Facing the music: webcasting, interactivity, and a sensible statutory royalty scheme for sound recording transmissions.

• Author: Pals, Kaitlin M.

1. Introduction II. Background A. Pre-DPRA and DMCA Copyright in Sound Recordings B. Digital Performance Right in Sound Recordings Act C. Digital Millennium Copyright Act D. Interactivity and 17 U.S.C. [section] 114(j)(7) E. Arista Records v. Launch Media III. Analysis A. Arista Records v. Launch Media's Direct Effects on User-Influenced Webcasts B. Possible Implications of Arista Records v. Launch Media's Analytical Approach: A Purpose- and Effects-Based Performance Right in Sound Recordings? 1. The Push for Parity in Sound Transmission Royalty Rates 2. Technology Anxiety Versus Webcasting's Positive, Promotional Potential VI. Recommendation A. Royalty Parity Among Terrestrial, Satellite, and Internet Radio B. Factoring Promotional Value into a Royalty Rate that Makes Sense for All Forms of Radio V. Conclusion I. INTRODUCTION

   The Internet provides consumers with a myriad of ways to listen to and obtain music that no one ever dreamed of when Congress passed the 1976 Copyright Act. (1) Courts are now applying statutes originally drafted to handle records, audiotapes, and terrestrial radio stations to CDs, digital downloads, and online streaming audio. (2) Streaming technology alone comes in a wide array of formats, ranging from individual hobbyists creating niche musical programming (3) and official and unofficial YouTube playlists (4) to subscription jukebox services like Rhapsody (5) and create-your-own station websites like Pandora (6) and Yahoo!'s now-defunct LAUNCHcast service. (7) Congress has been trying to keep up by adapting copyright protections for sound recordings as technology advances, but it has not been a smooth process. (8)

   Each of these new methods of disseminating music has its own unique attributes, and these attributes present their own distinctive assortment of benefits and risks for the record companies who hold copyrights in musical sound recordings. These new dissemination platforms therefore present legislators and courts with the difficult task of crafting copyright protection for sound recordings that balances copyright's dual goals: protecting material to incentivize creation, and making copyrighted material available so the public can receive the maximum benefit from it. (9) One of these new formats that Congress and courts have struggled with is online streaming radio, commonly known as webcasts. (10) A recent case, Arista Records, LLC, v. Launch Media, Inc., (11) resolved one contentious webcasting issue, but this Note examines not only that decision's immediate impact but also the effects the court's reasoning may have on other aspects of webcasts as they relate to copyright law.

   Specifically, Part II of this Note provides a summary of the statutes that most directly affect webcasting royalties and describes how Arista Records v. Launch Media and its definition of "interactivity" as applied to webcasts fits into the statutory scheme. (12) Part III analyzes the immediate effects of the Arista Records v. Launch Media ruling on webcasters. (13) Then, it looks at how reasoning similar to that which the court used in this case would resolve two other major issues in webcasting: royalty parity among terrestrial, satellite, and web radio, and what role, if any, webcasting's promotional capabilities should play in royalty rate determinations. (14) Finally, Part IV argues that not only did the court correctly interpret Congressional intent in its definition of "interactivity" but that Congress and rate-setting bodies should use the court's purpose- and effects-based approach in resolving other webcast-related issues. (15)

2. BACKGROUND

   1. Pre-DPRA and DMCA Copyright in Sound Recordings

      The Constitution enables Congress to grant "for limited Times to Authors ... the exclusive Right to their respective Writings" for the purpose of promoting "the Progress of Science." (16) For most copyrightable materials, the Copyright Act describes this "exclusive Right" as including exclusive control over the reproduction, preparation of derivative works, distribution of copies, and public performance and display of copyrighted works. (17) However, the Copyright Act notably excludes sound recordings from the list of works that receive protection for public performance and display. (18) While radio broadcasters had to (and still do) pay performance royalties to songwriters as owners of copyrights in the underlying musical compositions of the music played on their stations, (19) they have never paid royalties to the record companies and performing artists who own the copyrights in the actual sound recordings. (20)

      Interested parties disagree as to exactly why this distinction between sound recordings and most other copyrighted materials exists. (21) The Recording Industry Association of America (RIAA) characterizes it as a "historical accident" that broadcast radio has capitalized on and that lobbyists have managed to maintain, (22) despite the recording industry's protests. (23) Broadcasters, on the other hand, claim that radio never paid royalties to the recording industry because radio acts as a vital promotional tool for new music. (24) Notwithstanding this speculation, Congress has stated that since the threat of unauthorized copying from radio broadcasts is minimal, and since one of copyright's primary goals is to protect against illicit copying, sound recordings do not need any legal protection in the terrestrial radio context in addition to the protections that technological limitations already provide. (25)

      With the emergence of the Internet as a viable, increasingly popular means of transmitting music recordings, however, the piracy risks concerning sound recordings have changed. (26) Digital transmissions of music via the Internet, especially via "peer-to-peer" file sharing services, allow infringers to easily make copies of copyrighted music. (27) Congress has responded to the recording industry's increasing concerns about piracy, but it has done so with legislation aimed only at these new technologies, not traditional radio. (28) It also has focused on copyright's dual goals of incentivizing creators while ensuring that the public has access to copyrighted works, (29) especially since digital transmissions are becoming a major means of disseminating copyrighted materials. (30) These considerations have shaped the expansion of copyright protection in digital transmissions of musical works under two significant pieces of legislation: the Digital Performance Right in Sound Recordings Act (31) and the Digital Millennium Copyright Act. (32)

   2. Digital Performance Right in Sound Recordings Act

      The Digital Performance Right in Sound Recordings Act of 1995 (DPRA) added an additional "stick" to the bundle of rights for holders of copyrights in sound recordings: the exclusive right "to perform the copyrighted work publicly by means of a digital audio transmission." (33) The DPRA divided audio transmissions into three categories: exempt transmissions, non-interactive subscription transmissions, and interactive transmissions. (34) Since digital technologies did not heighten concerns about illicit copying from terrestrial radio broadcasts, Congress deemed it best to avoid "upsetting the longstanding business and contractual relationships among record producers and performers, music composers and publishers and broadcasters that have served all of these industries well for decades" and exempted terrestrial broadcasts entirely, along with other non-interactive, nonsubscription digital transmissions. (35) Further, the DPRA divided non-exempt digital transmissions into two classes based on their risks of enabling piracy: non-interactive subscription services and interactive services. (36) Both non-interactive subscription services and interactive services must pay royalties to sound recording copyright holders. (37) However, 17 U.S.C. [section] 114(f) creates a compulsory statutory licensing system, which allows non-interactive subscription services to pay a negotiated or arbitrated royalty rate and forces copyright holders to make their works available to anyone willing to pay. (38)

      The balances tip more heavily in favor of copyright holders when it comes to interactive services. Congress decided that copyright holders should have the right to refuse to license their sound recordings to interactive services because these types of services posed the greatest threat to record companies' core revenue source: CD sales. (39) Therefore, Congress did not make such services eligible for statutory licenses; instead, these services must negotiate individual licenses with each record company. (40) Thus, notwithstanding the exception of a narrow restriction on exclusive licensing, (41) the DPRA left royalty rates and the choice to license performances of a recording to an interactive service at the discretion of the copyright holders. (42)

   3. Digital Millennium Copyright Act

      The Digital Millennium Copyright Act of 1998 (DMCA) also dealt with several issues related to the effects of emerging technologies on copyright protection, and most notably, it implemented the World Intellectual Property Organization's treaties concerning digital technology. (43) It also changed some existing provisions, including removing the royalty exemption for "a non-subscription transmission other than a retransmission," under which non-interactive, non-subscription webcasts fell. (44) Congress chose to classify these services with non-interactive subscription services, thereby making all non-interactive digital transmissions that met additional criteria (45) eligible for statutory licenses. (46) However, Congress gave no explanation as to why it believed non-interactive, non-subscription services fit best in this category. (47)

   4. Interactivity and 17 U.S.C. [section] 114(j)(7)

      The DMCA also failed to clarify the difference between interactive and non-interactive services, even though adding non-subscription services to the...