The RIAA, the DMCA, and the forgotten few webcasters: a call for change in digital copyright royalties.

• Author: Myers, Kellen
• Position: Digital Millennium Copyright Act

1. INTRODUCTION II. WEBCASTING AND COPYRIGHT LAW: A HISTORY A. How Webcasting Works B. Copyright Background. C. The Musical Work (Composition) Copyright and Mechanical Compulsory Licensing D. Digital Performance Right for Sound Recordings E. Multi-Tiered System 1. Interactive Internet Transmissions 2. Non-interactive Internet Transmissions 3. Non-subscription Broadcast Transmissions II. THE DMCA AND A NEW ERA OF COPYRIGHT LAW A. Digital Millennium Copyright Act B. DMCA Fallout C. CARP Royalty Rates D. Problems with the Willing Buyer/Willing Seller Standard E. CARP Rate Recommendations F. Congressional Legislation IV. THE FORGOTTEN FEW A. Internet Radio Post-SWSA B. The "Changing" of the Guard C. Internet Radio Equality Act D. Negotiations E. Possible Solutions To Keep Internet Radio on the Air 1. Jukebox Approach 2. Elimination of Multiple Intermediaries 3. Satellite Radio Rates 4. Revision of the DMCA V. CONCLUSION I. INTRODUCTION

   SomaFM began as a pirate radio station which first broadcast at the 1999 Burning Man Festival in the desert of Nevada, (1) and has risen to become one of the largest "small" Internet-only radio stations, with over one million listener hours per month. (2) As stated by the creator of SomaFM, the problem with modern radio broadcasting is that, "[b]ig radio's least-common-denominator approach creates playlists that the least amount of people will ever turn off. There's no personality, no edge.... The challenge here is to do a lot with a little." (3) SomaFM, which grew through word of mouth and mailing lists, is an example of an enterprise springing directly from the independent and pioneering mindset of the Internet. (4) It is also an example of the growing trend of listeners moving away from large, sterile, modern AM/FM stations to the world of niche Internet radio with more specialized audiences: Unfortunately, this area of Internet radio and independent programming may soon die.

   Radio programming is playing an increasingly important role in the Internet world. By 1999, an estimated thirty-five percent of Americans, approximately twenty-nine million, had tried streaming audio or video via webcasts. (6) Unfortunately, due to an ever-increasing number of actions by the Recording Industry Association of America (RIAA) and the Copyright Royalty Board's (CRB) recent setting of royalty rates for webcasters, the mix-tape genre of independent Internet radio may soon be gone. In March 2007, (7) the CRB issued a decision that substantially increased the fees webcasters had to pay record labels through its royalty collection organization, SoundExchange. (8) The CRB set the minimum annual fees at $500 per channel. (9) Previously, the fee was $500 per service; (10) this was a devastating rate hike. For example, after this fee increase, SomaFM's royalty bill rose from $10,000 to $600,000 for the year of 2006. (11) In effect, this increase would make webcasting so prohibitively expensive that it would put the vast majority of small webcasters out of business.

   Only intellectual property law has had a more rapid growth than the overall average for federal statutes in the time period between 1946 and 1994. (12) Further, statutory expansion in copyright law has been more rapid than in any other intellectual property field. (13) The problems dealt with in this Note are directly related not only to this rapid expansion, but also to the issues between lobbyists, copyright holders, and small businesses wishing to use intellectual property rights without being priced out of existence through the current economic rent system. A large part of the current predicament is that, "given the very long copyright term and the very low costs of duplication of many types of copyrighted work[s]" there are greater potential rents from copyright than through the other areas of intellectual property law. (14) Therefore, this potentially lucrative income stream leads to much more aggressive lobbying and legal actions pursued by copyright holders and their representatives.

   Some legal scholars state that there is a public-choice explanation for the net expansion of copyright law. (15) The argument is as follows: there is an inherent asymmetry between the value that the creators of the intellectual property place on the property right, and the value placed on the freedom to copy (without having to obtain a license) by would-be copiers. (16) If the copyright holder is able to enforce exclusive rights to the property, then they have access to a vast possibility of economic rents. (17) In comparison, a would-be copier or user of a copy, such as SomaFM, can merely hope to obtain a competitive return for their use of the protected property. (18) This large profit potential makes it easier for copyright holders to organize coalitions such as the RIAA to expand the legal protections of intellectual property. (19) An example of the difference in power between coalitions such as the RIAA and those who wish to use the property right, such as SomaFM, is that most of the statutory language of the Copyright Act of 1976 "was not drafted by members of Congress or their staffs at all." (20) "Instead, the language evolved through a process of negotiation among authors, publishers, and other parties with economic interests in the property rights the statute defines." (21)

   From this discussion, it is clear that there is a tremendous imbalance of not only power, but also a vast disproportion of motivating forces. Those who hold the property rights have already borne the cost of creation and everything following is almost entirely profit; while those who wish to use the property are fighting for mere competitive return. Unfortunately, the lopsided balance of power in favor of the copyright holder has reduced the possibility for such return and is ultimately choking off the ability of small businesses to use copyright-protected works. (22) Any resolution in this field must take into consideration these underlying economic causes; therefore, the solutions suggested in this Note have been crafted in light of the financial realities of both the music business and copyright law.

   This Note examines the issues affecting copyright holders and webcasters while suggesting possible resolutions. Part II provides a basic background of how webcasting works, copyright law, and the history of performance rights. Part III describes the controversy, the legal issues, and the current royalty rates and term structure. Lastly, Part 1V discusses possible areas of improvement, and addresses the need for modernization of U.S. copyright law. (23)

2. WEBCASTING AND COPYRIGHT LAW: A HISTORY

   1. How Webcasting Works

      Internet radio has the ability to provide many more listening choices than traditional radio because of the potential for nearly unlimited bandwidth, an almost infinite user base, and the ability of the average person to set up and maintain a broadcasting station. (24) Originally, due to the lack of existing regulation, Internet stations were easy to set up and manage, and the resulting programming could be broadcast to the entire world. (25) In fact, most stations have historically been run by "small businesses, community and college broadcasters, and hobbyists." (26)

      Unlike typical Web sites which rely on a "pull" method of transferring web pages where the page is not accessed or delivered until a browser requests it, webcasting or "streaming" relies on a "push" technology. (27) Regardless of whether anyone is requesting a song from the site, it is continuously pushing the data out there for anyone to tune in. (28) Music sent out using this technology transfers the data so that it is processed by the listener's computer as a steady and continuous stream. (29) This technology facilitates the performance of a song "via transmission from the originating service, over the Internet, into a user's computer RAM, (30) and through the user's computer speakers." (31) Instead of being permanently stored on a user's computer like downloaded songs, music sent in this format is not meant to be permanent. (32) Once the song is over, the data from that song is erased and replaced by new data from the next song on the playlist of the webcast. (33) At the completion of the performance, no remnants of the song remain in the listener's computer. (34)

   2. Copyright Background

      The purpose of intellectual property law in the United States is to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." (35) Copyright law protects "original works of authorship fixed in any tangible medium of expression." (36) Current music copyright law actually entails two distinct types of copyright ownership. (37) A copyright holder of the recorded performance of a song has rights in both the (1) "musical composition," and (2) the "sound recording" itself. (38) The "musical composition" consists of the lyrics and the actual notes of the song. (39) An example of this would be the information someone would need to reproduce the song on their own, such as the sheet music a pianist would need to play Ludwig van Beethoven's Symphony No. 5. The "sound recording" copyright differs because it "subsists in the actual fixation or recording of the sounds," instead of the sheet music or lyrics. (40)

      The holder of a sound recording copyright has many of the same rights as the copyright holder of a musical composition, but with some significant differences. First, the copyright holder of a sound recording has the right to reproduce the recording. (41) Second, the holder of a sound recording copyright has the right to prepare derivative works based upon it. (42) Third, the holder of the sound recording copyright has the right to distribute phonorecords of the recording to the public. (43)

   3. The Musical Work (Composition) Copyright and Mechanical Compulsory Licensing

      In 1831, Congress first...