SPEAKERS CONTENTS INSERTS
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94–917 PDF
2004
INTERNET STREAMING OF RADIO BROADCASTS: BALANCING THE INTERESTS OF SOUND RECORDING COPYRIGHT OWNERS WITH THOSE OF BROADCASTERS
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
JULY 15, 2004
Serial No. 99
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Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
SPENCER BACHUS, Alabama
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
MELISSA A. HART, Pennsylvania
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
STEVE KING, Iowa
JOHN R. CARTER, Texas
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TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee
JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
PHILIP G. KIKO, Chief of Staff-General Counsel
PERRY H. APELBAUM, Minority Chief Counsel
Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
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HENRY J. HYDE, Illinois
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
SPENCER BACHUS, Alabama
MARK GREEN, Wisconsin
RIC KELLER, Florida
MELISSA A. HART, Pennsylvania
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
JOHN R. CARTER, Texas
HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
TAMMY BALDWIN, Wisconsin
ANTHONY D. WEINER, New York
BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
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JOE KEELEY, Counsel
ALEC FRENCH, Minority Counsel
C O N T E N T S
JULY 15, 2004
OPENING STATEMENT
The Honorable Lamar Smith, a Representative in Congress From the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property
The Honorable Howard L. Berman, a Representative in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property
The Honorable Rick Boucher, a Representative in Congress From the State of Virginia
The Honorable Zoe Lofgren, a Representative in Congress From the State of California
WITNESSES
Mr. David Carson, General Counsel, Copyright Office of the United States, The Library of Congress
Oral Testimony
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Prepared Statement
Mr. Dan Halyburton, Senior Vice President/General Manager, Group Operations, Susquehanna Radio Corporation, on behalf of the National Association of Broadcasters
Oral Testimony
Prepared Statement
Mr. Steven Marks, General Counsel, Recording Industry Association of America, Inc.
Oral Testimony
Prepared Statement
Mr. Jonathan Potter, Executive Director, Digital Media Association (DiMA)
Oral Testimony
Prepared Statement
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Letter to Rep. Rick Boucher from David O. Carson, General Counsel, Copyright Office of the United States, The Library of Congress
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement from the Honorable Howard L. Berman, a Representative in Congress From the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property
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Prepared Statement from the Honorable John Conyers, Jr., a Representative in Congress From the State of Michigan
Prepared Statement of the American Federation of Television and Radio Artists (AFTRA), the American Federation of Musicians of the United States and Canada (AFM), the Recording Artists Coalition (RAC), and the Future of Music Coalition (FMC)
INTERNET STREAMING OF RADIO BROADCASTS: BALANCING THE INTERESTS OF SOUND RECORDING COPYRIGHT OWNERS WITH THOSE OF BROADCASTERS
THURSDAY, JULY 15, 2004
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10 a.m., in Room 2141, Rayburn House Office Building, Hon. Lamar Smith (Chair of the Subcommittee) presiding.
Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order.
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I will recognize myself for an opening statement and then other Members as well.
The purpose of today's hearing is to begin an examination of issues that relate to the streaming of copyrighted sound recordings over the Internet. A related issue is the potential impact of new technologies and devices such as HD or digital radio upon the balance of interest embodied in our copyright laws.
After reviewing the testimony of the witnesses, it is apparent that the concerns of the broadcasters, while substantial, are but one thread in a complex and interrelated quilt of issues. As is common with copyright issues, these concerns involve, one, the incentives to create and protect intellectual property; two, the economic interest of those who benefit from broadcasting and distributing these created works; and three, the public's interest in maximizing access to these works at a reasonable price.
By enacting the Digital Performance Right in Sound Recordings Act in 1995, Congress took an important and historic step. It did so by establishing for the first time in the United States an exclusive, though limited right, for sound recording copyright owners to perform their works publicly by means of certain digital audio transmissions. The law was historic because it permitted sound recording owners, including performing artists, to receive compensation for the commercial use of their recorded performances and not solely rely on income from sales of their recordings.
The law was limited because it exempted certain performances from its protection, including those made by traditional broadcasters. This exemption for FCC-licensed broadcasters was premised on an understanding that, one, the promotional air play of records by analog-radio broadcasters has long served as a catalyst for music sales; and two, a recognition that the consumer taping of analog-radio broadcasts did not create a significant threat to recording artists.
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As we will hear today, many broadcasters believe that DPRA, as well as amendments that were included in the DMCA which was enacted in 1998, have been inappropriately applied to their operations by the U.S. Copyright Office and the Federal courts. In their words, their view is that the application of certain provisions of sections 114 and 112 of the Copyright Act have in fact resulted in ''new and unreasonable burdens on radio broadcasters,'' burdens they assert have resulted in more than 1,000 U.S. radio stations ceasing their Internet broadcasting operations.
The general position of the broadcasters is they wish to relax certain protections that are intended to make it more difficult for those who intend to pirate sound recordings to identify the songs that are about to be played. They also object to paying royalties for the performance of sound recordings and record-keeping requirements.
Not surprisingly, the RIAA which represents music labels, is opposed to a lessening of existing protections. In fact, they believe the development of new technologies such as digital radio receivers that can selectively identify, record and disaggregate specific songs poses a grave threat not only to the livelihood of music artists, but also to the advertiser-supported business model of radio broadcasters.
We are fortunate to have excellent witnesses with extensive experience related to the issues before this Subcommittee today, and we all look forward to their testimony.
The Ranking Member, Mr. Berman, is recognized for his opening statement.
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Mr. BERMAN. Thank you, Mr. Chairman.
I appreciate your holding this oversight hearing on balancing the interest of sound recording copyright owners and the broadcasters. While I am confident in the outcome of the Bonneville case, I am not convinced that pure webcasting and the simultaneous webcasting of an over-the-air radio broadcast are identical activities which should be subject to the same licensing conditions. It may be that the rule should be technology neutral, or it may serve a greater public need to carve out exceptions to the rule to account for the differences between the technologies.
But before we get to the points of controversy, I think it is important to note that at least all of the witnesses here today acknowledge that the prevention of piracy of sound recordings is an important goal. With the advent of new technologies, we are once again faced with the problem of ensuring that performing artists, record companies and others whose livelihood depends upon effective copyright protection for sound recordings will be protected. The Copyright Office has suggested granting copyright owners of sound recordings a full performance right to harmonize the rights of owners of sound recordings with those of other copyright owners once and for all. There is great appeal to that proposal in that we need to focus not only on the immediate problem and seek the particular solution, we can stop having the tail wagging the dog of whatever technology is next.
Just a short time ago, we proposed a sound recording complement to prevent copying of music which would replace sales of sound recordings. Now, there is already technology which allows users to copy all of the recordings transmitted on a webcast channel, disaggregate them, save them to substitute for purchases of legitimate downloads or CDs, and redistribute them with peer-to-peer software. In the near future, we will probably be back here to discuss in depth the effect of digital audio broadcasting or HD radio on the sound recording performance right as well.
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I doubt that the witnesses before us today will express unified support of a full performance right for sound recordings. In fact, I don't even doubt it; I know they won't. Instead, broadcasters and webcasters take issue with some of the provisions of the section 114 license.
For its part, the record industry illuminates problems emanating from the ease of copying sound recordings from a broadcast or webcast. Clearly, if we are going to have a section 114 webcasting license, it should be a workable license. We should ensure that its terms do not unduly burden licensees nor unduly impair the legitimate interests of copyright holders.
On the latter issue, I am concerned that several provisions of section 114 designed to deter piracy and preserve the recorded media market are not working. Specifically, I refer to the sound recording performance complement and the requirement that transmitting entities accommodate copy protection technologies used by sound recording copyright owners. It appears these provisions have fallen short in terms of protecting the interests of sound recording copyright owners.
There will be testimony about the need or lack thereof for a separate license to cover multiple ephemeral copies. Section 112(e) created a statutory license to allow any service operating under the section 114 statutory license to make one or more ephemeral recordings of a sound recording to facilitate the digital transmission of these works governed by section 114.
Even the Copyright Office has stated that section 112(e) can be best viewed as an aberration. However, the marketplace has borne out that there is a value to multiple ephemeral copies.
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There seems to be a discrepancy as to what the valuation of an ephemeral copy is. Instead of computing a separate value for the 112 license to copy, could we put before the CARP establishing the rate for the 114 license? Can we put before that CARP the requirement to include in its evaluation the value, if any, of the multiple ephemeral copies?
I am aware it is described in the written testimony of NAB and DiMA that there is some distrust among the broadcasters and the webcasters of the CARP proceeding. After all, the claim is made that stations pay at least five to six times as much for sound recordings royalties than for musical works. However, I am not sure that speaks as much to the CARP as it does to the inequity of royalties paid to musical works copyright owners.
That being said, I agree that to some extent the CARP needs to be reformed, and I therefore support H.R. 1417. Technology provides many new opportunities to reach new audiences. However, we have to be aware of trampling on certain rights in order to get there.
Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Berman.
Are there other Members who wish to make opening statements?
Mr. Boucher is recognized.
Mr. BOUCHER. Thank you, Mr. Chairman. I want to commend you for convening today's hearing. This is an important subject for our Subcommittee, and it does deserve our attention.
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In my view, webcasting of recorded music should receive the same treatment under the copyright law that the more traditional terrestrial broadcasts receive. Both webcasts and regular broadcasts deliver the same service, they merely deliver it by a different means; and the current copyright law imposes far higher payments on webcasters than on traditional broadcasters.
For example, radio stations pay no performance royalty when they terrestrially broadcast recorded music. The theory of the exemption is that the copyright owners benefit enormously from the publicity that accompanies repeat broadcast airings of their music. Their reward comes through increased sales of CDs arising from that publicity.
But radio stations must pay a performance royalty when the station's signal is streamed over the Internet. Webcasting is just another means for radio stations to reach an audience, and the same theory that supports an exemption from royalty payments for regular terrestrial broadcasts should also support an exemption for webcasting of the identical signal. And yet webcasting is burdened with a payment that averages about 11 percent of gross receipts from radio station webcasting.
This disparate treatment, to me, makes no sense. Here is another example of the unfair treatment of webcasting in comparison to the treatment of comparable services. Satellite-delivered radio, such as XM or Sirius, and radio delivered over cable systems pay a performance royalty based on the standards that are set forth in section 801(b). At the core of these standards is a fairness and reasonableness test.
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But if the same radio signal is delivered over the Internet, the fairness and reasonableness test no longer applies. Instead, the webcaster royalty is set based upon what a willing buyer would pay to a willing seller. That test assumes the presence of a functioning competitive market for the music.
But the market is broken; there is no competition. The recording industry has a statutory antitrust exemption which enables the labels to sell collectively and to establish a uniform price for music. Essentially, there is only one seller in the market who can extract a take-it-or-leave-it bargain. The result is that the willing buyer-willing seller standard imposes far higher royalties on webcasters than are imposed on cable or satellite under the fairness standard when exactly the same service is delivered. The only difference is the platform that is used.
These disparities, Mr. Chairman, are wrong. We should not discriminate against the Internet as a distribution medium, but that is exactly the effect of current law. And this law, to me, cries out for reform.
I very much appreciate your examining this subject, Mr. Chairman, bringing to light these inequities, and I hope following this hearing it will be the pleasure of this Subcommittee to adopt the kinds of reforms that establish parity in copyright treatment across all of the delivery platforms.
Thank you very much, Mr. Chairman. I yield back.
Mr. SMITH. Thank you.
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Ms. Lofgren.
Ms. LOFGREN. Mr. Chairman, I will be brief. I am appreciative we are having this hearing. I do think it is an important issue, and as has been mentioned by Mr. Boucher, it provides us with an opportunity to level the playing field across technologies.
The situation we have today provides disincentives for Web streaming, and I don't think there is any public interest in disincenting the particular form of technology. We certainly want to make sure that content creators are properly compensated. I think there is unanimity on that score. But if that is the case in radio that is land-based, it should be equally the same on satellite or on webcasting.
We need to have a system that does not discriminate based on technology. I am hoping also that we can consider the Bonneville case, because I do think we need to deal with that on a head-on basis.
Finally, I am interested in the whole issue of interactive services. I think we have failed to give appropriate guidance to the Copyright Office on this issue, and although there will always be a gray zone, I think the gray zone is a little bit broader than it needs to be.
I think some of the new technologies and the Internet companies have made it possible for listeners to request a genre, to request a song, but they cannot decide when it is going to be heard. I don't think that is a whole lot different than when I was a girl and calling into the radio station and requesting my favorite song, and some day the DJ might play it. I am hopeful we can take a look at that and narrow the gray area somewhat on the noninteractive question.
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With that, I look forward to hearing the witnesses. I appreciate your courtesy, Mr. Chairman, and also Mr. Berman.
Mr. SMITH. Thank you, Ms. Lofgren.
Our first witness is David Carson, General Counsel of the Copyright Office of the United States Library of Congress. Mr. Carson is the principal legal officer of the office with responsibility for the office's regulatory activities, litigation and administration of the copyright law. He also serves as a liaison on legal and policy matters to Congress and other Government agencies. Mr. Carson is a graduate of Harvard Law School, and received his Bachelor of Arts and Master of Arts degrees in history from Stanford University.
Our second witness is Dan Halyburton, who is the Senior Vice President and General Manager of Susquehanna Radio Corporation. In that position, Mr. Halyburton oversees programming, interactive marketing, and research and engineering efforts for the group's 33 U.S. stations. A resident of Dallas, Mr. Halyburton is a past board member of the Texas Association of Broadcasters. He testifies on behalf of the National Association of Broadcasters.
Our third witness is Steven Marks, General Counsel for the Recording Industry Association of America. He routinely represents the RIAA on legislative issues, particularly those that relate to the Copyright Act. In addition, he oversees litigation, licensing and technology initiatives for the industry.
Mr. Marks is a graduate of Duke Law School where he served as Articles Editor of the Duke Law Journal. In addition, he received his B.A. from Duke University.
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Finally, Jonathan Potter, Executive Director of Digital Media Association, DiMA, a position he has held since DiMA was organized in 1998. DiMA's goal is to represent the leading companies that provide online audio and video content to consumers.
Mr. Potter is a graduate of New York University School of Law and the University of Rochester. Most importantly, he is a newlywed, having just gotten married over the 4th of July. In fact, this Committee did a very rare thing, we actually postponed by a week this hearing to accommodate Mr. Potter's schedule and wedding.
Mr. BERMAN. We did some other things during that week that made up for it, though.
Mr. SMITH. Yes. Mr. Berman was wondering whether that was a fair decision and trade or not.
It is a tradition of the full Committee and, hence, needs to be done by the Subcommittee to swear in all witnesses.
[Witnesses sworn.]
Mr. SMITH. Just a quick reminder that all written testimony will be made a part of the record. Please limit your comments to 5 minutes.
Mr. Carson.
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TESTIMONY OF DAVID CARSON, GENERAL COUNSEL, COPYRIGHT OFFICE OF THE UNITED STATES, THE LIBRARY OF CONGRESS
Mr. CARSON. Mr. Chairman, Mr. Berman, Members of the Subcommittee, thank you for inviting me to testify on behalf of the Copyright Office on Internet streaming of radio broadcasts and section 114 of the Copyright Act.
As you know, the Digital Performance Right in Sound Recordings Act of 1995 granted copyright owners of sound recordings, for the first time, an exclusive right to make public performances of their works by means of digital audio transmissions subject to a compulsory license for certain uses. The Digital Millennium Copyright Act updated section 114 and expanded the scope of the compulsory license.
We at the Copyright Office believe that the creation of a limited performance right in sound recordings was a step in the right direction. It has fostered the growth of new digital technologies which support the legitimate use of music transmitted in digital networks such as the Internet and satellite radio services. But technological advances since the DMCA was enacted pose new threats to performers and copyright owners, and this hearing provides an opportune occasion to reconsider the scope of the sound recording performance right and whether it offers sufficient economic incentives for the investment in and creation of sound recordings in light of the threats posed by the emergence of new technologies that threaten to transform activities such as digital broadcasting into interactive enterprises that may further weaken the traditional market for distribution of sound recordings.
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It has been the long and consistent recommendation of the Copyright Office that sound recordings be given the same panoply of rights as other categories of copyrighted works. However, recognizing the political difficulties of extending an exclusive public performance right to sound recordings, the office has also gone on record in favor of a compulsory license governing public performances of sound recordings that, among other things, would require broadcasters who transmit performances of sound recordings over the air to pay a statutory royalty to copyright owners.
The DPRA and DMCA were steps in that direction, providing for exclusive rights for copyright owners in connection with interactive digital transmissions of public performances, and a statutory license for noninteractive digital subscription services, eligible nonsubscription services—or webcasters—and satellite digital audio radio services; but over-the-air broadcasts of sound recordings remain exempt from the digital performance right.
While that state of affairs may have been acceptable in the past, new technological developments lead us to believe that the time has come for Congress once again to address the scope of the performance right.
The advent of digital broadcasting threatens the continued livelihood of the music industry as tools are being developed that promise to make it a simple matter to make perfect digital copies of all of the recordings you want off the air. If Congress is not yet ready to grant a full performance right for sound recordings, a right that is recognized in most parts of the world, it should at least consider extending the existing right to digital broadcast transmissions.
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In the remainder of my time, I would like to give you an update on some of the Copyright Office's activities in the administration of section 114 and its statutory licenses.
Prior to the convening of the first copyright arbitration royalty panel to determine rates and terms for the webcasting license, we conducted a rule-making to address whether broadcasters who retransmit their over-the-air signals on the Internet have the same legal status as any other webcasters and are subject to the statutory license for eligible nonsubscription services, or whether they enjoy the same exemption on the Internet that they enjoy when broadcasting over the air.
We concluded that section 114 treats them just like any other webcasters when they are webcasting, and a Federal district court and the United States Court of Appeals for the Third Circuit have agreed. That issue now appears to be resolved, although broadcasters would dearly love to have you change the law.
When the CARP made its determination on rates and terms for webcasting for the years 1998 to 2002, we reviewed that determination. The Register of Copyrights recommended to the Librarian of Congress that he cut the rates for Internet-only webcasters because the CARP's determination on that issue was arbitrary, and the Librarian accepted that recommendation. Those rates expired at the end of the year 2002, and the rates that are currently in place were negotiated by broadcasters, webcasters and copyright owners. Those negotiated rates are remarkably similar to the earlier rates.
We are also establishing notice and recordkeeping regulations governing digital music services operating under the statutory license. These regulations play a crucial role in ensuring that the royalties paid under these licenses ultimately are paid to the copyright owners and performers whose sound recordings are played on these services. Without accurate identification of the recordings that are being played, there is no way to ensure that the royalties reach the artists and record companies who are entitled to them.
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Just this week, we announced proposed regulations governing notice and recordkeeping for the period during which webcasters have not been reporting their performances. Those regulations will designate the reports already made by preexisting subscription services for the same period as proxies for records of performances by webcasters. This solution will resolve the problem of how to account for performances by webcasters who have no records of what they have performed in the past.
As always, Mr. Chairman, the Copyright Office stands ready to assist you as you consider the important issues we are addressing this morning.
Mr. SMITH. Thank you, Mr. Carson.
[The prepared statement of Mr. Carson follows:]
PREPARED STATEMENT OF DAVID O. CARSON
Mr. Chairman, Mr. Berman, and distinguished members of the Subcommittee, I appreciate the opportunity to appear before you on behalf of the Copyright Office to testify on internet streaming of radio broadcasts. In my testimony today, I will address the workings of the section 114 compulsory license and the role the Copyright Office has played in administering this license. As you know, in 1995, Congress passed the Digital Performance Right in Sound Recordings Act of 1995 (''DPRA'')(see footnote 1) which, for the first time, granted to copyright owners of sound recordings an exclusive right to make public performances of their works by means of certain digital audio transmissions, subject to a compulsory license for certain uses of these works codified in section 114 of title 17 of the United States Code. In the Digital Millennium Copyright Act (''DMCA'')(see footnote 2) of 1998, Congress updated section 114 and expanded the scope of the compulsory license.
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We at the Copyright Office believe the creation of a limited performance right in sound recordings was a step in the right direction. It has fostered the growth of new digital technologies which support the legitimate use of music transmitted in digital networks such as the Internet and satellite radio services. However, there are those who still oppose a public performance right in sound recordings and would oppose any further expansion of that right beyond the limited performance right granted to the copyright owners by virtue of the passage of the DPRA and the DMCA. Whether to expand the scope of the performance right or limit it further remains the prerogative of Congress. But we are convinced that after considering the current state of affairs and the workings of the section 114 statutory license, Congress should be reassured that the creation of a digital performance right, although limited in its scope, was the proper step to take at that time in order to strike a workable balance between the rights of the copyright owners and the demands of users who wished to use these works in new and creative ways.
In fact, technological advances since the DMCA was enacted in 1998 pose new threats to performers and sound recording copyright owners, and this hearing provides an opportune occasion to reconsider the scope of the performance right for sound recordings and whether it offers sufficient economic incentives for the investment in and creation of sound recordings in light of the threats posed by the emergence of additional new technologies that threaten to transform activities such as digital broadcasting into interactive enterprises that may further weaken the traditional market for distribution of sound recordings
BACKGROUND
Sound recordings did not receive protection under the 1909 Copyright Act or under earlier versions of the copyright law. Instead, a copyright owner had to seek relief at common law in state courts for unlawful use of their works. That changed in 1971 when Congress enacted a law, effective February 15, 1972, that granted exclusive rights of reproduction and distribution to copyright owners of sound recordings.(see footnote 3) Congress took this action in order to curb the mounting losses suffered by the record industry from the burgeoning trade in pirated records and tapes. However, Congress did not grant the full bundle of rights given to other copyright owners because traditional users of these works fiercely opposed a performance right for sound recordings. Moreover, the more limited set of rights seemed sufficient to deal with the immediate problem of record piracy.
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Even so, those who opposed federal copyright protection for sound recordings mounted a constitutional challenge to the amendment adding a limited copyright for sound recordings. Twice, the courts considered the question and in both cases the courts upheld the law as constitutional,(see footnote 4) confirming the position long held by the Copyright Office that a sound recording was capable of being considered the ''writing of an author'' within the constitutional sense(see footnote 5) and reinforcing the conclusion that sound recordings are creative works worthy of full copyright protection.(see footnote 6)
Although these events settled the basic question of copyrightability and questions with respect to the reproduction and distribution rights for sound recordings in the early 1970's, the debate on whether and to what extent sound recordings should enjoy full federal copyright protection that began in the 1960's has continued. In most cases, stakeholders have retained their original positions during the intervening period, although there is now a general consensus that performers and record producers' creative contributions are entitled to some degree of copyright protection.
Historically, television and radio broadcasters, jukebox operators, and wired music services—the traditional users of the sound recordings who publicly perform sound recordings—have opposed any changes to the Copyright Act that would require payment of a royalty for the performance of a sound recording. These users were already paying authors and publishers of musical works for the right to perform the musical works embodied in sound recordings and saw no reason to make a second payment to performers and record companies for the same performance. Traditional users, however, did not stand alone in their opposition to the movement for a full performance right. In the early 1960's, music publishers aligned themselves with these users and opposed the public performance right for sound recordings because they feared that the creation of a sound recording public performance right would result in a decrease in their stream of revenue. Basically, they envisioned that the royalty pool generated from the public performance of recorded music would remain fundamentally the same and that they would have to share these royalties with the record companies and the performers of sound recordings.
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On the other side of the debate stood the representatives of the record companies—e.g., the Recording Industry Association of America (RIAA)—and representatives of the performers—e.g., the American Federation of Musicians (''AFM''). The record company representatives took the position that there was no principled reason for treating sound recordings differently from other categories of works. AFM took a broader view. It focused more sharply on the economic deprivation experienced by performers who received no compensation from the public performance of their own recordings, while others, including jukebox operators, radio and television broadcasters and wired music services - as well as composers and music publishers—benefitted commercially from these actions. However, AFM did offer a solution to the problem in 1967, during the early stage of the debate regarding the revision of the 1909 Act. It proposed an amendment to establish a ''special performing right that would endure for 10 years and would be subject to compulsory licensing,''(see footnote 7) a novel idea that would not come to fruition in any form until thirty years later.
Copyright owners and performers were not alone in their quest for the elusive performance right. On a number of occasions during consideration of the omnibus bill to revise the 1909 Copyright Act and since, the Copyright Office has voiced its unwavering support for the creation of a full performance right for sound recordings, while also acquiescing to proposals to subject the right to a compulsory license.(see footnote 8) In fact, the push for a performance right nearly paid off. Proponents were successful in getting Senator Harrison Williams to introduce a formal amendment to the 1967 Senate bill which, among other things, aimed to create a compulsory license for the public performance of sound recordings. The amendment was accepted when the revision bill was reported by the Senate Subcommittee on Patents, Trademarks and Copyrights to the full Judiciary Committee on December 10, 1969, and remained in the 1971 and 1973 bills, which were reported favorably by the full Senate Judiciary Committee on July 3, 1974. The amendment, however, did not survive opponents' efforts to remove the provision from the bill, and it was removed from the 1975 revision bills in both the Senate and the House.
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In fact, the issue was so explosive that in 1975, Register of Copyrights Barbara Ringer refrained from pushing for the creation of even a limited public performance right for sound recordings in the omnibus bill, and testified accordingly:
At the same time it must be said that, on the basis of experience, if this legislation were tied to the fact of the bill for general revision of the copyright law, there is a danger that it could turn into a ''killer'' provision that would again stall or defeat omnibus legislation. This danger exists even more clearly than when I testified to this same effect last July, and would be very severe if the potential compulsory licensees—notably the broadcasting and jukebox industries—exerted their considerable economic and political power to oppose the revision bill as a whole. Should this happen, there could be no question about priorities. The performance royalty for sound recordings would have to yield to the overwhelming need for omnibus reform of the 1909 law.(see footnote 9)
Thus, when Congress passed the 1976 Copyright Act, it did not include a performance right for sound recordings. It did, however, ask the Copyright Office to submit a report on January 8, 1978, making recommendations as to whether Congress should amend the law to provide performers and copyright owners any performance rights in sound recordings. But change could not occur in a hostile environment.
In that report, the Copyright Office reaffirmed its earlier position and stated without qualification that a right of public performance for sound recordings is fully warranted, offering the following explanation for its unwavering position:
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Such rights are entirely consonant with the basic principles of copyright law generally, and with those of the 1976 Copyright Act specifically. Recognition of these rights would eliminate a major gap in this recently enacted general revision legislation by bringing sound recordings into parity with other categories of copyrightable subject matter. A performance right would not only have a salutary effect on the symmetry of the law, but also would assure performing artists of at least some share of the return realized from the commercial exploitation of their recorded performances.(see footnote 10)
The predicate underlying this position—that the creation and delivery of music requires a joint effort by songwriters and music publishers as well as performers, record producers and record companies—was not widely recognized in the early 1960's, and even in the early 1970's certain opponents of the performance right continued to argue that sound recordings lacked sufficient creativity to justify copyright protection.(see footnote 11) Nevertheless, the realization that the creation and delivery of music had changed dramatically over time and was the result of the contributions not only of composers and music publishers but also of performers and record producers gradually took hold, becoming a generally accepted principle by 1978, and one which remains unquestioned today.
Yet, in spite of this general understanding and the efforts of those who supported a full performance right for sound recordings, no legislation was passed in response to the Office's 1978 recommendation, and the controversy died down. The debate remained relatively dormant until the late 1980's. Congress acknowledged that the development of digital audio tape (''DAT'') machines posed a real threat to the record industry and passed the Audio Home Recording Act of 1992 (''AHRA'').(see footnote 12) Congress passed AHRA to allay the fears of copyright owners that consumers would use the new technology to make unauthorized high - quality digital reproductions en masse, thus displacing sales in the marketplace.(see footnote 13) It did so by requiring the incorporation of a Serial Copy Management System into each digital audio recording device in order to prevent serial copying, and by requiring payment of a royalty fee for the importation and distribution, or manufacture and distribution, of digital audio recording media and devices. AHRA also immunizes a consumer who has made a noncommercial reproduction of a musical recording as provided in Chapter 10 of Title 17 from suit for infringing the reproduction right of the copyright owners, although it does not transform infringing consumer uses into non-infringing ones. And it does not cover reproductions of songs stored on a computer in which one or more computer programs are fixed.
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But use of DAT recorders was merely the tip of the iceberg. Digital technology continued to advance at a rapid pace, forcing Congress to reexamine the effect of new digital technologies on the record industry. The outcome of this reevaluation was an acknowledgment from Congress in 1995 that the advent of on-demand digital subscription services and interactive services posed a serious threat to performing artists and record companies. Record companies believed, and rightfully so, that consumers would adapt to the new technologies and use these services to fulfill their desire to obtain music, and do so without having to purchase a retail phonorecord.
Consequently, after carefully weighing the rights of the copyright owners against its desire to foster new technologies and business models, Congress took action in 1995 and passed the Digital Performance Right in Sound Recordings Act (''DPRA''), which granted copyright owners of sound recordings an exclusive right to perform their works publicly by means of certain digital audio transmissions, subject to certain limitations. In taking this action, Congress sought to preserve and ''protect the livelihoods of the recording artists, songwriters, record companies, music publishers and others who depend upon revenues from traditional record sales, . . . without hampering the arrival of new technologies, and without imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of sound recordings.''(see footnote 14)
For this reason, the DPRA restricted the application of the new digital performance right to interactive services and subscription services, and specifically exempted traditional over-the-air broadcasts and related transmissions, including certain retransmissions of radio signals and incidental transmissions and retransmissions made to facilitate an exempt transmission. It created these exemptions in recognition of the fact that the possibility of these transmissions displacing sales was never very high. It also included a statutory license for subscription services so that these services could avoid the difficulties involved in direct licensing and devote more of their resources to developing new business models for the benefit of the public.
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However, services operating under the statutory license are subject to specific terms that are designed to limit unauthorized copying of the works by the recipient of the performance. These terms include requirements that the service avoid the use of a signal that would cause the receiver to change from one program to another; refrain from publishing or preannouncing particular songs that will be played during the course of a program; and schedule songs to avoid playing too many different songs by the same artist or from the same phonorecord in a short period of time or, to state it in legal terms, to avoid violating the ''sound recording performance complement.''
While these terms did offer a measure of protection to copyright owners and performers during the early days of the technological era, they only covered those problems associated with services in existence at the time. It soon became apparent that the DPRA was too narrow. It failed to anticipate the rapid development of the Internet and its ability to offer perfect digital transmissions to a global audience instantaneously. Thus, three years later, Congress had to revisit the issue of digital audio transmissions and consider how the digital performance right applied to new non-interactive, nonsubscription services that were springing up overnight and offering real time transmissions of a wide variety of musical choices over the Internet to anyone who had a computer.
These services, commonly referred to as webcasters, offered for the first time a rich and diversified selection of music for free over a communications network that was readily accessible to anyone with an internet connection. The problem, however, was the unique programming options that these services offered. For example, some webcasters offered ''artist-only'' channels that played works of one artist continuously 24 hours a day, while other webcasters offered programming techniques that permit listeners to influence the selection of sound recordings that are part of programs created by the webcasters.''(see footnote 15) In light of these programming capabilities and the exponential growth of these new services, Congress recognized that even nonsubscription services can pose a threat to the economic health of the record industry. For this reason, it again amended section 114 with the passage of the DMCA to clarify that the digital performance right applied to these non-subscription webcasters and that these services came within the scope of the statutory license. Moreover, Congress imposed additional terms, beyond those already adopted under the DPRA, on these new nonsubscription services in order to address the programming and technological problems raised by Internet transmissions.
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Specifically, the expanded section 114 license requires licensees: to cooperate with copyright owners to prevent recipients from using software or devices that scan transmissions for particular sound recordings or artists;(see footnote 16) to allow for the transmission of copyright protection measures that are widely used to identify or protect copyrighted works;(see footnote 17) and to disable copying by a recipient in the case where the transmitting entity possesses the technology to do so, as well as taking care not to induce or encourage copying by the recipient.(see footnote 18)
Congress also made a few other modifications to the Copyright Act in 1998. One major change was the creation of a second statutory license in section 112(e). This license allows any service operating under the section 114 statutory license to make one or more ephemeral recordings(see footnote 19) of a sound recording to facilitate the digital transmissions of these works governed by section 114. The DMCA also differentiated between those services that were operating prior to the passage of the 1998 amendments and those that came on line after the DMCA's date of enactment, October 28, 1998. The three preexisting subscription services (Music Choice; DMX Music, Inc.; and Muzak, L.P.) and the two preexisting satellite digital audio radio services (Sirius Satellite Radio, Inc. and XM Satellite Radio, Inc.) comprise the former group and all other services fall into the latter category. Prior to the DMCA, the rates for the preexisting services were set in accordance with four statutory objectives that also apply to some of the other statutory licenses but do not necessarily yield a marketplace rate.(see footnote 20) These services retained this standard when section 114 was amended in 1998 even though Congress adopted a willing buyer/willing seller standard for setting rates for all other services operating under section 114.
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(A) To maximize the availability of creative works to the public;
(B) To afford the copyright owner a fair return for his creative work and the copyright user a fair income under existing economic conditions;
(C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication; and
(D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.''
17 U.S.C. §801(b)(1).
Congress's responses to threats from new digital technologies in 1995 and in 1998 were limited, just as in 1971. Each time, Congress has chosen to focus only on the immediate problems presented to it and to calibrate the rights of sound recording copyright owners to address these particular problems, rather than adopt a full performance right, even though many urged Congress to grant sound recording copyright owners a full performance right. In testimony before the Senate Judiciary Committee in 1995, the Register of Copyrights restated the Office's steadfast support for a full performance right for sound recordings, citing the need to harmonize the rights for copyright owners of sound recordings with those of the music publishers once and for all.(see footnote 21) Moreover, an earlier study conducted by the Copyright Office in 1991 had underscored the need for such a right as a means to protect record companies and performers who suddenly were faced with the high probability that digital technology would provide readily available distribution channels for the reproduction and performance of their works without a counterbalancing means to compensate the creators of the sound recordings.(see footnote 22)
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In light of this danger, there was no principled reason to continue to allow one group—music publishers—to receive compensation for the performance of their works while denying another similarly situated group of copyright owners—record companies—the same right to collect royalties for the very same performance, especially in the case where the users' businesses relied heavily on the use of the creators' works to turn a profit. This is an observation that has been made repeatedly in support of a full performance right and one articulated by the Working Group on Intellectual Property Rights in its 1995 report on Intellectual Property and the National Information Infrastructure.(see footnote 23) This report characterized the lack of a performance right in sound recordings as ''an historical anomaly that does not have a strong policy justification—and certainly not a legal one. Sound recordings are the only copyrighted works that are capable of being performed that are not granted that right.''(see footnote 24)
Nevertheless, most users of these works continue to oppose a full performance right for sound recordings and argue that the economies in the current marketplace favor the user and the emerging technologies over the creator, even those who stand on the opposite side of the argument when it is their works that are being targeted for use by another group. Indeed, in the last few weeks, broadcasters have participated in meetings at WIPO considering proposals for a treaty that would obligate countries to provide exclusive rights to broadcasting organizations against the fixation, rebroadcasting and retransmission of their broadcast signals, among other rights. The broadcasters claim this new protection is necessary due to changes in technology, such as the Internet, which threaten their existing business models. They seek these rights notwithstanding their efforts here in the United States to oppose and limit the same rights for the creators of the sound recordings that the broadcasters transmit. Paradoxically, if such a treaty is concluded, broadcasters may be able to exercise exclusive rights over their performance of sound recordings even though the copyright owners of the same sound recordings have no rights in that context.
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Congress has the power to remedy this situation and strike the proper balance in favor of a full performance right. Thus, the question should no longer be whether Congress should provide a full performance right for sound recordings, but rather whether it should be subject to statutory licensing and, if so, what the value of that right should be in order to insure that copyright owners and performers have sufficient monetary incentives to continue to create works for the enjoyment of the public, and what restrictions, if any, should be placed on that right to insure the viability of new businesses to disseminate the works in a high-quality, readily accessible format. Stated another way, the challenge of copyright in this context, as it is in general, is to strike the ''difficult balance between the interests of authors and inventors in the control and exploitation of their writings and discoveries on the one hand, and society's competing interest in the free flow of ideas, information, and commerce on the other hand.''(see footnote 25)
THE SECTION 114 STATUTORY LICENSE- HOW IT AFFECTS BROADCASTERS
Although the digital performance right enacted in 1995 and expanded in 1998 is a step in the right direction, it is not an unfettered right. It is subject to certain exemptions—e.g., nonsubscription broadcast transmissions are exempt—and to a statutory license for certain noninteractive transmissions. Pursuant to this license, many digital transmissions of performances of sound recordings may be made without the permission of the copyright owner if the licensee adheres to the terms of the license, pays the statutory royalties, and complies with the Copyright Office regulations governing notice and recordkeeping. Users, however, have complained that the license terms and regulatory requirements have in some cases created barriers that prohibit them from taking advantage of the license.
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a. Scope of the exemption for nonsubscription broadcast transmissions.
Broadcasters have been particularly vocal about their treatment under the license, arguing in the first instance that they should not be subject to the digital performance right for their digital, Internet-based activities, such as webcasting. At the outset of the first rate setting proceeding for the webcasting license, broadcasters argued that retransmissions of AM/FM broadcast programming enjoyed an exemption from the newly created digital performance right and that simulcasts of radio broadcast programming therefore were not subject to the statutory license. The recording industry and associations representing the interests of performers(see footnote 26) did not agree. They opposed this interpretation and sought a ruling from the Copyright Office declaring that retransmissions of a broadcast signal over a digital communications network, such as the Internet, were not exempt from the digital performance right under section 114(d)(1)(A) of the Copyright Act, as amended by the DMCA. Because the resolution of this question would determine whether broadcasters chose to participate in the rate setting process and because it was necessary to resolve whether the rates being set would apply to broadcasters' retransmissions over the Internet, the Copyright Office postponed the rate setting hearing until it could decide the legal questions posed by the broadcasters and the record industry.
Broadcasters, however, questioned the Office's authority to conduct a rulemaking to ascertain whether simulcasts of AM/FM broadcast programming over the Internet came within the scope of the section 114 statutory license. For this reason, the National Association of Broadcasters (''NAB'') filed an action in the U.S. District Court for the Southern District of New York, seeking a declaratory ruling on the issue.(see footnote 27) This action was eventually withdrawn. In the meantime, the Copyright Office conducted a notice and comment rulemaking proceeding and made a determination that the exemption for broadcast transmissions did not include transmissions made over a digital communications network such as the Internet.(see footnote 28)
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The key question in this proceeding centered on the meaning of the phrase, ''nonsubscription broadcast transmission,'' which is not defined expressly in the law. More specifically, the analysis focused on the statutory definition of the term ''broadcast'' transmission. The statutory definition characterizes a ''broadcast'' transmission as ''a transmission made by a terrestrial broadcast station licensed as such by the Federal Communications Commission.''(see footnote 29) The Office then focused on the phrase ''licensed as such by the FCC,'' finding that it limited the exemption to those transmissions made under a license issued by the FCC, and that these transmissions are limited to the local service area of the radio transmitter. In reaching this conclusion, the Office noted that Congress used the descriptive term ''over-the-air'' frequently in the legislative history to identify those broadcasts that it sought to protect under the exemption and never referenced any other type of transmission made by an FCC-licensed broadcaster when discussing the scope of the exemption.
In addition, the Office determined that had Congress wished to exempt all transmissions made by an FCC-licensed broadcaster—the position urged by the broadcasters—then there would not have been a need to carve out additional exemptions to cover certain retransmissions of an AM/FM radio broadcast program. In reaching this conclusion, the Office focused on an exemption in the law which provides that the performance of a sound recording by means of a digital audio transmission is not an infringement in the case of a retransmission of a radio station's broadcast transmission, provided that ''the radio station's broadcast transmission is not willfully or repeatedly retransmitted more than a radius of 150 miles from the site of the radio broadcaster.''(see footnote 30)
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Broadcasters had argued that this 150-mile exemption applied only to third parties who retransmitted the original broadcast programming and not to the original broadcaster, but the Office rejected this interpretation. The law draws no distinction between the original broadcaster and third party retransmitters, nor does it or the legislative history offer any reason why Congress would allow original broadcasters to retransmit their programming globally while at the same time restricting the retransmissions of others to a defined geographic area.
In fact, an exception in the law to the 150-mile limitation for retransmissions of a radio signal in the case where the radio signal is ''retransmitted on a nonsubscription basis by a terrestrial broadcast station, terrestrial translator, or terrestrial repeater licensed by the Federal Communications Commission''(see footnote 31) supports this position. In all cases, the purpose of these provisions is to restrict each retransmission of a digital audio transmission of a radio signal to a limited geographic area, even in those instances where the retransmissions are done by terrestrial physical facilities regulated by the FCC.
The Office found further support for its determination that broadcasters could not retransmit AM/FM radio programming over the Internet when it examined section 112, the provision that governs the making of ephemeral copies of sound recordings necessary to facilitate a public performance under the section 114 statutory license. While traditional broadcasters can make a single server copy of their radio programs to facilitate their over-the-air broadcasts under an exemption in section 112(a), webcasters are unable to rely upon this provision for making all the necessary ephemeral recordings that are needed to facilitate a transmission over the Internet. Webcasting requires more than a single copy of a work to effectively transmit over the Internet. For this reason, Congress created a second statutory license in section 112(e) which, subject to the rates and terms of the statutory license, allows a webcaster operating under the section 114 statutory licensing regime (or certain services that provide transmissions to a business establishment for use during the normal course of business) to make one or more ephemeral recordings to facilitate their transmissions. Thus, broadcasters who wish to retransmit their radio station programs over the Internet would have to operate under the section 114 license in order to be eligible under the section 112(e) statutory license to make all the ephemeral recordings needed to effectuate the retransmission of the AM/FM radio program over the Internet.
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Not surprisingly, the broadcasters did not accept the Office's determination. They immediately filed a lawsuit under the Administrative Procedure Act challenging the Register's determination, but the Register's decision was upheld by both the district and the appellate courts.(see footnote 32)
In making its decision, the United States Court of Appeals for the Third Circuit rejected the broadcaster's fundamental argument that Congress had intended to provide a broad exemption to cover any transmission made by a licensed broadcaster. Specifically, it held that the reference to ''broadcast station'' in the definition of a ''broadcast'' transmission referred to the physical facility licensed by the FCC and not to the broadcaster. It noted that under the FCC rules a station must be a physical facility and that the FCC license referenced in the statutory definition must be tied directly to the operation of a particular facility rather than a corporate entity. Consequently, the court held ''[a] 'broadcast transmission' under §114(d)(1)(A) would therefore be a radio transmission by a radio station facility operated subject to an FCC license and would not include a webcast. AM/FM webcasting does not meet the definition of a 'nonsubscription broadcast transmission' and does not therefore, qualify under §114(d)(1)(A) for an exemption from the digital audio transmission performance copyright of §106(6).''(see footnote 33)
The court found additional support for its conclusions in the fact that Congress included additional exemptions from the digital audio transmission performance right for retransmissions of certain nonsubscription broadcast transmissions, noting that the common-sense reading of the exemptions in §114(d)(1)(B) requires an interpretation that does not differentiate between webcasting of AM/FM radio programming by one group, i.e, broadcasters, and webcasts of the exact same programming by third parties. Likewise, the court read the legislative history of the DPRA and the DMCA as supporting an exemption for traditional radio broadcasts, and concluded that the exemption for a ''nonsubscription broadcast transmission,'' which was added with the passage of the DPRA in 1995, did not contemplate protecting AM/FM webcasts by any group.
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This interpretation of the scope of the exemption for ''nonsubscription broadcast transmissions'' offered by the Office and by the courts is totally consistent with Congress' perception at the time the DPRA was enacted that traditional over-the-air radio did not pose a threat to the record industry.
b. Interactive services.
The section 114 statutory license is not available to an interactive service. Such a service is defined, in general, as ''one that enables a member of the public to receive a transmission of a program specially created for the recipient, or on request, a transmission of a particular sound recording, whether or not as part of a program, which is selected by or on behalf of the recipient.''(see footnote 34) Interactive services must negotiate separate licenses in the marketplace with the copyright owners of the sound recordings for the right to perform publicly specific sound recordings by means of a digital audio transmission. Congress took this position and imposed full copyright liability on interactive services because Congress realized these services had the greatest potential for displacing record sales. Consequently, in 2000 the Digital Media Association (DiMA) petitioned the Copyright Office to initiate a rulemaking proceeding for the purpose of adopting an amendment to the rule defining the term ''Service'' to make it clear that a service is not interactive simply because it offers the consumer some degree of influence over the programming offered by the webcaster.
After considering DiMA's arguments for initiating the rulemaking and RIAA's opposing arguments, the Office determined that a rulemaking was not the appropriate way to resolve the question of interactivity because there was no way to articulate with any precision specific guidelines that would distinguish between an interactive service and an non-interactive service beyond what was already in the statute, especially when business models were undergoing constant change.(see footnote 35) Moreover, the Office noted that ''such a determination had to be made on a case-by-case basis after the development of a full evidentiary record in accordance with the standards and precepts already established in the law.''(see footnote 36) Consequently, the Office denied the petition.
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c. Notice and recordkeeping requirements.
Sections 114(f)(4)(A) and 112(e)(4) require the Librarian of Congress to establish regulations specifying notice and recordkeeping requirements for use of sound recordings in a digital transmission. Accordingly, the Office issued interim regulations on March 11, 2004, specifying notice and recordkeeping requirements for use of sound recordings under the sections 112 and 114 statutory licenses.(see footnote 37) These rules require users of the section 112 and 114 statutory licenses to report on the sound recordings they perform so that SoundExchange, the collective that collects the statutory royalties and disburses them to copyright owners and performers, knows how to divide up the royalties for performances of sound recordings. Because the amount of royalties paid to each copyright owner and performer depends upon the number of performances of each sound recording, such reporting is crucial to the operation of the statutory license. Requirements have long been in place for preexisting subscription services, and we believe they are working well.(see footnote 38)
However, the rulemaking proceeding governing notice & recordkeeping requirements for eligible nonsubscription services such as webcasters is ongoing, and it has proved to be difficult and controversial. Representatives of record companies and performers have sought comprehensive information about each and every performance of each and every sound recording transmitted by a service, arguing that such information is essential in order to ensure that the correct amount of royalties is paid to each copyright owner and performer, and that information that will permit monitoring compliance with the requirements of the sound recording performance complement is also needed. Webcasters and broadcasters opposed such detailed reporting requirements, asserting that they would be excessive and too onerous for an industry that historically has accounted for its performances of musical works in a totally different manner. Throughout the rulemaking, they maintained that the Office should require reporting of only that information that would identify the sound recording for purposes of making a distribution of royalties. Specifically, they submitted that only five data elements would be needed for this purpose : name of the service, sound recording title, name of the artist, call sign of the station and date of transmission. They also suggested that the rules should allow services to obtain this information through a sampling process (e.g., providing information for only two weeks out of every year) rather than accounting for each performance.
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In adopting interim regulations setting the requirements for the information that eligible nonsubscription services must report to SoundExchange, we rejected the type of sampling proposed by broadcasters because it would be likely to under report—or omit reporting at all—performances of the lesser known artists and performers receiving playtime from those webcasting services that offer multiple channels of niche programming, covering an array of genres, e.g., hip-hop, gospel, classical, country, folk, new age, and pop. Morever, we found it difficult to credit claims from webcasters that although their transmissions—and frequently the programming of the content of their transmissions—are controlled and accomplished by the use of computers, they would be unable to report all actual performances of sound recordings. Ideally, this computer-driven medium should be well-suited to the reporting of actual performance data that would ensure that each copyright owner and performer is compensated for the value of the transmissions of performances of his or her recordings.
On the other hand, we recognized that for many webcasters, maintaining and reporting any information at all about their transmission of performances would be a novel experience, and that it would be desirable to have a period of transition during which they would become accustomed to such reporting. Thus, while it is likely that we shall require year-round reporting of all performances in the not-too-distant future, the new interim rules require licensees to maintain records for two weeks out of every quarter, identifying which sound recordings were performed during this period and how often they were performed. In deriving these rules, the Office balanced the need to obtain accurate information about performances of specific sound recordings for purposes of compensating as many copyright owners entitled to receive these fees as possible against the burden imposed on the services to provide the needed information and the need for a period of time during which licensees will become accustomed to reporting actual performance data. The ultimate goal remains a final regulation requiring year-round reporting.
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Meanwhile, the interim rules require the licensees to report only a relatively minimal amount of specific information needed to identify and differentiate sound recordings from one another. In addition to its own name and the category of transmission (e.g., eligible nonsubscription transmission other than a broadcast simulcast, or eligible nonsubscription transmission of a broadcast simulcast, or eligible transmission by a business establishment service making ephemeral recordings), a licensee is currently required to report as few as four key items for each sound recording performed: sound recording title; featured recording artist, group or orchestra; sound recording identification;(see footnote 39) and total number of performances.(see footnote 40) They do not require the licensee to report other information sought by the record industry, such as the catalog number, the track label (P) line, the duration of the sound recording, the universal product code, or the release year. Nor are the licensees required to report specific information that would aid the copyright owners in assessing compliance with the programming restrictions, e.g., the start date and time of the transmission of the sound recording. Moreover, the rules do not require a full census report at this time, although they do require licensees to maintain precise records for two weeks out of every quarter.
The rulemaking is ongoing. The Office is still considering rules that would establish specific electronic formats for transmitting this information. The format issue has proven difficult. One might have imagined that although there would be differences of opinion over what kind of information must be reported, the interested parties would be able to work out the technical issues involving the electronic formats in which the reports of use would be made. SoundExchange has been working on its own system for maintaining the data that will be reported to it on sound recording performances, and many broadcasters and webcasters have their own electronic systems that already report information on their performances. We had anticipated that SoundExchange could sit down with broadcasters and webcasters to work out the details of how these systems can communicate with each other, but thus far very little progress has been made despite our encouragement and urging.(see footnote 41) We at the Copyright Office have no familiarity with or expertise about the electronic systems maintained by SoundExchange, broadcasters and webcasters, but the interested parties appear to have decided to leave it to us to prescribe the technical rules on the formatting of reports of use of sound recordings, specifying precise fields and delimiters for reporting the required information. We remain hopeful that the parties may come to an agreement—and we strongly urge them to do so—but meanwhile, we are considering a recent submission from RIAA that proposes revised specifications for filing electronic reports of the performance data and has been forwarded to DiMA for consideration. We hope to publish a notice of proposed rulemaking on formatting requirements this summer, and we are optimistic that we can conclude that phase of the rulemaking proceeding by the end of this year.
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We are also near to concluding the portion of the proceeding concerning reports of use for the historic period. On Tuesday, we published a Notice of Proposed Rulemaking concerning reporting requirements for use of sound recordings during the period prior to April 1, 2004. The notice proposes use of data already provided by the preexisting subscription services to SoundExchange for the relevant period as a proxy for the reporting of actual performances made by all other services during the same time period. This approach had been suggested in our Notice of Inquiry,(see footnote 42) and has been endorsed by the copyright owners and performers as well as the affected licensees. Both groups have acknowledged that little useful data exists at this point in time and that there is no apparent way to reconstruct the information needed to file reports of actual use. Consequently, copyright owners, performers and licenses advocate the use of a proxy to account for the historic performances.
Use of a proxy, however, is an imperfect solution, since it is likely to undercount some performances and over-count others. Nevertheless, it has many advantages. First, the data from the preexisting services for the historic period offers accurate reporting for programming that is by and large comparable to what was offered by the nonsubscription services during the same time period. Second, the preexisting subscription services had transmitted a diverse number of sound recordings so that a large number of copyright owners and performers can be compensated. And finally, the data has already been used by SoundExchange for distribution of royalties received from the preexisting subscription services and can easily be used for distribution of the royalties received from the nonsubscription services for the corresponding time period.
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For these reasons, we believe the use of the reports of the preexisting subscription services as a proxy represents the simplest, most practical and cost-effective solution, and that the affected parties will continue to embrace this solution. Interested parties have thirty days to file comments either in support of this solution or offering alternative proposals.
d. Conditions for use of the statutory license.
It is our understanding that, now that the question of whether their Internet transmissions are exempt from the performance right has been resolved against them, broadcasters are questioning whether certain terms in the statutory license should apply to simulcasts of AM/FM programming when retransmitted over the Internet. Specifically, broadcasters have focused on those provisions that prohibit a service from announcing its play schedule in advance and the requirement that a service not play more than a limited number of selections from a particular record album or by a particular recording artist within a 3-hour period (the ''sound recording performance complement''). These restrictions, among others, were adopted in 1995 to inhibit copying of music by consumers who could make near-perfect digital copies of a sound recording. The reasons behind the restrictions are simple to understand. They were adopted to make it difficult for an individual to identify in advance, and thereby copy, specific works, thus avoiding the expense of purchasing a copy of the work.
The need for such restrictions, however, may be less obvious when one considers a typical radio program offering Top-40 selections. Many radio stations routinely play the same selections over and over so that one need wait only a short time before the most recent release of a hit song is played over the airwaves. Consequently, preannounced schedules of these programs may do little to prevent a listener from copying the newest hits. Thus, it is unclear whether the restriction has much value with respect to these types of radio programs. On the other hand, it is hard to understand how the term creates a hardship for broadcasters who simulcast over the Internet today or to understand the need for such preannounced schedules, since most listeners would not consult a program guide before listening to AM/FM radio anyway. The typical practice is to flip on the radio and surf the channels to see what is playing at the moment or to tune in to a favorite talk show at the regularly scheduled time. Thus, until more information comes to light, it is hard to understand what harm the broadcasters suffer today under the preannouncement restriction, or why there is a need to eliminate this term with respect to broadcast programming.
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Similarly, it is hard to understand the broadcasters' complaint with respect to the sound recording performance complement restriction since the definition was crafted so that it would permit programming that was typically used by broadcast radio stations. Specifically, the legislative history notes that ''[t]he definition [of the complement] is intended to encompass certain typical programming practices such as those used on broadcast radio.''(see footnote 43) Whatever confusion does exist with respect to the application of this provision may well stem from a misunderstanding of what the complement does and does not allow. For example, it would not prohibit a service from playing the same three songs from a single phonorecord as many times as it wanted during a 3-hour period, provided that no more than two of these songs were played consecutively. The sound recording performance complement would similarly allow a service to play up to four different songs by the same featured recording artist or four different songs from any particular boxed set of phonorecords over and over again during a 3-hour period provided that no more than three of these songs were transmitted consecutively. Since these provisions seem to accommodate normal scheduling practices, it is hard to see how the sound recording performance complement imposes a burden on a typical AM/FM broadcast station.
Certainly, should these restrictions be shown to pose a substantial burden on programming practices that outweigh whatever protection they provide, then Congress should take another look at their application to broadcast programming being retransmitted over the Internet. In fact, that day may well be near at hand, because new technologies and software that allow a consumer to capture and edit programming transmitted via the Internet already threaten their effectiveness.
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DIGITAL AUDIO BROADCASTING—DOES IT POSE A THREAT TO COPYRIGHT OWNERS?
Digital audio broadcasting, also known as HD radio, is no longer a vision of the future. Technology to facilitate digital audio broadcasts has already been approved by the Federal Communications Commission (''FCC''). In 2002, the FCC adopted the in-band on-channel system developed by iBiquity Digital Corporation as the standard technology for enabling digital broadcasts by AM and FM radio stations that wished to begin digital transmissions over the airwaves immediately.(see footnote 44)
Although radio stations did not immediately embrace the new technology, they are doing so now. In January of this year, KZIA in Cedar Rapids, Iowa, began the movement when it announced its intent to become the first station to offer HD radio.(see footnote 45) Less than five months later, iBiquity issued another press release, announcing that radio station KEMR-FM in San Jose, California, had become the 100th radio station to launch HD radio broadcasts.(see footnote 46) It also has compiled a list of more than 300 licensed radio stations that have begun offering HD radio or will begin to do so soon.(see footnote 47)
The electronics industry has also been hard at work. Companies are manufacturing and marketing digital radio receivers for those who wish to be among the first to receive clear, digital radio signals over the airwaves. But technologists have not stopped there. Companies are also busy designing and manufacturing new products to capture and record these signals and anticipate the release of a number of new products which will allow a consumer to record digital audio radio signals so that a listener can listen to his or her favorite radio talk show, news show or music program at a later time. In some instances, these products will operate in the same manner as a VCR or a TiVo device, allowing the listener to fast-forward over the segments that one prefers not to hear.(see footnote 48) In fact, some early digital radio recorders, e.g., Blaze Audio's Radio Recording Suite,(see footnote 49) already include functions that allow the listener to program the device to record a program at specified times, convert an analog signal into a digital format, and upload the recorded program onto a personal computer in a transferable file.
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In spite of these features, the early release of these devices did not disturb the copyright community because radio programming was not being offered in a digital format at the source. Consequently, programs that were transmitted in an analog format and later converted to a digital format were only as good as the original analog signal. In many cases, recordings of these signals were plagued by static, fades, and hisses.
The advent of digital audio broadcasting (''DAB'') and advances in the recording devices, however, will greatly improve audio quality, removing the flaws associated with analog broadcasts. Moreover, these devices and software packages will allow the listener to change the traditional passive listening experience into an interactive process. They will give the recipient the means to edit and store specific segments and songs from a prerecorded program, upload these selections onto the recipient's personal computer, and allow for further distribution of these segments to others via electronic transfers over the Internet or by other means.
On-Demand Audio expects to offer a digital radio recorder this fall that will provide these functions.(see footnote 50) It promises not only to capture and record the digital radio signal, but also to include technology which will allow the listener to skip from song-to-song and skip over advertisements. Moreover, according to its promotional material, its SongSurfer Technology will be able to identify specific segments of a radio program or a song, and bookmark each segment for identification and use at a later time. The product will also include a Jukebox Mode which will allow the user ''to save songs, interesting ads, and talk radio segments to a built-in Jukebox. . . . Saved songs can then be sorted into playlists either when they are saved or later.''(see footnote 51)
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Similar technology is available to capture online music over the Internet. Replay Music promotes its ability to save every song played by an on-line music service, automatically tag each song with the artist name and song title, and separate the song into individual tracks for easy access and play-back. The company claims that its ''Replay Music sports the most sophisticated track splitting algorithms on the planet. Besides just recording and tagging, each MP3 file contains the entire song—no more, no less.''(see footnote 52)
These technological advances threaten to disrupt the careful balance Congress struck between the record industry, on the one hand, and the purveyors of new digital technologies, on the other, in the DPRA and the DMCA. Moreover, widespread use of these products would alter the longstanding relationship between record companies and radio broadcasters in which record companies have provided radio stations with the latest releases at no cost in exchange for promotional airplay, a relationship based on record companies' expectation that consumers would purchase new CDs based upon what they heard over the airwaves. But today listeners are not limited to what they hear on the radio to inform their choices, nor do they necessarily purchase CDs containing the songs they like. Instead, new technologies, e.g., peer-to-peer services, offer free access to music and a means to obtain free copies of the works they enjoy. In this new environment, record companies cannot necessarily have any expectation of financial reward because consumers find ways to obtain copies of their works for free. Nevertheless, radio broadcasters who use music as a hook to get listeners and, by extension, advertising dollars, as well as the makers of the software packages that facilitate the free exchange of music over the Internet profit directly from their use of sound recordings.
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Clearly, the threat posed by today's new technologies is most ominous for the performers, the record companies and authorized on-line record stores, like iTunes and MusicMatch, whose profits depend, at least to some extent, directly upon sales of CDs or digital downloads; but the potential harm is not restricted to these businesses. Broadcasters and subscription services will suffer, too, from the use of technologies that can capture, record, and preserve individual sound recordings, and the more valuable segments of a radio station's program. Subscription services will find it hard to sell reproductions of a sound recording to listeners through use of a ''buy button,'' when these listeners can capture the songs they want and upload them directly to their personal computers with the use of a On-Demand Audio device or Replay Music software. Why would anyone pay for a reproduction of a sound recording when they can create their own private music collection without expending a dime for the reproduction? Broadcasters could also suffer from extensive use of these new technologies, albeit in a more indirect fashion. In the event that the TiVo type devices become popular, listeners will simply avoid the ads, making it ineffective for businesses to advertise on radio. Were this to occur, businesses will seek better ways to reach consumers, and advertising dollars will no longer flow to the broadcasters.
The answer, however, is not to inhibit the roll out of HD radio; nor is anyone suggesting a slowdown on this front. HD radio promises to deliver a high-quality audio product that should draw consumers back to the airwaves. The more promising approach would be to grant copyright owners of the sound recording a full performance right so that they can seek marketplace solutions to the problem, perhaps by negotiating licenses for performance rights that would include measures to protect against the types of activities that would make record sales obsolete. At the moment, sound recording copyright owners have no means to prevent a broadcaster from broadcasting their works over the airwaves or to compel protection of their work. Alternatively, Congress may want to consider technological methods to prohibit unlawful copying, an approach the Federal Communications Commission has already begun to explore. On April 20, 2004, it published a Notice of Inquiry to consider the question of digital audio content control in response to concerns presented to the it by the Recording Industry Association of America.
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While we take no position on the FCC's recent action, it is apparent that digital audio broadcasting raises many of the same concerns and fears voiced by the record industry when digital technologies first made their appearance in the nineties, and these concerns are even more valid today. How the issues should be addressed, however, remains an open question. But what is clear is that the process must include a careful analysis of copyright policies. Moreover, any solutions adopted must provide strong incentives to the creators to continue their artistic endeavors and equally strong incentives to encourage the continued development of new technological advances. In the absence of corrective action, the rollout of digital radio and the technological devices that promise to enable consumers to gain free access at will to any and all the music they want will pose an unacceptable risk to the survival of what has been a thriving music industry and to the ability of performers and composers to make a living by creating the works the broadcasters, webcasters and consumer electronic companies are so eager to exploit because such exploitation puts money in their pockets.
Mr. Chairman, as always, we at the Copyright Office stand ready to assist you as the Committee considers how to address the new challenges that are the subject of this hearing.
Mr. SMITH. Mr. Halyburton.
TESTIMONY OF DAN HALYBURTON, SENIOR VICE PRESIDENT/GENERAL MANAGER, GROUP OPERATIONS, SUSQUEHANNA RADIO CORPORATION, ON BEHALF OF THE NATIONAL ASSOCIATION OF BROADCASTERS
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Mr. HALYBURTON. Thank you, Mr. Chairman, Ranking Member Berman, and Members of the Subcommittee.
When Congress enacted section 405 of the DMCA, it clearly sought to foster Internet streaming while preserving the long-standing, mutually beneficial relationship between radio and the recording industry. Unfortunately, the potentials of this technology have not been realized.
In April 2000, there were more than 1,700 U.S. Radio stations streaming their programming via the Internet. Industry estimates predicted that each month 100 stations would add streaming services. Today, those bright expectations have not materialized. By the end of 2002, well over 1,000 stations had discontinued streaming due in large part to copyright issues.
My company, Susquehanna Radio, helped pioneer radio Internet delivery, and 23 of our stations are still trying to make a go of it. However, the DMCA has made it impossible to create a viable business model for simulcast streaming. In fact, it is a recipe for losing money, which is exactly what we are doing.
Here are the problems we face. First and foremost, we are subject to a rate structure under which the more audience we attract, the more we pay. The result is that once we draw enough audience to attract advertisers, the RIAA fee becomes so expensive we lose money.
Not only must we pay for the right to perform sound recordings, but we also have to pay for so-called ephemeral copies that are technically necessary to stream but have no independent economic value.
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Third, the statutory conditions interfere with our programming. DJs cannot preannounce records, and we are limited to the number of cuts we can play of one artist or from a single album. And there is a concern that the complex and expensive recordkeeping requirements may be adopted. No wonder most stations looked at this scheme and said, No thanks.
So let me suggest five steps Congress should take to fix the law so that Internet radio streaming can mature into a workable business model and serve our listeners.
First, Congress should exempt from sound recording fees streams to a station's local over-the-air audience. It simply makes no sense to treat this audience differently when they listen to our signal on the Internet; the same local public service benefits are provided. Moreover, the recording industry cannot deny the enormous promotional benefit that it gets from radio air play, by far the most important driver of record sales. This same benefit exists when a station streams its programming over the Internet to its local audience.
Second, the sound recording performance fee and the standard by which it is set must be reformed. The willing buyer-willing seller standard and the DMCA is a recipe for abuse. Before the CARP proceeding, RIAA set out to negotiate 26 agreements at fees far above the competitive market rate for the purpose of establishing an artificially high benchmark in order to influence the CARP. The CARP threw out 25 of those agreements, but still relied entirely on a single agreement between the RIAA and Yahoo to arrive at the current rate, and that rate is exorbitant.
Susquehanna will pay RIAA six times what we pay ASCAP, BMI and SESAC combined for those same exact performances. Just one of our stations, KPLX in Dallas, will pay almost $50,000 in fees in a year to reach a small fraction of its over-the-air audience. Congress should establish a fee comparable to what is paid to BMI, ASCAP, and SESAC.
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Third, Congress must reform the statutory license conditions and make them consistent with broadcast practices. Radio stations should not be forced to choose between either radically altering their over-the-air programming practice or risk uncertain and costly copyright infringement litigation.
Fourth, Congress should eliminate additional copyright liabilities for ephemeral recordings that simply exist to facilitate a licensed or an exempt performance.
And fifth, Congress should ensure that the reporting and recordkeeping requirements in the act do not preclude broadcasters from streaming.
Mr. Chairman, coupling the powers of the Internet with the long-standing strengths of free, over-the-air radio promises exciting opportunities for our listeners, your constituents. Let me thank the Subcommittee for its leadership and hard work in moving forward legislation to reform the CARP system. Unfortunately even if the CARP process is fixed, the law will continue to stifle the growth of radio streaming.
We look forward to working with the Subcommittee to repair the law and create a workable copyright regime that allows fledgling service to flourish rather than suffocate.
Mr. SMITH. Thank you, Mr. Halyburton.
[The prepared statement of Mr. Halyburton follows:]
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PREPARED STATEMENT OF DAN HALYBURTON
Chairman Smith and Members of the Subcommittee. My name is Dan Halyburton. I am the Senior Vice President and General Manager for Group Operations for Susquehanna Radio Corp., which owns 32 broadcast radio stations.
I appreciate the opportunity to appear before you today on behalf of the National Association of Broadcasters to discuss a matter of importance to the radio industry and to the many members of the public who want to hear their favorite radio station over the Internet on their home or office computers but who have been frustrated by what has become, through various judicial and administrative actions, a burdensome and unworkable law.
In 1998, Congress enacted section 405 of the Digital Millennium Copyright Act with the goal of fostering the growth of Internet streaming while preserving the longstanding, mutually beneficial relationship between the radio and recording industries. The Internet offered an opportunity for all types of radio stations throughout the country, small and large, urban and rural, to reach their audiences in a new, more convenient and more creative way, coupled with information, graphics, and other material that can be placed on a web site.
Unfortunately, that goal has been thwarted. A medium that was once thought to have a bright future to enhance the ability of radio stations to serve the public is vastly underused. As you may have noticed, relatively few radio stations now stream their programming on the Internet. In 2000, more than 1,700 radio stations were streaming their programming and nearly 100 additional stations were expected to commence streaming each month. By the end of 2002, however, well over 1,000 stations had stopped streaming and those stations that now come online overwhelmingly are all talk stations.
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There are a number of reasons for this, but the biggest part of the problem lies with the rules governing sound recordings. Specifically:
The fee set by the copyright royalty arbitration panel and the Librarian of Congress in 2002 was much too high, and far exceeds a reasonable or even a hypothetical competitive fair market rate. As an example, if the Internet listenership of one of our most popular stations ever matched its over-the-air listenership, the sound recording fees would be 15 millions dollars a year. Even at today's listenership levels, our stations pay 5 to 6 times as much for sound recording royalties than we pay to the musical works copyright owners for the right to make the same Internet performances of all of the musical works embodied in the sound recordings.
The applicable statutory performance license is subject to a host of conditions that are inconsistent with the way radio stations program their stations. Radio stations are faced with the untenable choice of making fundamental changes to their programming, not streaming, or incurring the risk of having to defend uncertain and hugely expensive and complex copyright infringement litigation.
The law governing the making of copies that are used solely to facilitate permitted transmissions unreasonably requires the payment of still additional fees and is subject to conditions crafted in the earlier days of radio that fail to accommodate modern technological practices and realities.
The Copyright Office has raised the specter of onerous and unnecessary record keeping and reporting requirements in the near future. Many radio stations, particularly smaller stations, simply will not be able to comply using their existing systems and business practices. The threat of these requirements keeps many from even considering streaming.
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Mr. Chairman, I know you are concerned about the failure of this new opportunity for radio to serve the public to develop. You have already moved to address the problems associated with the CARP (arbitration panel) procedure that the DMCA put in place to set fees, and we greatly appreciate your leadership and efforts. We strongly support HR1417 and hope that the Senate will pass it promptly and that it will become law.
Unfortunately, the CARP procedure is a relatively small part of the difficulties current law and regulations pose for streaming radio stations. There are major substantive problems with rights afforded to the copyright owners of sound recordings in sections 114 and 112 of the Copyright Act. These must be addressed if Internet streaming of radio stations is to fulfill its promise.
I would first like to provide some history of the sound recording performance right, to review how we got here. Then I will describe the current state of radio stations simultaneously streaming their over the air signals on the Internet (simulcast streaming). Finally, and most importantly, I will offer specific suggestions to fix the problems that are preventing simulcast streaming from happening.
I. HOW WE GOT HERE—THE HISTORY OF THE SOUND RECORDING PERFORMANCE RIGHT
Until 1995 there was no performance right in sound recordings. Instead, radio stations paid well over a hundred million dollars annually to music composers and publishers while the producers and performers of sound recordings made billions of dollars from the sales of records promoted by radio airplay.
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In 1995, Congress first created a carefully and narrowly circumscribed performance right in digital audio transmissions to address the specific concerns of record companies that certain interactive and multi-channel, genre-specific subscription performances would displace record sales. In 1998, in response to issues concerning the status of Internet-only webcasts, the right was expanded to include certain non-subscription transmissions. In our view these rights were never intended to apply to radio broadcasters.
Congress has, for decades, recognized the symbiotic relationship between the recording and radio industries, first refusing to grant a public performance right in sound recordings, and then granting it narrowly only in response to a specific threat. Even then, Congress provided that nonsubscription broadcast transmissions would remain free from any sound recording performance obligation. Although broadcasters believe that Congress intended this exemption to include the Internet streaming of radio broadcasts, the Copyright Office and the Courts ruled otherwise.
It is not at all clear why radio stations should be required to pay record companies for the right to stream their radio broadcasts over the Internet. After all, the recording industry has for decades tried, using every device imaginable and spending millions upon millions of dollars annually, to encourage broadcasters to play their records in these very same broadcasts. Why? Simply because radio play is, far and away, the most important vehicle for exposing to the public the products of the record industry. Consumers buy what they hear, and what DJs they trust play. Arbitron studies have proven as much—fully two thirds of those polled said they turn to radio first to learn about new music.(see footnote 53) A radio broadcast has the same extraordinary promotional value to the record companies whether it is heard over the air or over the Internet. In a truly free, competitive market, the net balance of payments would flow from record companies to radio stations, not vice-versa, just as free copies of their recordings still flow every day from the record companies to radio stations.
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A. Pre-1995
Throughout the history of the debate over sound recording copyrights, Congress has consistently recognized that record companies reap huge promotional benefits from the exposure given their recordings by radio stations and that placing burdensome restrictions on performances could alter that relationship to the detriment of both industries. For that reason, in the 1920s and for five decades following, Congress regularly considered proposals to grant copyright rights in sound recordings but repeatedly rejected such proposals.
When Congress did first afford limited copyright protection to sound recordings in 1971, it prohibited only unauthorized reproduction and distribution of records but did not create a sound recording performance right. The purpose of such protection was to address the potential threat such reproductions posed to the industry's core business: the sale of records. During the comprehensive revision of the Copyright Act in 1976, Congress again considered, and rejected, granting a sound recording performance right. As certain senators on the Judiciary Committee recognized in their (prevailing) minority views:
For years, record companies have gratuitously provided records to stations in hope of securing exposure by repeated play over the air. The financial success of recording companies and artists who contract with these companies is directly related to the volume of record sales, which, in turn, depends in great measure upon the promotion efforts of broadcasters.(see footnote 54)
Congress continued to refuse to provide any sound recording performance right for another twenty years. During that time, the record industry thrived, due in large measure to the promotional value of radio performances of their records.
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B. 1995
It was not until the Digital Performance Rights in Sound Recordings Act of 1995 (the ''DPRA'')—enacted less than ten years ago—that even a limited performance right in sound recordings was granted. Even then, the right was limited to certain subscription and interactive digital transmissions that threatened to displace the sale of recordings.
In granting this limited public performance right in sound recordings, Congress stated it: ''should do nothing to change or jeopardize the mutually beneficial economic relationship between the recording and traditional broadcasting industries.''(see footnote 55) As explained in the Senate Report accompanying the DPRA, ''The underlying rationale for creation of this limited right is grounded in the way the market for prerecorded music has developed, and the potential impact on that market posed by subscription and interactive services—but not by broadcasting and related transmissions.''(see footnote 56)
Consistent with Congress's intent, the DPRA expressly exempted from sound recording performance right liability non-subscription, non-interactive transmissions, including ''non-subscription broadcast transmission[s]''—transmissions made by FCC licensed radio broadcasters.(see footnote 57) Congress made clear that the purpose of this broadcast exemption was to preserve the historical, mutually beneficial relationship between record companies and radio stations:
The Committee, in reviewing the record before it and the goals of this legislation, recognizes that the sale of many sound recordings and careers of many performers have benefited considerably from airplay and other promotional activities provided by both noncommercial and advertiser-supported, free over-the-air broadcasting. The Committee also recognizes that the radio industry has grown and prospered with the availability and use of prerecorded music. This legislation should do nothing to change or jeopardize the mutually beneficial economic relationship between the recording and traditional broadcasting industries.(see footnote 58)
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The Senate Report confirmed that ''[i]t is the Committee's intent to provide copyright holders of sound recordings with the ability to control the distribution of their product by digital transmissions, without hampering the arrival of new technologies, and without imposing new and unreasonable burdens on radio and television broadcasters, which often promote, and appear to pose no threat to, the distribution of sound recordings.''(see footnote 59)
In explaining its refusal to impose new burdens on FCC-licensed terrestrial radio broadcasters, Congress identified numerous features of radio programming that place such programming beyond the concerns that animated the creation of the limited public performance right in sound recordings. Specifically, radio programs (1) are available without subscription; (2) do not rely upon interactive delivery; (3) provide a mix of entertainment and non-entertainment programming and other public interest activities to local communities to fulfill FCC licensing conditions(see footnote 60); (4) promote, rather than replace, record sales; and (5) do not constitute ''multichannel offerings of various music formats.''(see footnote 61) Each of these features—i.e., nonsubscription, non-interactive, mixed programming content and public interest content, promotion of record sales, and single-channel—also characterizes the web stream of a broadcast signal.
C. 1998
Just three years after enactment of the DPRA, the record industry voiced dissatisfaction with the scope of the new performance right, contending that such right should encompass certain categories of nonsubscription music services. At the same time, the Digital Media Association (''DiMA''), a newly formed association of Internet-only ''webcasters,'' approached Congress seeking clarification of the status of such webcasters with respect to sound recording performances on the Internet. DiMA and RIAA, neither of which represented the interests of FCC-licensed broadcasters, negotiated amendments to the DPRA, that were put into the House version of the Digital Millennium Copyright Act of 1998 (''DMCA'') literally on the eve of passage, and that were enacted without any hearing or debate.(see footnote 62) For their part, broadcasters were assured by both parties and others that none of the DMCA would affect the exempt status they enjoyed under the DPRA.
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The RIAA/DiMA deal removed certain exemptions that had previously been available under the DPRA, including the exemption for ''a [digital] nonsubscription transmission other than a retransmission'' and expanded the types of transmissions that would be eligible for a statutory license to include at least some of the previously exempt nonsubscription, non-interactive transmissions.(see footnote 63)
The relevant DMCA amendments were inspired by and directed to ''a remarkable proliferation of music services offering digital transmissions of sound recordings to the public,'' primarily via the Internet.(see footnote 64) ''In particular,'' the House Manager reported, ''services commonly known as 'webcasters' have begun offering the public multiple highly-themed genre channels of sound recordings on a nonsubscription basis.''(see footnote 65) As used in the legislative history, the term ''webcaster'' referred, not to radio stations streaming their AM/FM over-the-air broadcast programming, but to ''services'' originating on the Internet(see footnote 66) and offering ''a diverse range of programming,'' often ''customized'' to an individual user's preferences.(see footnote 67)
The DMCA, however, did nothing to disturb the DPRA's exemption for ''nonsubscription broadcast transmissions'' or the definitions that accompanied the exemption. Indeed, AM/FM streaming is a conspicuously poor fit with the ''webcasting'' services described in the DMCA legislative history—and AM/FM streaming presents none of the ''webcasting''-related concerns that motivated passage of the DMCA.
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Moreover, as I will discuss in greater detail below, the RIAA/DiMA deal that was enacted in the DMCA imposed new conditions on the statutory license for non-subscription services that were inconsistent with the way radio stations are traditionally programmed. Thus, DiMA and RIAA agreed to waive the conditions for third party webcasters that retransmitted a radio broadcast. However, the waivers did not apply to broadcasters transmitting their own programming. In other words, once the sound recording right was construed to apply to radio broadcasters, those broadcasters were placed at a significant disadvantage compared to third party retransmitters of radio broadcasts.
Broadcasters believed, and still believe, that Congress intended radio broadcasters streaming their own programming to be exempt under the DMCA, and broadcasters vigorously, but unsuccessfully, pressed that position before the Copyright Office in a rulemaking(see footnote 68) and on appeal in federal court in Bonneville International Corp. v. Peters.(see footnote 69)
Broadcasters still believe that the Bonneville decision was wrongly decided and that the last thing Congress intended was to pass a law that required record companies and radio stations to haggle over what can be played, how often, who should pay whom what, and the records broadcasters must keep of what they play. Yet that is precisely the deeply-flawed system we are today confronting. That system must be repaired, even starting from the premise that some portion of radio broadcast streamin