
record labels in the free market for the same streaming activity,
and (3) fixed per-user royalty floors that vary among the different
streaming models."
Donald Zakarin, Chair of Pryor Cashman's
Litigation Group and Co-Chair of its Music Practice, stated,
"While there is still significant improvement to be made to
fairly compensate for the use of the songs that drive the explosive
growth of music streaming, we are gratified that the first
adjudicated determination made as to rates and terms for
interactive streaming has recognized the important contributions of
songwriters and music publishers. We could not have achieved this
result without the dedication and help of our clients, especially
NMPA's President David Israelite, General Counsel Danielle
Aguirre, and Senior Counsel Erich Carey, NSAI President Bart
Herbison, and the many songwriters and publishing executives who
provided compelling testimony and detailed information about the
music publishing and songwriting businesses." Zakarin
added that, as a result of the recent enactment of the Music
Modernization Act, the next mechanical royalty ratesetting
proceeding, which begins in 2021 to set rates from 2023 through
2027, will further call upon the Judges to utilize a new market
rate standard that is more favorable to copyright owners.
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