Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services, 31842-31846 [2013-12493]

Download as PDF 31842 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels. INTFORMATION CONTACT 7. Unfunded Mandates Reform Act The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531–1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble. 8. Taking of Private Property This rule will not cause a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights. 9. Civil Justice Reform This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden. 10. Protection of Children We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children. 11. Indian Tribal Governments This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes. wreier-aviles on DSK5TPTVN1PROD with RULES 12. Energy Effects This action is not a ‘‘significant energy action’’ under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. 13. Technical Standards This rule does not use technical standards. Therefore, we did not VerDate Mar<15>2010 15:03 May 24, 2013 Jkt 229001 consider the use of voluntary consensus standards. 14. Environment We have analyzed this rule under Department of Homeland Security Management Directive 023–01 and Commandant Instruction M16475.lD, which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321–4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone on the navigable waters of the Atlantic Ocean in Virginia Beach, VA in order to restrict vessel traffic movement to protect mariners from the hazards associated with air show events. This rule is categorically excluded from further review under paragraph 34(g) of Figure 2–1 of the Commandant Instruction. An environmental analysis checklist supporting this determination and a Categorical Exclusion Determination will be available in the docket where indicated under ADDRESSES. List of Subjects in 33 CFR Part 165 Harbors, Marine safety, Navigation (water), Reporting and recordkeeping requirements, Security measures, Waterways. For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows: PART 165—REGULATED NAVIGATION AREAS AND LIMITED ACCESS AREAS 1. The authority citation for part 165 continues to read as follows: ■ (b) Definition. For the purposes of this part, Captain of the Port Representative means any U.S. Coast Guard commissioned, warrant or petty officer who has been authorized by the Captain of the Port, Hampton Roads, Virginia to act on his behalf. (c) Regulations. (1) In accordance with the general regulations in § 165.23 of this part, entry into this zone is prohibited unless authorized by the Captain of the Port, Hampton Roads or his designated representatives. (2) The operator of any vessel in the immediate vicinity of this safety zone shall: (i) Stop the vessel immediately upon being directed to do so by any commissioned, warrant or petty officer on shore or on board a vessel that is displaying a U.S. Coast Guard Ensign. (ii) Proceed as directed by any commissioned, warrant or petty officer on shore or on board a vessel that is displaying a U.S. Coast Guard Ensign. (3) The Captain of the Port, Hampton Roads can be reached through the Sector Duty Officer at Sector Hampton Roads in Portsmouth, Virginia at telephone Number (757) 668–5555. (4) The Coast Guard Representatives enforcing the safety zone can be contacted on VHF–FM marine band radio channel 13 (165.65Mhz) and channel 16 (156.8 Mhz). (d) Enforcement Period. This regulation will be enforced from May 31, 2013, until June 2, 2013, between the hours of 12 p.m. and 3 p.m. each day. Dated: May 13, 2013. John K. Little, Captain, U.S. Coast Guard, Captain of the Port Hampton Roads. [FR Doc. 2013–12541 Filed 5–24–13; 8:45 am] Authority: 33 U.S.C. 1231; 46 U.S.C. Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 6.04–6 and 160.5; Pub. L. 107–295, 116 Stat. 2064; Department of Homeland Security Delegation No. 0170.1. BILLING CODE 9110–04–P 2. Add § 165.T05–0377 to read as follows: Copyright Royalty Board ■ § 165.T05–0377 Safety Zone; USO Patriotic Festival Air Show, Atlantic Ocean; Virginia Beach, VA. (a) Regulated Area. The following area is a safety zone: specified waters of the Captain of the Port Sector Hampton Roads zone, as defined in 33 CFR 3.25– 10, in the vicinity of the Atlantic Ocean in Virginia Beach, VA bound by the following coordinates: 36°-49′-50″ N/ 075°-58′-02″ W, 36°-51′-46″ N/075°-58′33″ W, 36°-51′-53″ N/075°-57′-57″ W, 36°-49′-57″ N/075°-57′-26″ W (NAD 1983). PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 LIBRARY OF CONGRESS 37 CFR Part 382 [Docket No. 2011–1 CRB PSS/Satellite II] Determination of Rates and Terms for Preexisting Subscription Services and Satellite Digital Audio Radio Services Copyright Royalty Board, Library of Congress. ACTION: Final determination; modification. AGENCY: SUMMARY: The Copyright Royalty Judges announce a modification to their final determination of rates and terms for the E:\FR\FM\28MYR1.SGM 28MYR1 wreier-aviles on DSK5TPTVN1PROD with RULES Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations digital transmission of sound recordings and the reproduction of ephemeral recordings by preexisting subscription services and preexisting satellite digital audio radio services for the period beginning January 1, 2013, and ending on December 31, 2017. The modification addresses an error identified by the Register of Copyrights concerning the resolution of a material question of substantive law relating to the rates and terms set for preexisting subscription services. FOR FURTHER INFORMATION CONTACT: Gina Giuffreda, Attorney Advisor. Telephone: (202) 707–7658. Telefax: (202) 252– 3423. SUPPLEMENTARY INFORMATION: The Copyright Royalty Judges (‘‘Judges’’) issued a Final Determination in the captioned proceeding on February 14, 2013. The Librarian of Congress published the Final Determination on April 17, 2013, as required by 17 U.S.C. 803(c)(6).1 See 78 FR 23054. The Register of Copyrights (‘‘Register’’) may review any determination by the Judges for legal error in resolution of a material issue of substantive law under the Copyright Act (‘‘Act’’) found in title 17, United States Code. 17 U.S.C. 802(f)(1)(D). If the Register finds such legal error, her decision identifying and correcting the error is published in the Federal Register, along with the Final Determination. Although the Register’s decision does not change the rates and terms set in the Final Determination, her opinion is binding on the Judges prospectively. Section 803(c)(4) of the Copyright Act authorizes the Judges to issue amendments to a written determination to correct any technical or clerical errors in the determination or to modify the terms, but not the rates, of royalty payments in response to unforeseen circumstances that would frustrate the proper implementation of such determination. In the Final Determination, the Judges found that the current statutory rate of 7.5% of Gross Revenues for Pre-existing Subscription Services (‘‘PSS’’) was the appropriate rate upon which to consider whether a policy adjustment was warranted under the factors set forth in Section 801(b) of the Copyright Act. In applying those factors as required by the statute, the Judges determined that, under the second of those factors (afford the copyright owner a fair return for his 1 The Final Determination was not a unanimous decision. Judge William Roberts issued a dissenting opinion on the same date; his dissent was published with the Final Determination. See 78 FR 23075–96 (Apr. 17. 2013). References to the ‘‘Judges’’ in this Amendment are references to the Judges issuing the majority determination. VerDate Mar<15>2010 15:03 May 24, 2013 Jkt 229001 or her creative work and the copyright user a fair income under existing economic conditions) a 1 percent upward adjustment (phased in over the first two years of the rate period) from the current rate was warranted. The Register found that it was legal error for the Judges not to then apply (or reapply as the case may be) the Section 801(b) factors with respect to those adjusted rates. See 78 FR 22913 (Apr. 17, 2013). After careful consideration, the Judges find that such a supplemental review of the application of the Section 801(b) factors is technical in nature and is therefore amenable to correction pursuant to the Judges’ authority under Section 803(c)(4) of the Copyright Act. In this Amendment, the Judges do not revisit any of the analysis in the Determination relating to the base rate; rather, they articulate the outcome of application of the Section 801(b) factors to the prospective rates—an application cited by the Register of Copyrights as missing in the Determination.2 The Judges, therefore, issue this Technical Amendment to the Final Determination. The Amendment is confined to Section V.A.3.c.1. of the Final Determination. All other portions of the Final Determination, including the rates and terms, are unchanged. The amended text, which is bracketed, appears below. 1. Application of Section 801(b) Factors Based on the record evidence in this proceeding, the Judges have determined that the benchmark evidence submitted by Music Choice and SoundExchange has failed to provide the means for determining a reasonable rate for the PSS, other than, perhaps to indicate the extreme ends of the range of reasonable rates. The testimony and argument of Music Choice demonstrates nothing more than to show that a reasonable rate cannot be as low as the rates (i.e., [REDACTED] of Music Choice’s revenues) paid by Music Choice to the three performing rights societies for the public performance of musical works. The benchmark testimony of SoundExchange is of even lesser value. The proposed rate of 15% for the PSS for the first year of the licensing period, deemed reasonable by Dr. Ford (at least in the beginning of the licensing 2 The Judges believe their interpretation of Section 803(c)(4) is not only consistent with the flexibility that Congress intended to grant the Judges to correct their own determinations, but also consistent with the Register of Copyright’s application of the term ‘‘technical amendment’’ in the copyright royalty context. See 61 FR 63715 (Dec. 2, 1996) (in which the Library adopted a broad range of ‘‘non-substantive technical amendments’’ to address ‘‘identified problems’’ in the regulations governing CARP proceedings). PO 00000 Frm 00029 Fmt 4700 Sfmt 4700 31843 period), stands as the upper bound of the range of reasonable rates. Within that range is the current 7.5% rate. On the record before us, the Judges are persuaded that the current rate is neither too high, too low, nor otherwise inappropriate, subject to consideration of the Section 801(b) factors discussed below.3 a. Maximize Availability of Creative Works To argue for an adjustment in its favor under the first Section 801(b) factor, Music Choice touts that it is a music service that is available in over 54 million homes, with 40 million customers using the service every month. 8/16/12 Tr. 3878:3 (Del Beccaro); 6/11/12 Tr. 1462:5–11, 1486:19–1487:2 (Del Beccaro). According to Music Choice, channel offerings have increased through the years, and they are curated by experts in a variety of music genres. Del Beccaro Corrected WDT at 3, 24, PSS Trial Ex. 1. Music Choice also highlights recent developments in technology that enable Music Choice to display original onscreen content identifying pertinent information regarding the songs and artists being performed. Id. at 24, MC 23; Williams WDT at 12, PSS Trial Ex. 3; 6/11/12 Tr. 1461:14–1462: 1, 1491:2– 12 (Del Beccaro). According to Music Choice, these elements, along with certain promotional efforts that Music Choice makes on behalf of artists, support a downward adjustment in the rates. In any event, an upward adjustment in the rates, argues Music Choice, would not affect the record companies’ bottom-line because PSS royalties are not a material revenue source for record companies. Music Choice PFF ¶¶ 409–417. SoundExchange submits that a market rate incorporates considerations under the first Section 801(b) factor, citing the decision in SDARS–I, and that if PSS rates turn out to be too high and drive Music Choice from the market, presumably consumers will shift to alternative providers of digital music 3 [As discussed below, the Judges conclude that the second Section 801(b) factor (afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions) warrants a 1 percent upward adjustment (to 8.5% phased in from 8.0% in 2013 to 8.5% for 2014 through 2017) from the current statutory rate of 7.5%. In her April 9, 2013, decision, the Register of Copyrights found that the Judges erred by not considering the 8.0% and 8.5% rates under the Section 801(b) factors. After carefully reviewing the evidence, the Judges conclude that none of the Section 801(b) factors warrants an adjustment, either upward or downward, from the 8.5% rate that the Judges selected for the PSS for 2014 through 2017, or for the 8.0% rate that the Judges selected for 2013.] E:\FR\FM\28MYR1.SGM 28MYR1 31844 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations whose principal business is the sale of CDs and digital downloads. Music Choice PFF ¶¶ 420–430. With respect to Music Choice’s ability to earn a fair income, however, Music Choice argues that it is not profitable under the current 7.5% rate. Mr. Del Beccaro testified that its average revenue per customer for its residential audio business has been on the decline since the early 1990’s, down from $1.00 per customer/per month to [REDACTED] per customer/per month currently. Del Beccaro Corrected WDT at 40, PSS Trial Ex. 1. He further testified that after 15 years of paying a PSS statutory rate between 6.5% and 7.5% Music Choice has not become profitable on a cumulative basis and is not projected to become so within the foreseeable future. Id. at 42. Music Choice represents that it has a cumulative loss at the end of 2011 of [REDACTED], projected to grow to [REDACTED] in 2012 and continue to increase throughout the 2013–17 license period. Del Beccaro Corrected WRT at MC 69 at 1 and MC 70 at 1, PSS Trial Ex. 21. These losses lead Music Choice to conclude that it has not generated a reasonable return on capital under the existing rates. Music Choice PFF ¶¶ 442–43. Music Choice’s claims of unprofitability under the existing PSS rate come from the oblique presentation of its financial data and a combining of revenues and expenses from other aspects of its business. The appropriate business to analyze for purposes of this proceeding is the residential audio service offered by Music Choice, the subject of the Section 114 license. Music Choice, however, reports costs and revenues for its residential audio business with those of its commercial business, which is not subject to the statutory license. This aggregation of the data, which Music Choice acknowledges cannot be disaggregated, see 6/11/12 Tr. 1572:3–1576:2 (Del Beccaro), masks the financial performance of the PSS business. As a consolidated business, Music Choice has had significantly positive operating income between 2007 and 2011 and made profit distributions to its partners since 2009. Ford Amended/Corrected WRT at SX Ex. b. Afford Fair Return/Fair Income Under 362–RR, p. 3 (PSS_002739), SX Trial Ex. 244; SX Trial Ex. 64 at 3 (PSS_002715); Existing Market Conditions Music Choice submits that the Judges SX Trial Ex. 233 at 3 (PSS_366020). Dr. Crawford’s effort to extract costs and need not worry about the impact of a revenues from this data for the PSS low royalty rate on the fair return to service alone for use in his surplus record companies and artists for use of analysis cannot be credited because of their works because royalties from the his lack of familiarity with the data’s PSS market are so small as to be source. 6/13/12 Tr. 1890:15–1891:10 virtually inconsequential to companies wreier-aviles on DSK5TPTVN1PROD with RULES where higher royalty payments are more likely for record companies. Ford Second Corrected WDT at 19–21, SX Trial Ex. 79. The current PSS rate is not a market rate, so market forces cannot be presumed to determine the maximum amount of product availability consistent with the efficient use of resources. See SDARS–I, 73 FR 4094. However, the testimony demonstrates that Music Choice has not, under the current rate, reduced its music offerings or contemplated exiting the business; in fact, it will be expanding its channel offerings in the near term. Del Becarro Corrected WDT at 3, 24, PSS Trial Ex. 1; see also 6/11/12 Tr. 1460:21–1461:1 (Del Beccaro). The Judges find no credible evidence in the record to suggest that the output of music from record labels has been impacted negatively as a result of the current rate. The record shows no persuasive evidence that a higher PSS royalty rate would necessarily result in increased output of music by the record companies, nor that a lower rate would necessarily further stimulate Music Choice’s current and planned offerings. In sum, the policy goal of maximizing creative works to the public is reasonably reflected in the current rate and, therefore, no adjustment is necessary. [Similarly, the Judges’ conclusion with respect to the first Section 801(b) factor is unchanged even when weighed against the modest increases to 8.0% for 2013 and to 8.5% for 2014 through 2017 that the Judges adopt for the upcoming rate period. Given the Judges’ determination on other grounds to increase the rate by only one percentage point above the current statutory rate (phased in over the first two years of the rate period), the Judges find that that minimal increase will not adversely affect Music Choice’s planned expansion nor will it provide a material incentive to artists and record companies sufficient to impact the availability of creative works to the public. In sum, the modest increase ordered by the Judges is in concert with the policy objective of maximizing the availability of creative works to the public. No adjustment, either upward or downward, is warranted by this factor.] VerDate Mar<15>2010 15:03 May 24, 2013 Jkt 229001 PO 00000 Frm 00030 Fmt 4700 Sfmt 4700 (Crawford).4 The Judges find no persuasive evidence to suggest that Music Choice has not operated successfully and received a fair income under the existing statutory rate, [nor any to suggest that Music Choice would not continue to do so under a rate that was modestly above the current rate (i.e., the 8.0% (2013) and 8.5% (2014– 2017) rates that the Judges adopt for the upcoming rate period)].5 With respect to fair return to the copyright owner, the Judges’ examination is whether the existing statutory rate has produced a fair return with respect to the usage of sound recordings. During the current licensing period, Music Choice provided 46 channels of music programming. Music Choice plans to expand the number of music channels it provides dramatically in the coming licensing term, however, up to 300 channels by the first quarter of 2013. Del Beccaro Corrected WDT at 3–4, PSS Trial Ex. 1; 6/11/12 Tr. 1490:8–16 (Del Beccaro). This expansion will result in a substantial increase in the number of plays of music by Music Choice, even if the ultimate listenership intensity of its licensees’ subscribers cannot be measured. Music Choice provided no evidence, however, to suggest that the planned expansion in usage would result in increased revenues to which the statutory royalty rate is to be applied. Indeed, Music Choice has declared itself to be in a mature market with no expectation of increasing profits. 8/16/12 Tr. 3855:17– 3856:7 (Del Beccaro). Music Choice presented no evidence to suggest that copyright owners would be compensated for the increased usage of their works. Dramatically expanded usage without a corresponding expectation of increased compensation suggests an upward adjustment to the existing statutory rate is warranted. Measurement of the adjustment is not without difficulty because any downstream increases in listenership of subscribers as a result of additional music offerings by Music Choice cannot be readily predicted. It is possible that listenership overall may remain 4 Much was made in the hearing and in closing arguments regarding Dr. Crawford’s supposed use of audited financial data and Dr. Ford’s use of unaudited financial data in an effort to examine ` costs and revenues of the PSS service vis-a-vis Music Choice’s other non-PSS services. The Judges see no superiority to either data set as presented in this proceeding. 5 It is improbable that Music Choice would continue to operate for over 15 years with the considerable losses that it claims. [It is equally improbable that Music Choice would elect to incur the additional costs of adding more music channels unless it anticipated some additional revenue from the expanded service.] E:\FR\FM\28MYR1.SGM 28MYR1 wreier-aviles on DSK5TPTVN1PROD with RULES Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations constant despite the availability of several additional music channels. It is more likely, however, that Music Choice would not make the expansion, and incur the additional expense of doing so, without reasonable expectation that subscribers or advertisers would be more attracted to the expanded offerings, although the Judges have no evidence to suggest that the net increase in listenership (or advertising revenue) would be anything more than modest. SoundExchange refers to prior rate decisions and the application of the fair return/fair income factor by the Judges and their predecessors. SoundExchange asserts that the Judges are looking for a fair return/fair income result that is consistent with reasonable market incomes. SX PFF at ¶ 491, citing SDARS–1, 73 FR 4080, 4095 (Jan. 24, 2008). Referring to testimony by Messrs. Ciongoli and Van Arman, SoundExchange emphasizes how vital statutory royalty income is to copyright owners—both the record labels and the artists, whose share SoundExchange distributes directly. See 6/13/12 Tr. 2138:5–2142:9 (Ciongoli), Van Arman WDT at 4, SX Trial Ex. 77. Although the income from any one statutory license may not be great, SoundExchange cites the aggregate value of income from all of the statutory licenses as vital to the industry. With respect to fair income to the rights user, SoundExchange points to the profit on the consolidated financial statements of Music Choice over the past five years, 2007–2011. The balance of fair return and fair income appears to have been maintained at the current PSS rates. This factor does not argue in favor of drastic cuts or increases in the current rate. Music Choice’s planned increase in usage, however, argues in favor of an increase in the rates going forward to fairly compensate the licensors for the additional performances. The Judges determine, therefore, that a 1% upward adjustment of the benchmark (from 7.5% to 8.5% of Gross Revenues), phased in during the early part of the licensing period, is appropriate to serve the policy of fair return/fair income. [Because the increase is modest and phased in over the first two years of the rate period, the Judges do not believe that the adjusted rates will negatively impact Music Choice’s ability to earn a fair income.] c. Weigh the Relative Roles of Copyright Owners and Copyright Users This policy factor requires that the rates the Judges adopt reflect the relative roles of the copyright owners and copyright users in the product made available with respect to relative VerDate Mar<15>2010 15:03 May 24, 2013 Jkt 229001 creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of markets for creative expression and media for their communication. Music Choice argues that its creative and technological contributions, and capital investments, outweigh those of the record companies. First, Music Choice touts the graphic and informational improvements made to its on-screen channels, noting that what were once blank screens now display significant artist and music information. According to Music Choice, costs for these improvements have exceeded [REDACTED]. Del Beccaro Corrected WDT at 31–32, PSS Trial Ex. 1. Second, Music Choice offers increases in programming, staff size and facilities, along with enhancements to product development and infrastructure. Music Choice estimates that costs for these improvements have exceeded [REDACTED]. Id. Regarding costs and risks, Music Choice points to its lack of profitability and the exit of other PSS from the market as evidence of its continued risk and limited opportunity for profit. Music Choice PFF ¶¶ 512– 520. Finally, with respect to opening new markets, Music Choice touts the PSS market itself for which it remains the standard-bearer in disseminating music to the public through cable television. Id. at ¶ 523. SoundExchange offers little more on the third Section 801(b) factor beyond Dr. Ford’s contention that he saw no evidence to support that Music Choice makes contributions to creativity or availability of music that are beyond those of the music services he included in his benchmarks, and therefore, according to Dr. Ford, the third factor is accounted for in the market. Ford Second Corrected WDT at 21, SX Trial Ex. 79; 6/18/12 Tr. 2849:10–16 (Ford). In considering the third factor, the Judges’ task is not to determine who individually bears the greater risk, incurs the higher cost or makes a greater contribution in the PSS market, and then make individual up or down adjustments to the selected rate based upon some unspecified quantification. Rather, the consideration is whether these elements, taken as a whole, require adjustment to the Judges’ selected benchmark rate of 7.5% [(or to the modestly increased rates of 8.0% and 8.5% that the Judges found warranted under the second Section 801 factor discussed above)]. Upon careful weighing of the evidence, the Judges determine that no adjustment is necessary [under the current statutory rate or under the modestly increased PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 31845 rates that the Judges have selected for the upcoming rate period]. Music Choice’s investments in programming offerings, staff, and facilities, and other related products and services are no doubt impressive, but they have been accomplished under the current rate. As discussed above, Music Choice has already begun to expand its channel offerings and has allocated greater financial resources to its residential audio business. All of these undertakings, plus the investments made and costs incurred to date have been made under the existing rate, and the Judges have no persuasive evidence to suggest that these contributions have not been accounted for in the current rate. [Moreover, the Judges find no evidence to suggest that the modest increase to 8.5% (phased in over the first two years of the rate period) that the Judges adopt will negatively impact Music Choice’s continued operations in a material way.] On the other side of the ledger, SoundExchange has not offered any persuasive evidence that the existing rate has prevented the music industry from making significant contributions to or investments in the PSS market or that those contributions are not already accounted for in the current rate. [The modest increases that the Judges adopt would make any such argument even less persuasive.] Therefore, no adjustment[, either upward or downward, from the 8.0% and 8.5% rates that the Judges adopt] is warranted under this factor. d. Minimize Disruptive Impact Of the four Section 801(b) factors, the parties devoted most of their attention to the last one: minimizing disruption on the structure of the industries and on generally prevailing industry practices. This is perhaps not surprising, given the role this factor played in SDARS–I in adjusting the benchmark rates upon which the Judges relied to set the royalty fees. See SDARS–I, 73 FR at 4097–98. [The Judges’ analysis of the disruption factor is confined to the current statutory rate of 7.5% and to the phased-in rate of 8.5% (including the 8.0% rate for the first year of the rate period) that the Judges found warranted under the second Section 801(b) factor, discussed above.] SoundExchange argues that the current rate is disruptive to the music industry. Dr. Ford testified that ‘‘the current practice of applying an exceedingly low rate to deflated revenues is disruptive of industry structure, especially where there are identical services already paying a higher rate.’’ Ford Second Corrected E:\FR\FM\28MYR1.SGM 28MYR1 wreier-aviles on DSK5TPTVN1PROD with RULES 31846 Federal Register / Vol. 78, No. 102 / Tuesday, May 28, 2013 / Rules and Regulations WDT at 23, SX Trial Ex. 79. This results, according to Dr. Ford, in a tilting of the competitive field for music services in favor of Music Choice, thereby disrupting the natural evolution of the music delivery industry. Dr. Ford, however, concedes that the PSS market has unique and distinctive features that distinguish it from other types of music services, thereby substantially reducing the likelihood that the PSS and other music services would be viewed as substitutes for one another. Further, Dr. Ford failed to present any empirical evidence demonstrating a likelihood of migration of customers from music services paying higher royalty fees to the PSS as a result of his perceived royalty imbalance. Dr. Ford’s conclusion that the current rate paid by the PSS for the Section 114 license has caused a disruption to the music industry (or would likely do so in the upcoming license period) is mere conjecture. Music Choice also contends that the current rate is disruptive. The Judges find its argument weak and unsubstantiated. The test for determining disruption to an industry, announced by the Judges in SDARS–I, is whether the selected rate directly produces an adverse impact that is substantial, immediate, and irreversible in the short-run. SDARS–I, 73 FR 4097. The current rate has been in place for some time and, despite Music Choice’s protestations that it has never been profitable, it continues to operate and continues to increase its expenditures by expanding and enhancing its services in the face of the supposedly disruptive current royalty rate. Music Choice’s argument that DMX’s bankruptcy and Muzak’s decision to limit its participation in the PSS market are evidence of the onerous burden of the current rate are without support. Music Choice has failed to put forward any evidence demonstrating a causal relationship between the actions of those services and the current PSS royalty rate. In sum, the Judges are not persuaded by the record testimony or the arguments of the parties that the current PSS rate is disruptive to a degree that would warrant an adjustment, either up or down. [The modest, phased-in increase to 8.5% that the Judges adopt does nothing to change this conclusion. Neither SoundExchange nor Music Choice VerDate Mar<15>2010 15:03 May 24, 2013 Jkt 229001 presented any credible evidence to suggest that the adjusted rates of 8.0% and 8.5% that the Judges adopt would directly produce an adverse impact that is substantial, immediate, and irreversible in the short-run. Therefore, the Judges find that no adjustment to the adopted rates is warranted under the fourth Section 801(b) factor.] So ordered. Suzanne M. Barnett, Chief Copyright Royalty Judge. Richard C. Strasser, Copyright Royalty Judge. Dated: April 30, 2013. Dissenting Opinion of Copyright Royalty Judge Roberts For the second time in this proceeding, the majority alters its evaluation of the evidence and explanation of its reasoning in determining royalty rates,6 this time under the rubric of 17 U.S.C. 803(c)(4). The majority’s amendments do not comply with the terms and conditions of that section; and no other provision in the statute grants authority, at this stage of the proceeding, for making them. Section 803(c)(4) of the Copyright Act, 17 U.S.C., entitled ‘‘Continuing Jurisdiction,’’ states that ‘‘The Copyright Royalty Judges may issue an amendment to a written determination to correct any technical or clerical errors in the determination or to modify the terms, but not the rates, of royalty payments in response to unforeseen circumstances that would frustrate the proper implementation of such determination.’’ This provision and Section 803(c)(2), regarding motions for rehearing, are the only grants of authority for altering or amending written determinations. The language of Section 803(c)(4) is very precise. Amendments can be made to a determination only if (1) they are ‘‘technical’’ or ‘‘clerical’’; and (2) they are in response to unforeseen circumstances that would frustrate the proper implementation of such determination. The majority’s issuance 6 The first alteration in the reasoning supporting the majority’s determination of royalty rates occurred in its denial of the motions for rehearing filed by SoundExchange, Inc. and Sirius XM. See Order Denying Motions for Rehearing, Docket No. 2011–1 CRB PSS/Satellite II (Jan. 30, 2013). PO 00000 Frm 00032 Fmt 4700 Sfmt 9990 of amendments here fails on both accounts. First, the amendments are in no way ‘‘technical’’ or ‘‘clerical.’’ The majority reconsiders both its evidentiary and legal analysis of the Section 801(b) factors as applied to the preexisting subscription services (‘‘PSS’’) in light of the Register of Copyrights’ finding of legal error in the majority’s analysis. Review of Copyright Royalty Judges Determination, Notice, 78 FR 22913 (Apr. 17, 2013). Recasting evidentiary and legal analysis is by no means ‘‘technical’’ or ‘‘clerical,’’ and I can find nothing in either the plain language of Section 804(c)(4) or its legislative history that supports such a classification. Furthermore, even if the majority is accurate in its conclusion that the amendments to the written determination are ‘‘technical,’’ the amendments do not satisfy the second criterion of Section 803(c)(4), which is that they can be made only if the ‘‘proper implementation of such determination’’ would be frustrated without them.7 The majority’s amendments are not at all necessary to the implementation of PSS rates, for they do not change them (which Section 804(c)(4) expressly forbids) nor do they alter, correct, or clarify any of the terms or conditions of payment or reporting. What the amendments do seek to accomplish is to bolster the legal rationale behind the choice of the rates, presumably to raise the chances of success of the determination on appeal. This is not a permitted or intended purpose for making amendments under Section 803(c)(4), and the majority is without authority to make them. I, therefore, dissent. Dated: April 30, 2013 William J. Roberts, Jr., Copyright Royalty Judge. Dated: April 30, 2013 Suzanne M. Barnett, Chief Copyright Royalty Judge. Approved by: James H. Billington, Librarian of Congress. [FR Doc. 2013–12493 Filed 5–24–13; 8:45 am] BILLING CODE 1410–72–P 7 The majority provides no discussion or analysis of this criterion. E:\FR\FM\28MYR1.SGM 28MYR1

Agencies

[Federal Register Volume 78, Number 102 (Tuesday, May 28, 2013)]
[Rules and Regulations]
[Pages 31842-31846]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12493]


=======================================================================
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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 382

[Docket No. 2011-1 CRB PSS/Satellite II]


Determination of Rates and Terms for Preexisting Subscription 
Services and Satellite Digital Audio Radio Services

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final determination; modification.

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SUMMARY: The Copyright Royalty Judges announce a modification to their 
final determination of rates and terms for the

[[Page 31843]]

digital transmission of sound recordings and the reproduction of 
ephemeral recordings by preexisting subscription services and 
preexisting satellite digital audio radio services for the period 
beginning January 1, 2013, and ending on December 31, 2017. The 
modification addresses an error identified by the Register of 
Copyrights concerning the resolution of a material question of 
substantive law relating to the rates and terms set for preexisting 
subscription services.

FOR FURTHER INFORMATION CONTACT: Gina Giuffreda, Attorney Advisor. 
Telephone: (202) 707-7658. Telefax: (202) 252-3423.

SUPPLEMENTARY INFORMATION: The Copyright Royalty Judges (``Judges'') 
issued a Final Determination in the captioned proceeding on February 
14, 2013. The Librarian of Congress published the Final Determination 
on April 17, 2013, as required by 17 U.S.C. 803(c)(6).\1\ See 78 FR 
23054. The Register of Copyrights (``Register'') may review any 
determination by the Judges for legal error in resolution of a material 
issue of substantive law under the Copyright Act (``Act'') found in 
title 17, United States Code. 17 U.S.C. 802(f)(1)(D). If the Register 
finds such legal error, her decision identifying and correcting the 
error is published in the Federal Register, along with the Final 
Determination. Although the Register's decision does not change the 
rates and terms set in the Final Determination, her opinion is binding 
on the Judges prospectively. Section 803(c)(4) of the Copyright Act 
authorizes the Judges to issue amendments to a written determination to 
correct any technical or clerical errors in the determination or to 
modify the terms, but not the rates, of royalty payments in response to 
unforeseen circumstances that would frustrate the proper implementation 
of such determination.
---------------------------------------------------------------------------

    \1\ The Final Determination was not a unanimous decision. Judge 
William Roberts issued a dissenting opinion on the same date; his 
dissent was published with the Final Determination. See 78 FR 23075-
96 (Apr. 17. 2013). References to the ``Judges'' in this Amendment 
are references to the Judges issuing the majority determination.
---------------------------------------------------------------------------

    In the Final Determination, the Judges found that the current 
statutory rate of 7.5% of Gross Revenues for Pre-existing Subscription 
Services (``PSS'') was the appropriate rate upon which to consider 
whether a policy adjustment was warranted under the factors set forth 
in Section 801(b) of the Copyright Act. In applying those factors as 
required by the statute, the Judges determined that, under the second 
of those factors (afford the copyright owner a fair return for his or 
her creative work and the copyright user a fair income under existing 
economic conditions) a 1 percent upward adjustment (phased in over the 
first two years of the rate period) from the current rate was 
warranted. The Register found that it was legal error for the Judges 
not to then apply (or reapply as the case may be) the Section 801(b) 
factors with respect to those adjusted rates. See 78 FR 22913 (Apr. 17, 
2013). After careful consideration, the Judges find that such a 
supplemental review of the application of the Section 801(b) factors is 
technical in nature and is therefore amenable to correction pursuant to 
the Judges' authority under Section 803(c)(4) of the Copyright Act. In 
this Amendment, the Judges do not revisit any of the analysis in the 
Determination relating to the base rate; rather, they articulate the 
outcome of application of the Section 801(b) factors to the prospective 
rates--an application cited by the Register of Copyrights as missing in 
the Determination.\2\
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    \2\ The Judges believe their interpretation of Section 803(c)(4) 
is not only consistent with the flexibility that Congress intended 
to grant the Judges to correct their own determinations, but also 
consistent with the Register of Copyright's application of the term 
``technical amendment'' in the copyright royalty context. See 61 FR 
63715 (Dec. 2, 1996) (in which the Library adopted a broad range of 
``non-substantive technical amendments'' to address ``identified 
problems'' in the regulations governing CARP proceedings).
---------------------------------------------------------------------------

    The Judges, therefore, issue this Technical Amendment to the Final 
Determination. The Amendment is confined to Section V.A.3.c.1. of the 
Final Determination. All other portions of the Final Determination, 
including the rates and terms, are unchanged. The amended text, which 
is bracketed, appears below.

1. Application of Section 801(b) Factors

    Based on the record evidence in this proceeding, the Judges have 
determined that the benchmark evidence submitted by Music Choice and 
SoundExchange has failed to provide the means for determining a 
reasonable rate for the PSS, other than, perhaps to indicate the 
extreme ends of the range of reasonable rates. The testimony and 
argument of Music Choice demonstrates nothing more than to show that a 
reasonable rate cannot be as low as the rates (i.e., [REDACTED] of 
Music Choice's revenues) paid by Music Choice to the three performing 
rights societies for the public performance of musical works. The 
benchmark testimony of SoundExchange is of even lesser value. The 
proposed rate of 15% for the PSS for the first year of the licensing 
period, deemed reasonable by Dr. Ford (at least in the beginning of the 
licensing period), stands as the upper bound of the range of reasonable 
rates. Within that range is the current 7.5% rate. On the record before 
us, the Judges are persuaded that the current rate is neither too high, 
too low, nor otherwise inappropriate, subject to consideration of the 
Section 801(b) factors discussed below.\3\
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    \3\ [As discussed below, the Judges conclude that the second 
Section 801(b) factor (afford the copyright owner a fair return for 
his or her creative work and the copyright user a fair income under 
existing economic conditions) warrants a 1 percent upward adjustment 
(to 8.5% phased in from 8.0% in 2013 to 8.5% for 2014 through 2017) 
from the current statutory rate of 7.5%. In her April 9, 2013, 
decision, the Register of Copyrights found that the Judges erred by 
not considering the 8.0% and 8.5% rates under the Section 801(b) 
factors. After carefully reviewing the evidence, the Judges conclude 
that none of the Section 801(b) factors warrants an adjustment, 
either upward or downward, from the 8.5% rate that the Judges 
selected for the PSS for 2014 through 2017, or for the 8.0% rate 
that the Judges selected for 2013.]
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a. Maximize Availability of Creative Works

    To argue for an adjustment in its favor under the first Section 
801(b) factor, Music Choice touts that it is a music service that is 
available in over 54 million homes, with 40 million customers using the 
service every month. 8/16/12 Tr. 3878:3 (Del Beccaro); 6/11/12 Tr. 
1462:5-11, 1486:19-1487:2 (Del Beccaro). According to Music Choice, 
channel offerings have increased through the years, and they are 
curated by experts in a variety of music genres. Del Beccaro Corrected 
WDT at 3, 24, PSS Trial Ex. 1. Music Choice also highlights recent 
developments in technology that enable Music Choice to display original 
on-screen content identifying pertinent information regarding the songs 
and artists being performed. Id. at 24, MC 23; Williams WDT at 12, PSS 
Trial Ex. 3; 6/11/12 Tr. 1461:14-1462: 1, 1491:2-12 (Del Beccaro). 
According to Music Choice, these elements, along with certain 
promotional efforts that Music Choice makes on behalf of artists, 
support a downward adjustment in the rates. In any event, an upward 
adjustment in the rates, argues Music Choice, would not affect the 
record companies' bottom-line because PSS royalties are not a material 
revenue source for record companies. Music Choice PFF ]] 409-417.
    SoundExchange submits that a market rate incorporates 
considerations under the first Section 801(b) factor, citing the 
decision in SDARS-I, and that if PSS rates turn out to be too high and 
drive Music Choice from the market, presumably consumers will shift to 
alternative providers of digital music

[[Page 31844]]

where higher royalty payments are more likely for record companies. 
Ford Second Corrected WDT at 19-21, SX Trial Ex. 79.
    The current PSS rate is not a market rate, so market forces cannot 
be presumed to determine the maximum amount of product availability 
consistent with the efficient use of resources. See SDARS-I, 73 FR 
4094. However, the testimony demonstrates that Music Choice has not, 
under the current rate, reduced its music offerings or contemplated 
exiting the business; in fact, it will be expanding its channel 
offerings in the near term. Del Becarro Corrected WDT at 3, 24, PSS 
Trial Ex. 1; see also 6/11/12 Tr. 1460:21-1461:1 (Del Beccaro). The 
Judges find no credible evidence in the record to suggest that the 
output of music from record labels has been impacted negatively as a 
result of the current rate. The record shows no persuasive evidence 
that a higher PSS royalty rate would necessarily result in increased 
output of music by the record companies, nor that a lower rate would 
necessarily further stimulate Music Choice's current and planned 
offerings. In sum, the policy goal of maximizing creative works to the 
public is reasonably reflected in the current rate and, therefore, no 
adjustment is necessary.
    [Similarly, the Judges' conclusion with respect to the first 
Section 801(b) factor is unchanged even when weighed against the modest 
increases to 8.0% for 2013 and to 8.5% for 2014 through 2017 that the 
Judges adopt for the upcoming rate period. Given the Judges' 
determination on other grounds to increase the rate by only one 
percentage point above the current statutory rate (phased in over the 
first two years of the rate period), the Judges find that that minimal 
increase will not adversely affect Music Choice's planned expansion nor 
will it provide a material incentive to artists and record companies 
sufficient to impact the availability of creative works to the public. 
In sum, the modest increase ordered by the Judges is in concert with 
the policy objective of maximizing the availability of creative works 
to the public. No adjustment, either upward or downward, is warranted 
by this factor.]

b. Afford Fair Return/Fair Income Under Existing Market Conditions

    Music Choice submits that the Judges need not worry about the 
impact of a low royalty rate on the fair return to record companies and 
artists for use of their works because royalties from the PSS market 
are so small as to be virtually inconsequential to companies whose 
principal business is the sale of CDs and digital downloads. Music 
Choice PFF ]] 420-430. With respect to Music Choice's ability to earn a 
fair income, however, Music Choice argues that it is not profitable 
under the current 7.5% rate. Mr. Del Beccaro testified that its average 
revenue per customer for its residential audio business has been on the 
decline since the early 1990's, down from $1.00 per customer/per month 
to [REDACTED] per customer/per month currently. Del Beccaro Corrected 
WDT at 40, PSS Trial Ex. 1. He further testified that after 15 years of 
paying a PSS statutory rate between 6.5% and 7.5% Music Choice has not 
become profitable on a cumulative basis and is not projected to become 
so within the foreseeable future. Id. at 42. Music Choice represents 
that it has a cumulative loss at the end of 2011 of [REDACTED], 
projected to grow to [REDACTED] in 2012 and continue to increase 
throughout the 2013-17 license period. Del Beccaro Corrected WRT at MC 
69 at 1 and MC 70 at 1, PSS Trial Ex. 21. These losses lead Music 
Choice to conclude that it has not generated a reasonable return on 
capital under the existing rates. Music Choice PFF ]] 442-43.
    Music Choice's claims of unprofitability under the existing PSS 
rate come from the oblique presentation of its financial data and a 
combining of revenues and expenses from other aspects of its business. 
The appropriate business to analyze for purposes of this proceeding is 
the residential audio service offered by Music Choice, the subject of 
the Section 114 license. Music Choice, however, reports costs and 
revenues for its residential audio business with those of its 
commercial business, which is not subject to the statutory license. 
This aggregation of the data, which Music Choice acknowledges cannot be 
disaggregated, see 6/11/12 Tr. 1572:3-1576:2 (Del Beccaro), masks the 
financial performance of the PSS business. As a consolidated business, 
Music Choice has had significantly positive operating income between 
2007 and 2011 and made profit distributions to its partners since 2009. 
Ford Amended/Corrected WRT at SX Ex. 362-RR, p. 3 (PSS--002739), SX 
Trial Ex. 244; SX Trial Ex. 64 at 3 (PSS--002715); SX Trial Ex. 233 at 
3 (PSS--366020). Dr. Crawford's effort to extract costs and revenues 
from this data for the PSS service alone for use in his surplus 
analysis cannot be credited because of his lack of familiarity with the 
data's source. 6/13/12 Tr. 1890:15-1891:10 (Crawford).\4\ The Judges 
find no persuasive evidence to suggest that Music Choice has not 
operated successfully and received a fair income under the existing 
statutory rate, [nor any to suggest that Music Choice would not 
continue to do so under a rate that was modestly above the current rate 
(i.e., the 8.0% (2013) and 8.5% (2014-2017) rates that the Judges adopt 
for the upcoming rate period)].\5\
---------------------------------------------------------------------------

    \4\ Much was made in the hearing and in closing arguments 
regarding Dr. Crawford's supposed use of audited financial data and 
Dr. Ford's use of unaudited financial data in an effort to examine 
costs and revenues of the PSS service vis-[agrave]-vis Music 
Choice's other non-PSS services. The Judges see no superiority to 
either data set as presented in this proceeding.
    \5\ It is improbable that Music Choice would continue to operate 
for over 15 years with the considerable losses that it claims. [It 
is equally improbable that Music Choice would elect to incur the 
additional costs of adding more music channels unless it anticipated 
some additional revenue from the expanded service.]
---------------------------------------------------------------------------

    With respect to fair return to the copyright owner, the Judges' 
examination is whether the existing statutory rate has produced a fair 
return with respect to the usage of sound recordings. During the 
current licensing period, Music Choice provided 46 channels of music 
programming. Music Choice plans to expand the number of music channels 
it provides dramatically in the coming licensing term, however, up to 
300 channels by the first quarter of 2013. Del Beccaro Corrected WDT at 
3-4, PSS Trial Ex. 1; 6/11/12 Tr. 1490:8-16 (Del Beccaro). This 
expansion will result in a substantial increase in the number of plays 
of music by Music Choice, even if the ultimate listenership intensity 
of its licensees' subscribers cannot be measured. Music Choice provided 
no evidence, however, to suggest that the planned expansion in usage 
would result in increased revenues to which the statutory royalty rate 
is to be applied. Indeed, Music Choice has declared itself to be in a 
mature market with no expectation of increasing profits. 8/16/12 Tr. 
3855:17-3856:7 (Del Beccaro).
    Music Choice presented no evidence to suggest that copyright owners 
would be compensated for the increased usage of their works. 
Dramatically expanded usage without a corresponding expectation of 
increased compensation suggests an upward adjustment to the existing 
statutory rate is warranted. Measurement of the adjustment is not 
without difficulty because any downstream increases in listenership of 
subscribers as a result of additional music offerings by Music Choice 
cannot be readily predicted. It is possible that listenership overall 
may remain

[[Page 31845]]

constant despite the availability of several additional music channels. 
It is more likely, however, that Music Choice would not make the 
expansion, and incur the additional expense of doing so, without 
reasonable expectation that subscribers or advertisers would be more 
attracted to the expanded offerings, although the Judges have no 
evidence to suggest that the net increase in listenership (or 
advertising revenue) would be anything more than modest.
    SoundExchange refers to prior rate decisions and the application of 
the fair return/fair income factor by the Judges and their 
predecessors. SoundExchange asserts that the Judges are looking for a 
fair return/fair income result that is consistent with reasonable 
market incomes. SX PFF at ] 491, citing SDARS-1, 73 FR 4080, 4095 (Jan. 
24, 2008). Referring to testimony by Messrs. Ciongoli and Van Arman, 
SoundExchange emphasizes how vital statutory royalty income is to 
copyright owners--both the record labels and the artists, whose share 
SoundExchange distributes directly. See 6/13/12 Tr. 2138:5-2142:9 
(Ciongoli), Van Arman WDT at 4, SX Trial Ex. 77. Although the income 
from any one statutory license may not be great, SoundExchange cites 
the aggregate value of income from all of the statutory licenses as 
vital to the industry. With respect to fair income to the rights user, 
SoundExchange points to the profit on the consolidated financial 
statements of Music Choice over the past five years, 2007-2011.
    The balance of fair return and fair income appears to have been 
maintained at the current PSS rates. This factor does not argue in 
favor of drastic cuts or increases in the current rate. Music Choice's 
planned increase in usage, however, argues in favor of an increase in 
the rates going forward to fairly compensate the licensors for the 
additional performances.
    The Judges determine, therefore, that a 1% upward adjustment of the 
benchmark (from 7.5% to 8.5% of Gross Revenues), phased in during the 
early part of the licensing period, is appropriate to serve the policy 
of fair return/fair income. [Because the increase is modest and phased 
in over the first two years of the rate period, the Judges do not 
believe that the adjusted rates will negatively impact Music Choice's 
ability to earn a fair income.]

c. Weigh the Relative Roles of Copyright Owners and Copyright Users

    This policy factor requires that the rates the Judges adopt reflect 
the relative roles of the copyright owners and copyright users in the 
product made available with respect to relative creative contribution, 
technological contribution, capital investment, cost, risk, and 
contribution to the opening of markets for creative expression and 
media for their communication. Music Choice argues that its creative 
and technological contributions, and capital investments, outweigh 
those of the record companies. First, Music Choice touts the graphic 
and informational improvements made to its on-screen channels, noting 
that what were once blank screens now display significant artist and 
music information. According to Music Choice, costs for these 
improvements have exceeded [REDACTED]. Del Beccaro Corrected WDT at 31-
32, PSS Trial Ex. 1. Second, Music Choice offers increases in 
programming, staff size and facilities, along with enhancements to 
product development and infrastructure. Music Choice estimates that 
costs for these improvements have exceeded [REDACTED]. Id. Regarding 
costs and risks, Music Choice points to its lack of profitability and 
the exit of other PSS from the market as evidence of its continued risk 
and limited opportunity for profit. Music Choice PFF ]] 512-520. 
Finally, with respect to opening new markets, Music Choice touts the 
PSS market itself for which it remains the standard-bearer in 
disseminating music to the public through cable television. Id. at ] 
523.
    SoundExchange offers little more on the third Section 801(b) factor 
beyond Dr. Ford's contention that he saw no evidence to support that 
Music Choice makes contributions to creativity or availability of music 
that are beyond those of the music services he included in his 
benchmarks, and therefore, according to Dr. Ford, the third factor is 
accounted for in the market. Ford Second Corrected WDT at 21, SX Trial 
Ex. 79; 6/18/12 Tr. 2849:10-16 (Ford).
    In considering the third factor, the Judges' task is not to 
determine who individually bears the greater risk, incurs the higher 
cost or makes a greater contribution in the PSS market, and then make 
individual up or down adjustments to the selected rate based upon some 
unspecified quantification. Rather, the consideration is whether these 
elements, taken as a whole, require adjustment to the Judges' selected 
benchmark rate of 7.5% [(or to the modestly increased rates of 8.0% and 
8.5% that the Judges found warranted under the second Section 801 
factor discussed above)]. Upon careful weighing of the evidence, the 
Judges determine that no adjustment is necessary [under the current 
statutory rate or under the modestly increased rates that the Judges 
have selected for the upcoming rate period].
    Music Choice's investments in programming offerings, staff, and 
facilities, and other related products and services are no doubt 
impressive, but they have been accomplished under the current rate. As 
discussed above, Music Choice has already begun to expand its channel 
offerings and has allocated greater financial resources to its 
residential audio business. All of these undertakings, plus the 
investments made and costs incurred to date have been made under the 
existing rate, and the Judges have no persuasive evidence to suggest 
that these contributions have not been accounted for in the current 
rate. [Moreover, the Judges find no evidence to suggest that the modest 
increase to 8.5% (phased in over the first two years of the rate 
period) that the Judges adopt will negatively impact Music Choice's 
continued operations in a material way.]
    On the other side of the ledger, SoundExchange has not offered any 
persuasive evidence that the existing rate has prevented the music 
industry from making significant contributions to or investments in the 
PSS market or that those contributions are not already accounted for in 
the current rate. [The modest increases that the Judges adopt would 
make any such argument even less persuasive.] Therefore, no 
adjustment[, either upward or downward, from the 8.0% and 8.5% rates 
that the Judges adopt] is warranted under this factor.

d. Minimize Disruptive Impact

    Of the four Section 801(b) factors, the parties devoted most of 
their attention to the last one: minimizing disruption on the structure 
of the industries and on generally prevailing industry practices. This 
is perhaps not surprising, given the role this factor played in SDARS-I 
in adjusting the benchmark rates upon which the Judges relied to set 
the royalty fees. See SDARS-I, 73 FR at 4097-98. [The Judges' analysis 
of the disruption factor is confined to the current statutory rate of 
7.5% and to the phased-in rate of 8.5% (including the 8.0% rate for the 
first year of the rate period) that the Judges found warranted under 
the second Section 801(b) factor, discussed above.]
    SoundExchange argues that the current rate is disruptive to the 
music industry. Dr. Ford testified that ``the current practice of 
applying an exceedingly low rate to deflated revenues is disruptive of 
industry structure, especially where there are identical services 
already paying a higher rate.'' Ford Second Corrected

[[Page 31846]]

WDT at 23, SX Trial Ex. 79. This results, according to Dr. Ford, in a 
tilting of the competitive field for music services in favor of Music 
Choice, thereby disrupting the natural evolution of the music delivery 
industry. Dr. Ford, however, concedes that the PSS market has unique 
and distinctive features that distinguish it from other types of music 
services, thereby substantially reducing the likelihood that the PSS 
and other music services would be viewed as substitutes for one 
another. Further, Dr. Ford failed to present any empirical evidence 
demonstrating a likelihood of migration of customers from music 
services paying higher royalty fees to the PSS as a result of his 
perceived royalty imbalance. Dr. Ford's conclusion that the current 
rate paid by the PSS for the Section 114 license has caused a 
disruption to the music industry (or would likely do so in the upcoming 
license period) is mere conjecture.
    Music Choice also contends that the current rate is disruptive. The 
Judges find its argument weak and unsubstantiated. The test for 
determining disruption to an industry, announced by the Judges in 
SDARS-I, is whether the selected rate directly produces an adverse 
impact that is substantial, immediate, and irreversible in the short-
run. SDARS-I, 73 FR 4097. The current rate has been in place for some 
time and, despite Music Choice's protestations that it has never been 
profitable, it continues to operate and continues to increase its 
expenditures by expanding and enhancing its services in the face of the 
supposedly disruptive current royalty rate. Music Choice's argument 
that DMX's bankruptcy and Muzak's decision to limit its participation 
in the PSS market are evidence of the onerous burden of the current 
rate are without support. Music Choice has failed to put forward any 
evidence demonstrating a causal relationship between the actions of 
those services and the current PSS royalty rate. In sum, the Judges are 
not persuaded by the record testimony or the arguments of the parties 
that the current PSS rate is disruptive to a degree that would warrant 
an adjustment, either up or down.
    [The modest, phased-in increase to 8.5% that the Judges adopt does 
nothing to change this conclusion. Neither SoundExchange nor Music 
Choice presented any credible evidence to suggest that the adjusted 
rates of 8.0% and 8.5% that the Judges adopt would directly produce an 
adverse impact that is substantial, immediate, and irreversible in the 
short-run. Therefore, the Judges find that no adjustment to the adopted 
rates is warranted under the fourth Section 801(b) factor.]

    So ordered.
Suzanne M. Barnett,
Chief Copyright Royalty Judge.
Richard C. Strasser,
Copyright Royalty Judge.
    Dated: April 30, 2013.

Dissenting Opinion of Copyright Royalty Judge Roberts

    For the second time in this proceeding, the majority alters its 
evaluation of the evidence and explanation of its reasoning in 
determining royalty rates,\6\ this time under the rubric of 17 U.S.C. 
803(c)(4). The majority's amendments do not comply with the terms and 
conditions of that section; and no other provision in the statute 
grants authority, at this stage of the proceeding, for making them.
---------------------------------------------------------------------------

    \6\ The first alteration in the reasoning supporting the 
majority's determination of royalty rates occurred in its denial of 
the motions for rehearing filed by SoundExchange, Inc. and Sirius 
XM. See Order Denying Motions for Rehearing, Docket No. 2011-1 CRB 
PSS/Satellite II (Jan. 30, 2013).
---------------------------------------------------------------------------

    Section 803(c)(4) of the Copyright Act, 17 U.S.C., entitled 
``Continuing Jurisdiction,'' states that ``The Copyright Royalty Judges 
may issue an amendment to a written determination to correct any 
technical or clerical errors in the determination or to modify the 
terms, but not the rates, of royalty payments in response to unforeseen 
circumstances that would frustrate the proper implementation of such 
determination.'' This provision and Section 803(c)(2), regarding 
motions for rehearing, are the only grants of authority for altering or 
amending written determinations. The language of Section 803(c)(4) is 
very precise. Amendments can be made to a determination only if (1) 
they are ``technical'' or ``clerical''; and (2) they are in response to 
unforeseen circumstances that would frustrate the proper implementation 
of such determination. The majority's issuance of amendments here fails 
on both accounts. First, the amendments are in no way ``technical'' or 
``clerical.'' The majority reconsiders both its evidentiary and legal 
analysis of the Section 801(b) factors as applied to the preexisting 
subscription services (``PSS'') in light of the Register of Copyrights' 
finding of legal error in the majority's analysis. Review of Copyright 
Royalty Judges Determination, Notice, 78 FR 22913 (Apr. 17, 2013). 
Recasting evidentiary and legal analysis is by no means ``technical'' 
or ``clerical,'' and I can find nothing in either the plain language of 
Section 804(c)(4) or its legislative history that supports such a 
classification.
    Furthermore, even if the majority is accurate in its conclusion 
that the amendments to the written determination are ``technical,'' the 
amendments do not satisfy the second criterion of Section 803(c)(4), 
which is that they can be made only if the ``proper implementation of 
such determination'' would be frustrated without them.\7\ The 
majority's amendments are not at all necessary to the implementation of 
PSS rates, for they do not change them (which Section 804(c)(4) 
expressly forbids) nor do they alter, correct, or clarify any of the 
terms or conditions of payment or reporting. What the amendments do 
seek to accomplish is to bolster the legal rationale behind the choice 
of the rates, presumably to raise the chances of success of the 
determination on appeal. This is not a permitted or intended purpose 
for making amendments under Section 803(c)(4), and the majority is 
without authority to make them. I, therefore, dissent.
---------------------------------------------------------------------------

    \7\ The majority provides no discussion or analysis of this 
criterion.

---------------------------------------------------------------------------
Dated: April 30, 2013

William J. Roberts, Jr.,

Copyright Royalty Judge.

Dated: April 30, 2013

Suzanne M. Barnett,

Chief Copyright Royalty Judge.

Approved by:

James H. Billington,

Librarian of Congress.
[FR Doc. 2013-12493 Filed 5-24-13; 8:45 am]
BILLING CODE 1410-72-P