What CARP means to you

Jan 1, 2003 12:00 PM, By Kevin McNamara, CNE

Broadcasters have been accustomed to paying royalties for playing copyrighted music over the air to Performance Rights Organizations (PRO) such as ASCAP, BMI and SESAC; but, until recently, broadcasting the same program material over the Internet was basically free. On Dec. 4, 2002, President Bush signed into law the Small Webcaster Settlement Act (SWSA), which requires that owners and performers of copyrighted material receive royalties for material broadcast over the Internet. Creating a method that fairly addresses the issue of copyright owner compensation versus the amount paid by webcasters is a complex issue.

Click here to see the breakdown of fees for the various type of streaming services.

When traditional over-the-air broadcasters simply �stream� program audio over the Internet, perhaps as a value-added service to listeners or to extend reach beyond its terrestrial footprint, it is subject to all of the exclusions, limitations and fees defined within this law as a stand-alone webcasting service. The eventual establishment of fees for the transmission of copyrighted digital material was not a surprise to broadcasters; what was a surprise is that they would need to pay on a per-performance (song) basis rather than a simple percentage of gross revenues, such as that used by the PROs, increasing the cost to secure rights to stream audio over the Internet approximately three times that of over-the-air.

Some history

The push to maintain copyrights for materials broadcast over the Internet began in 1995 when congress passed the Digital Performance Right in Sound Recordings Act (DPRA), which permitted owners of copyrighted material to be compensated for broadcasting performances over the Internet, primarily dealing with subscription-based services. In 1998, the Digital Millennium Copyright Act (DMCA) broadened the scope of the DPRA to include the non-subscription services typical of webcasting services currently broadcasting over the Internet.

The DMCA provided for two types of licensing structures, voluntary and statutory, which must be issued to entities engaged in broadcasting copyrighted digital material.

Voluntary licenses are generally issued directly by the owners of the copyrighted material based on an agreement between the owners of the material and the entity desiring to make the material available over a digital transmission medium, such as the Internet.

A statutory license is required for a broadcaster to stream a program audio over the Internet. Unlike the voluntary license, where agreements are made directly between the performer and webcaster, statutory licenses are based on a fixed-cost model that defines a payment structure based on the number of performances (songs) broadcast and a royalty distribution scheme that includes payments to the copyright owner, the performing artist, the American Federation of Musicians (AFM) and the American Federation of Television and Radio Artists (AFTRA).

Taking into account the nature of digital transmissions, the DMCA also establishes a an ephemeral license that addresses digital copies of copyrighted material which reside on the memory used to �buffer� or temporarily hold digital program material prior to audio conversion. Broadcasters wishing to stream program audio need to pay a fee for both licenses.

Enter CARP

Because an industry-wide agreement could not be reached in the case of statutory licenses, the U.S. Copyright Office and the Library of Congress ordered that a Copyright Arbitration Royalty Panel (CARP) be established. The CARP proceedings began late in 1998. After a long period of proposals and negotiations between both sides, CARP released a report in early February 2002 recommending rates and terms for statutory licenses.

The fees for webcasting are based on the type of entity. Non-commercial broadcasters pay a much lower rate than commercial entities for retransmission of program audio or up to two channels of copyrighted non-program material, providing it is consistent with the public broadcast mission; if non-commercial broadcasters desire to program three or more channels of audio, they will pay the same rate as commercial broadcasters/webcasters. Digital broadcasts within business establishments are exempt from the performance fee.

All entities are still required to pay ephemeral license fees based on 9 percent of the calculated performance fee. See Table 1 for details.

Required reporting

Since the licensing fees are determined on a �per performance� basis, it will be necessary to capture and report a significant amount of data for each performance. The software for many digital audio storage/playback systems will need to be upgraded in order to store the additional information and provide a proper report. Perhaps the most difficult aspect of this will be the time required to enter the information for each track on a station’s playlist.

The fees for statutory licenses are retroactive back to October 28, 1998, however the SWSA provides a mechanism that permits the designated receiving agent for the fees, the SoundExchange, to negotiate the past fees prior to December 15, 2002 with individual commercial webcasters and extended the obligation period for non-commercial broadcasters to June 20, 2003.

McNamara is president of Applied Wireless Inc., New Market, MD.