12 August 2020CopyrightMuireann Bolger

Amazon, Google, Spotify win challenge to royalty rates hike

In a victory for music streaming providers Amazon, Google, Spotify and Pandora Media, the  US Circuit Court for the District of Columbia has approved a challenge to royalty rates they were ordered to pay by the  US Copyright Royalty Board.

In a  decision handed down on August 7, the court found the board failed to give notice or to sufficiently explain its decision making when it ordered streaming services to pay “significantly higher” rates to the National Music Publishers’ Association and the Nashville Songwriters Association International. The circuit court affirmed the appeal in part, vacating and remanding further proceedings back to the board.

The board introduces new proceedings every five years to set the royalty rates and terms for  copyright protected music. In January, 2016, the board initiated proceedings to determine the royalty rates and terms between January 1 2018, to December 31 2022.

But the streaming providers and rights owners were unable to agree so the board adjudicated the rates and terms. In January 2019, the board issued its final decision, which held that a phasing in of a 15.1% revenue rate and a 26.2% total content cost rate over five years was appropriate.

The streaming services appealed this decision, challenging the board’s rate structure and the specific rates. The copyright owners also appealed, arguing they never officially agreed to the rate structure.

The circuit court dismissed the arguments of the copyright owners but upheld the arguments of the streaming providers, finding that the uncapping of the total content cost across all categories leaves the streaming services providers exposed to potentially large hikes in the mechanical licence royalties they must pay.

It also pointed out that the board not only stripped away the total content cost caps, but also significantly hiked both the revenue rate and the total content cost rates the streaming services would have to pay, increasing the revenue rate by 44% relative to the preexisting rates, from 10.5% for most categories to 15.1%.

In 2011, the board initiated its second mechanical licence ratemaking proceeding known as ‘Phonorecords II’. The streaming services argued that the board failed to reasonably explain its rejection of the Phonorecords II settlement as a benchmark for its 2016 proceedings, which the circuit court upheld. The court also agreed with the streaming services’ objection to the board’s “late-in-the-game” reformulation of how the service revenue for bundled offerings was calculated. The court agreed with the streaming services that the board had failed to explain the legal basis for its rewrite.

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