[Federal Register Volume 76, Number 46 (Wednesday, March 9, 2011)]
[Rules and Regulations]
[Pages 13026-13058]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4995]



[[Page 13025]]

Vol. 76

Wednesday,

No. 46

March 9, 2011

Part II





Library of Congress





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Copyright Royalty Board



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37 CFR Part 380



 Digital Performance Right in Sound Recordings and Ephemeral 
Recordings; Final Rule

  Federal Register / Vol. 76 , No. 46 / Wednesday, March 9, 2011 / 
Rules and Regulations  

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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 380

[Docket No. 2009-1 CRB Webcasting III]


Digital Performance Right in Sound Recordings and Ephemeral 
Recordings

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final rule and order.

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SUMMARY: The Copyright Royalty Judges are announcing their final 
determination of the rates and terms for two statutory licenses, 
permitting certain digital performances of sound recordings and the 
making of ephemeral recordings, for the period beginning January 1, 
2011, and ending on December 31, 2015.

DATES: Effective Date: March 9, 2011.
    Applicability Dates: These rates and terms are applicable to the 
period January 1, 2011, through December 31, 2015.

FOR FURTHER INFORMATION CONTACT: Richard Strasser, Senior Attorney, or 
Gina Giuffreda, Attorney Advisor. Telephone: (202) 707-7658. E-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Subject of the Proceeding

    This is a rate determination proceeding convened under 17 U.S.C. 
803(b) et seq. and 37 CFR part 351 et seq., in accord with the 
Copyright Royalty Judges' Notice announcing commencement of proceeding, 
with a request for Petitions to Participate in a proceeding to 
determine the rates and terms for the digital public performance of 
sound recordings by means of an eligible nonsubscription transmission 
or a transmission made by a new subscription service under section 114 
of the Copyright Act, as amended by the Digital Millennium Copyright 
Act (``DMCA''), and for the making of ephemeral copies in furtherance 
of these digital public performances under section 112, as created by 
the DMCA, published at 74 FR 318 (January 5, 2009). The rates and terms 
set in this proceeding apply to the period of January 1, 2011 through 
December 31, 2015. 17 U.S.C. 804(b)(3)(A).

B. Statutory Background

    A lengthy review of the history of the sound recordings compulsory 
license is contained in the Final Determination for Rates and Terms in 
Docket No. 2005-1 CRB DTRA, 72 FR 24084 (May 1, 2007) (``Webcaster 
II'').\1\ This history was summarized by the United States Court of 
Appeals for the District of Columbia Circuit in Intercollegiate 
Broadcast System, Inc. v. Copyright Royalty Board, 574 F.3d 748, 753-54 
(DC Cir. 2009), as follows:
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    \1\ The two prior webcasting proceedings often have been 
referred to informally as ``Webcaster I'' and ``Webcaster II,'' 
respectively, as opposed to the formal caption ``DTRA'' (which 
stands for ``Digital Transmissions Rate Adjustment''). In the 
current proceeding, we use the caption ``Webcasting III'' and intend 
to caption future webcasting proceedings using the term 
``Webcasting'' followed by the appropriate Roman numeral.

    [Since the nineteenth century, the Copyright Act protected the 
performance right of ``musical works'' (the notes and lyrics of a 
song), but not the ``sound recording.'' Writers were protected but 
not performers.]
    In 1995, Congress passed the Digital Performance Right in Sound 
Recordings Act. Pub. L. No. 104-39, granting the owners of sound 
recordings an exclusive right in performance ``by means of a digital 
transmission.'' 17 U.S.C. Sec.  106(6); see Beethoven.com LLC v. 
Librarian of Cong., 394 F.3d 939, 942 (D.C. Cir. 2005). The Digital 
Millennium Copyright Act of 1998, Pub. L. No. 105-304, ``created a 
statutory license in performances by webcast,'' to serve Internet 
broadcasters and to provide a means of paying copyright owners. 
Beethoven.com, 394 F.3d at 942; see 17 U.S.C. Sec.  114(d)(2), 
(f)(2). To govern the broadcast of sound recordings, Congress also 
created a licensing scheme for so-called ``ephemeral'' recordings, 
``the temporary copies necessary to facilitate the transmission of 
sound recordings during internet broadcasting.'' Beethoven.com, 394 
F.3d at 942-43; see 17 U.S.C. Sec.  112(e)(4).
    Congress has delegated authority to set rates for these rights 
and licenses under several statutory schemes. The most recent, 
passed in 2005 [sic], directed the Librarian of Congress to appoint 
three Copyright Royalty Judges who serve staggered, six-year terms. 
See 17 U.S.C. Sec.  801, et seq. These Judges conduct complex, 
adversarial proceedings, described in 17 U.S.C. Sec.  803 and 37 CFR 
Sec.  351, et seq., and ultimately set ``reasonable rates and 
terms'' for royalty payments from digital performances. 17 U.S.C. 
Sec.  114(f). * * * Rates should ``most clearly represent the rates 
and terms that would have been negotiated in the marketplace between 
a willing buyer and a willing seller.'' Id. [17 U.S.C. Sec.  
114(f)(2)(B)] ``In determining such rates and terms,'' the Judges 
must ``base [their] decision on economic, competitive and 
programming information presented by the parties.'' Id. 
Specifically, they must consider whether ``the service may 
substitute for or may promote the sales of phonorecords'' or 
otherwise affect the ``copyright owner's other streams of revenue.'' 
Id. Sec.  114(f)(2)(B)(i). The Judges must also consider ``the 
relative roles of the copyright owner and the transmitting entity'' 
with respect to ``relative creative contribution, technological 
contribution, capital investment, cost, and risk.'' Id. Sec.  114 
(f)(2)(B)(ii). Finally, ``[i]n establishing such rates and terms,'' 
the Judges ``may consider the rates and terms for comparable types 
of digital audio transmission services and comparable circumstances 
under voluntary license agreements described in subparagraph (A).'' 
Id. Sec.  114(f)(2)(B).

Intercollegiate Broadcast System, Inc. v. Copyright Royalty Board, 574 
F.3d 748, 753-54 (DC Cir. 2009).
    Forty petitions to participate were filed in response to the 
January 5, 2009, notice of commencement of the proceeding. The great 
majority of the petitioners were webcasters. During the subsequent 
period of voluntary negotiations, settlements were reached among many 
of the parties. In addition to the negotiation phase required in this 
proceeding, 17 U.S.C. 803(b)(3), Congress enacted the Webcaster 
Settlement Acts of 2008 and 2009, which expanded the opportunities to 
resolve the issues in this proceeding, as well as the issues in 
Webcaster II. This legislation further impacted Webcasting III by 
permitting the settling parties to determine if the settlements could 
be considered as evidence before the Copyright Royalty Judges 
(``Judges'').\2\ Eight settlements were resolved under the Webcaster 
Settlement Acts. 74 FR 9293 (March 3, 2009) (three agreements); 74 FR 
34796 (July 17, 2009) (one agreement); 74 FR 40614 (August 12, 2009) 
(four agreements). The rates and terms under these settlements were the 
basis of approximately 95 percent of webcasting royalties paid to 
SoundExchange in 2008 and 2009. SX PFF at ]] 50, 51.\3\ Evidence was 
presented in this proceeding by SoundExchange, Inc. (``SX''), 
representing the owners, and three webcasters, College Broadcasters, 
Inc. (``CBI''), Live365, Inc. (``Live365''), and Intercollegiate 
Broadcasting System,

[[Page 13027]]

Inc. (``IBS'').\4\ CBI only presented evidence to support adoption of 
its settlement with SoundExchange for noncommercial educational 
webcasters. SoundExchange and Live365 presented evidence related to 
commercial webcasters. The webcasting royalties paid by Live365 to 
SoundExchange for 2008 and 2009 were less than 3 percent of total 
webcasting royalties paid to SoundExchange. SX PFF at ] 53. 
SoundExchange presented evidence related to noncommercial webcasters, 
and IBS presented evidence for small noncommercial webcasters. Written 
statements, discovery and testimony for both direct case and rebuttal 
case were filed on these issues.
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    \2\ In the pleadings filed and during the testimony, Live365 
attempted to introduce evidence about agreements that contained 
provisions that they were not to be considered as precedential under 
the Webcaster Settlement Acts. Following the clear language of the 
statute that these agreements were not ``admissible as evidence or 
otherwise taken into account,'' 17 U.S.C. 114(f)(5)(C), these 
attempts were rejected. See, e.g., 4/19/10 Tr. at 210:9-10 
(sustaining objection to Live365's motion to enter into evidence the 
``Pure Play Agreement'').
    \3\ References to the proposed findings of fact and conclusions 
of law shall be cited as ``PFF'' or ``PCL,'' respectively, and reply 
findings and conclusions of law shall be cited as ``RFF'' or 
``RCL,'' respectively, preceded by the name of the party that 
submitted same and followed by the paragraph number. Similarly, 
references to the written direct testimony shall be cited as ``WDT'' 
preceded by the last name of the witness and followed by the page 
number. Likewise, references to the written rebuttal testimony shall 
be cited as ``WRT'' preceded by the last name of the witness 
followed by the page number. References to the transcript shall be 
cited as ``Tr.'' preceded by the date and followed by the page 
number and the name of the witness.
    \4\ After filing Written Direct Statements, RealNetworks, Inc. 
withdrew from the proceedings, and Royalty Logic, LLC, did not 
participate further.
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    On December 14, 2010, the Judges issued their Initial Determination 
of Rates and Terms. Pursuant to 17 U.S.C. 803(c)(2)(B) and 37 CFR 
353.4, motions for rehearing were due to be filed no later than 
December 29, 2010. No motions were received.

II. Commercial Webcasters

A. Commercial Webcasters Encompassed by the National Association of 
Broadcasters-SoundExchange Agreement

    On June 1, 2009, the National Association of Broadcasters (``NAB'') 
and SoundExchange filed a settlement of all issues between them in the 
proceeding, including the proposed rates and terms. This was one of the 
Webcaster Settlement Act agreements, published by the Copyright Office 
in the Federal Register, and was filed in this proceeding, pursuant to 
17 U.S.C. 801(b)(7)(A), to be adopted as rates and terms for some 
services of commercial broadcasters for the period 2011 through 2015. 
It applies to statutory webcasting activities of commercial terrestrial 
broadcasters, including digital simulcasts of analog broadcasts and 
separate digital programming. The settlement includes per performance 
royalty rates, a minimum fee and reporting requirements that are more 
comprehensive than those in the current regulations. Section 
801(b)(7)(A) allows for the adoption of rates and terms negotiated by 
``some or all of the participants in a proceeding at any time during 
the proceeding'' provided they are submitted to the Copyright Royalty 
Judges for approval. This section provides that in such event:

    (i) The Copyright Royalty Judges shall provide to those that 
would be bound by the terms, rates, or other determination set by 
any agreement in a proceeding to determine royalty rates an 
opportunity to comment on the agreement and shall provide to 
participants in the proceeding under section 803(b)(2) that would be 
bound by the terms, rates, or other determination set by the 
agreement an opportunity to comment on the agreement and object to 
its adoption as a basis for statutory terms and rates; and
    (ii) The Copyright Royalty Judges may decline to adopt the 
agreement as a basis for statutory terms and rates for participants 
that are not parties to the agreement, if any participant described 
in clause (i) objects to the agreement and the Copyright Royalty 
Judges conclude, based on the record before them if one exists, that 
the agreement does not provide a reasonable basis for setting 
statutory terms or rates.

17 U.S.C. 801(b)(7)(A).

    The Judges published the settlement (with minor modifications) in 
the Federal Register on April 1, 2010, and provided an opportunity to 
comment and object by April 22, 2010. 75 FR 16377 (April 1, 2010). No 
comments or objections were submitted, so the provisions of 17 U.S.C. 
801(b)(7)(A)(ii) do not apply. Absent objection from a party that would 
be bound by the proposed rates and terms and that would be willing to 
participate in further proceedings, the Copyright Royalty Judges adopt 
the rates and terms in the settlement for certain digital transmissions 
of commercial broadcasters for the period of 2011-2015. 17 U.S.C. 
801(b)(7)(A). Cf. Review of the Copyright Royalty Judges Determination, 
Docket No. 2009-1, 74 FR 4537, 4540 (January 26, 2009) (review of 
settlement adoption).

B. All Other Commercial Webcasters

1. Stipulation Concerning the Section 112 Minimum Fee and Royalty Rate 
and Stipulation Concerning the Section 114 Minimum Fee
    In between the direct and rebuttal phases, SoundExchange and 
Live365 presented two settlements of issues for all remaining 
commercial webcasters not encompassed by the NAB-SoundExchange 
agreement: (1) The minimum fee and royalty rates for the section 112 
license and (2) the minimum fee for the section 114 license. These two 
settlements were included in one stipulation. The terms of the 
settlement are the same as the agreement reached and included as a 
final rule in Webcaster II, following remand. See Digital Performance 
Right in Sound Recordings and Ephemeral Recordings (Final rule), 75 FR 
6097 (February 8, 2010). The minimum fee for commercial webcasters is 
an annual, nonrefundable fee of $500 for each individual channel and 
each individual station (including any side channel), subject to an 
annual cap of $50,000. The royalty rate for the section 112 license is 
bundled with the fee for the section 114 license. There is one 
additional term in the stipulation that was not included in Webcaster 
II. The royalty rate for the section 112 license is attributed to be 5% 
of the bundled royalties. There was no objection to the stipulation. 
There was evidence presented to support the minimum fee for commercial 
webcasters and the bundled royalty rates. SX PFF at ]] 459-468, 472. No 
evidence disputed it. These provisions are supported by the parties and 
the evidence. The Judges accept and adopt these two stipulations as 
settling these issues.
2. Rate Proposals for the Section 114 License for Commercial Webcasters
    The contending parties propose vastly different rate amounts for 
the use of the section 114 license for commercial webcasters. In its 
second revised rate proposal, SoundExchange argues in favor of a 
performance rate beginning at $.0021 per performance in 2011 and 
increasing annually by .0002 to a level of $.0029 by 2015. SX PFF at ] 
118.
    Live365 also proposes a per performance fee structure. By contrast, 
under the Live365 proposal, commercial webcasters would pay $.0009 per 
performance throughout the period 2011-2015. Rate Proposal For Live365, 
Inc., Appendix A, Proposed Regulations at Sec.  380.3(a)(1).\5\
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    \5\ In addition, Live365 seeks a 20% discount applicable to this 
commercial webcasting per performance rate for certain ``qualified 
webcast aggregation services.'' This proposal is discussed infra at 
Section II.B.5.
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    Notwithstanding the gulf between the SoundExchange and Live365 
proposed royalty amounts, there is no difference between the parties 
with respect to the basic structure of their proposed compensation 
schemes. Both SoundExchange and Live365 propose that per performance 
rates (typically stated as a fraction of a penny) be applicable in the 
case of the section 114 license. Furthermore, the per performance usage 
structure was adopted in Webcaster II. Webcaster II, 72 FR 24090 (May 
1, 2007). It remains the best structure for the reasons stated therein. 
Id. at 24089-90. Therefore, the only issues we are left to decide are 
the applicable amount of the webcaster royalty rate and whether any 
discount to that rate should be made on those occasions when certain 
types of webcasters are aggregated.
    The starting point for our determination is the applicable amount 
of the section 114 performance rate.

[[Page 13028]]

3. The Parties' Disparate Approaches To Rate Setting for the Section 
114 License for Commercial Webcasters
    Both Live365 and SoundExchange agree that the willing buyer/willing 
seller standard should be applied by the Copyright Royalty Judges in 
determining the rates for the section 114 license. Both recognize that 
those rates should reflect the rates that would prevail in a 
hypothetical marketplace that was not constrained by a compulsory 
license.
    However, in contrast to the positions of the copyright owners and 
commercial services in Webcaster II, in the instant case SoundExchange 
and Live365 do not agree that the best approach to determining rates is 
to look to comparable marketplace agreements as ``benchmarks'' 
indicative of the prices to which willing buyers and willing sellers 
would agree in the hypothetical marketplace. On the one hand, Live365 
primarily seeks to support its rate proposal by means of a modeling 
analysis that aims to determine the amount of any residue that may 
remain for compensating the sound recording input a commercial 
webcaster uses, after reducing webcaster revenues by an amount equal to 
the cost of all other inputs utilized by the webcaster in providing its 
service and also by an assumed amount of webcaster profits. By 
contrast, SoundExchange puts forward a benchmark approach in support of 
its rate proposal, similar to the primary argument it made in Webcaster 
II and an approach adopted by the Judges therein.
a. The Live365 Approach
    Live365 relies primarily on a modeling analysis provided by Dr. 
Mark Fratrik that seeks to identify the rate that commercial webcasters 
``would have been willing to pay in a negotiated settlement between a 
willing buyer and a willing seller.'' Fratrik Corrected and Amended WDT 
at 5. We find that Dr. Fratrik presumes behavioral constraints not 
found in the statutory standard and, that even if we were to ignore the 
distortions created by such added constraints, his analysis suffers 
from so many other unwarranted explicit assumptions and data defects as 
to make his analysis untenable.
i. Dr. Fratrik's Model and the Hypothetical Market
    The terms ``willing buyer'' and ``willing seller'' in the statutory 
standard simply refer to buyers and sellers who are unconstrained in 
their marketplace dealings. In other words, the buyers and sellers 
operate in a free market unconstrained by government regulation or 
interference. (See, for example, Noncommercial Educational Broadcasting 
Compulsory License (Final rule and order), 63 FR 49823, 49834 
(September 18, 1998). (``[I]t is difficult to understand how a license 
negotiated under the constraints of a compulsory license, where the 
licensor has no choice to license, could truly reflect `fair market 
value.' ''). Moreover, neither the buyers nor the sellers exercise such 
monopoly power as to establish them as price-makers and, thus, make 
negotiations between the parties superfluous. Webcaster II, 72 FR 24091 
(May 1, 2007). (``In other words, neither sellers nor buyers can be 
said to be `willing' partners to an agreement if they are coerced to 
agree to a price through the exercise of overwhelming market power.'')
    Dr. Fratrik and Live365 either misperceive the plain meaning of the 
terms of the statute or deliberately seek to expand the meaning of a 
``willing buyer'' as articulated in the willing buyer-willing seller 
standard that governs this proceeding. For them, a ``willing buyer'' is 
viewed through the lens of an additional policy consideration nowhere 
articulated in the statute--i.e., that a buyer can only be considered 
``willing'' if that buyer is able to obtain the sound recording input 
at a price that allows the buyer to earn at least a 20 percent 
operating profit margin from the use of that input. Thus, in Dr. 
Fratrik's analysis, a ``representative'' single buyer is deemed to be 
constrained in its behavior from participating in the input market for 
sound recordings unless its operating profit margin expectations in the 
output market for webcasting services are guaranteed at a level 
consistent with an industry-wide average profit margin for a 
purportedly comparable industry such as terrestrial radio. Fratrik 
Corrected and Amended WDT at 21-22.
    Nothing in the statute supports reading such a behavioral 
constraint into the hypothetical marketplace to be derived by the 
Judges in this proceeding. Indeed, a similar argument that economic 
viability based on the sufficiency of revenue streams to cover costs 
determines any individual buyer's ``willingness'' to pay for an input 
raised by Live365 in Webcaster I, was rejected in that proceeding. 
Determination of Reasonable Rates and Terms for the Digital Performance 
of Sound Recordings and Ephemeral Recordings (Final rule and order) 
(``Webcaster I''), 67 FR 45240, 45254 (July 8, 2002) (``Thus, the Panel 
had no obligation to consider the financial health of any particular 
service when it proposed the rates.'').
    Dr. Fratrik's notion of a representative entity adds an operating 
condition that distinguishes his conceptual formulation from that of a 
statistically average firm in an industry. His representative firm must 
reach one specified minimum profit margin and, therefore, can only be 
satisfied with a royalty rate sufficient to allow it to reach that 
profit margin. Any lower assumed profit margin would, ceterus paribus, 
necessarily result in a lower recommended royalty rate. Thus, Dr. 
Fratrik effectively assumes that his representative firm will never 
have a reason to operate at less than a particular operating profit 
margin (i.e., 20%).
    But there is no a priori reason to believe that a representative 
webcaster would not accept a lesser profit margin, so long as it earns 
a profit and/or finds no risk-adjusted rate of return that could be 
earned by an alternative investment. Indeed, basic microeconomic 
analysis recognizes that, in the short-run, it is in the interest of a 
firm to continue to produce even at an operating loss, so long as its 
variable costs are covered and some contribution can be made toward 
fixed costs--otherwise, the loss incurred by the firm will be even 
greater (i.e., full fixed costs if no production takes place).\6\ In 
short, Dr. Fratrik's assumption of a 20% profit margin totally ignores 
the possibility of webcasters with a whole range of potential 
acceptable operating profit margins--whether lesser or greater--that 
would be dependent on such things as varying capital investment costs 
among webcasters, changing market conditions in output markets, and the 
applicable time horizon.\7\
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    \6\ See, for example, Varian, Hal, Intermediate Microeconomics: 
A Modern Approach, (W.W. Norton & Company, 2009) at 350, 401. 
Mansfield, Edwin and Yohe, Gary Wynn, Microeconomics: Theory and 
Applications, (W.W. Norton & Company, 2004) at 296, 407; see also 7/
28/10 Tr. at 54:2-14 (Salinger).
    \7\ In the long-run, all short-run fixed costs become variable.
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    Still another difficulty with Dr. Fratrik's conceptual framework is 
that his single ``representative'' buyer is treated as tantamount to an 
industry. But no single firm is typically the equivalent of an industry 
on the demand side of the market, although there is the obvious 
exception where a single monopsonistic buyer constitutes the entire 
demand side of the market for a particular input. While Dr. Fratrik 
does not make the claim that his representative commercial webcaster is 
a monopsonist, his analysis effectively produces that result.

[[Page 13029]]

    For example, Dr. Fratrik explains that he chose to wed a 20% 
operating profit margin assumption to his cost and revenue estimates to 
``derive a resulting value for the copyrighted work.'' Fratrik 
Corrected and Amended WDT at 15, 23. In other words, Dr. Fratrik and 
Live365 effectively claim that no buyer would ever be a ``willing 
buyer'' unless the price of only the one input here analyzed (i.e., the 
royalty rate for sound recordings) is low enough to provide all buyers 
with sufficient revenue after the royalty payment to cover all other 
input costs and yield an operating profit margin of 20%. It is a claim 
that, rather than resulting from any careful analysis of the market 
demand and supply schedules, blithely ignores such analysis in favor of 
a single price point wholly determined by a single actor on the demand 
side of the market without any reference to the supply side of the 
market.\8\
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    \8\ Dr. Fratrik implies that because the record companies 
supplying the sound recordings will incur something near zero 
incremental costs, the supply side of the market may be largely 
ignored. 4/27/10 Tr. at 1131:12-1133:19 (Fratrik). But Dr. Fratrik 
offers no empirical support for his assertion as to actual 
incremental costs. We have clearly rejected a similar contention put 
forward in Webcaster II on both empirical and theoretical grounds. 
Webcaster II, 72 FR 24094 (May 1, 2007).
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    In other words, Dr. Fratrik's single ``representative'' buyer's 
business model is to be treated as if it is the only webcasting 
production model in the whole webcasting industry. Instead of a market 
demand curve, Dr. Fratrik puts forward the implicit assumption that the 
amount of sound recording performances demanded must be whatever his 
representative firm deems best for its particular technological and 
organizational structure. But no one firm's demand curve is equivalent 
to the market's demand curve, unless that firm is a monopsonist. 
Rather, as we have noted in Webcaster II and the CARP noted in 
Webcaster I before us, in the hypothetical marketplace we attempt to 
replicate, there would be significant variations, among both buyers and 
sellers, in terms of sophistication, economic resources, business 
exigencies, and myriad other factors. Webcaster II, 72 FR 24087 (May 1, 
2007); In the Matter of Rate Setting for the Digital Performance of 
Sound Recordings and Ephemeral Recordings, Report of the Copyright 
Arbitration Panel to the Librarian of Congress, Docket No. 2000-9 CARP 
DTRA 1&2 (``Webcaster I CARP Report'') at 24.
    Finally, even assuming the absence of the additional errors 
catalogued below, Dr. Fratrik's analysis, which focuses on past 
operating income statements to determine a royalty rate for all 
commercial webcasters in the future, fails to establish any behavioral 
information that would help to delineate the hypothetical marketplace 
we must replicate. Instead, Dr. Fratrik's analysis is largely 
mechanical and leads to an unsupported conclusion that past revenues 
and non-royalty costs, coupled with a webcaster operating profit margin 
not demonstrated to be related to past operating revenue and cost 
considerations (see infra at Section II.B.3.a.ii.), will repeatedly 
recur at the same levels in each year over the five-year period of the 
license going forward. Having tightly constrained the possibilities of 
market behavior in this manner, Dr. Fratrik's model then automatically 
produces an unchanging residue and, hence, an unchanging royalty rate 
for the whole period.\9\ This is a dubious result that flows from the 
unwarranted assumption of what amounts to a behavioral straitjacket.
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    \9\ In addition to the flat royalty rate growth recommended by 
Dr. Fratrik over the 2011-2015 term, his recommended royalty rate of 
$0.0009 per performance would return the statutory rate to near its 
2006 statutory level.
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    Moreover, even if Dr. Fratrik's problematic behavioral constraints 
and implicit assumptions somehow could be ignored, his analysis suffers 
from so many other unwarranted explicit assumptions and data defects as 
to make it untenable.
ii. The Specific Elements of Dr. Fratrik's Model
    Dr. Fratrik's assumptions regarding webcasting industry costs, 
revenues and profit margins are seriously flawed when viewed 
individually. Moreover, these flaws are compounded by merging revenue, 
costs and profit margin information gathered from disparate data 
sources into a single ``economic model.'' \10\
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    \10\ Dr. Fratrik uses the term ``economic model'' to broadly 
describe his analysis. It is more closely akin to a type of pro 
forma income statement that attempts to demonstrate the expected 
effect of varying royalty rates on a firm's financial viability. In 
other words, it is an accounting model that, relying on historical 
cost and revenue data for all but royalty costs, endeavors to 
demonstrate the anticipated results of alternative royalty rates on 
projected net revenues.
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    Dr. Fratrik begins by assuming that ``Live365's cost structure will 
serve as a good conservative proxy for the industry as it is a mature 
operator.'' Fratrik Corrected and Amended WDT at 16 (emphasis added). 
This assumption is not supported by the record of evidence in this 
proceeding which points to a wide variety of existing webcasting 
services and business models. SX PFF at ] 323. It defies credulity to 
claim, as does Live365, that all these disparate business models may be 
experiencing essentially the same unit costs. Indeed, Dr. Fratrik makes 
this assertion while recognizing that, unlike for many other 
participants in the market, at least two separate lines of business can 
be distinguished for Live365 (broadcasting services and webcasting) 
and, further, that Live365 acts as an aggregator with respect to 
webcasting. Dr. Fratrik offers no example of a comparable analogous 
participant in the industry who is structured in this manner. 
Furthermore, when he attempts to adjust Live365's costs to reflect only 
webcasting operations, he fails to adequately do so and he ignores the 
synergistic nature of Live365's various lines of business. SX PFF at ]] 
355, 357, 358. Finally, even though he argues for an additional 
aggregator discount to be applied to Live365's webcasting royalty rates 
based on monitoring and reporting savings purportedly provided to the 
collective (i.e., SoundExchange), he nowhere appears to adjust 
Live365's webcasting cost estimates to account for any resulting 
differences in costs that Live365 may incur as compared to other 
webcasters who are not aggregators. He makes no such adjustment despite 
the fact that it is the typical webcaster's unit costs he is seeking to 
model rather than the typical aggregator's unit costs. While any 
additional reporting and monitoring costs incurred by aggregators \11\ 
may be offset by fees charged to the aggregated webcasters or by the 
reduced costs of programming that Live365 would otherwise have to 
undertake in order to make comparable channel offerings as a multi-
channel broadcaster, such salient differences between the typical 
webcaster's unit costs and the typical aggregator's unit costs are not 
addressed by Dr. Fratrik's analysis. For all these reasons, the unit 
cost estimation for webcasting which Dr. Fratrik offers is seriously 
flawed.
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    \11\ For example, Dr. Fratrik notes that, in connection with its 
aggregation services, ``Live365 has spent a considerable amount of 
time and investment establishing its software systems to accurately 
measure and document listening for each copyrighted work that is 
streamed.'' Fratrik Corrected and Amended WDT at 38 n.62.
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    On the revenue side of his analysis, Dr. Fratrik assumes that: (1) 
Webcaster revenue comes from advertising revenue and subscription 
revenue; (2) ``publicly available industry reports from AccuStream and 
ZenithOptimedia serve as the lower and upper bounds, respectively, on 
advertising revenue measurements for the past period;'' and (3) 
Live365's subscription revenue per listening hour can be utilized as a 
proxy for gauging subscription revenues in the webcasting industry. 
Fratrik Corrected and Amended WDT at 16-17, 24-25.

[[Page 13030]]

    Live365's rate proposal in this proceeding (i.e., $.0009 per 
performance throughout the period 2011-2015), however, is apparently 
based only on Dr. Fratrik's analysis of revenues using the 
ZenithOptimedia data. Indeed, use of the Accustream revenue data 
alternative produces the anomalous result that copyright owners would 
have to pay webcasters each time the owners' sound recordings were 
performed, no matter how low a profit margin Dr. Fratrik assumed for 
webcasters in his analysis. Fratrik Corrected and Amended WDT at 26, 
Table 4; 4/27/10 Tr. at 1157:1-1158:6 (Fratrik).
    Undaunted by this anomalous result, Dr. Fratrik simply repeats his 
analysis, substituting, in part, the ZenithOptimedia advertising 
revenue data for the Accustream advertising revenue data and, in 
concert with a 20% assumed profit margin, obtains the $.0009 per 
performance royalty rate that has been proposed by Live365 to be 
applied without change throughout the period 2011-2015. Yet Dr. 
Fratrik's alternative ZenithOptimedia-based analysis does not 
completely divorce itself from the Accustream data; instead, because 
ZenithOptimedia did not provide the Aggregate Tuning Hours (``ATH'') 
numbers associated with its total advertising revenue estimate, Dr. 
Fratrik fell back on the Accustream data for a total ATH number and 
calculated advertising revenue per ATH by dividing the ZenithOptimedia 
revenue data by the Accustream ATH data. In short, Dr. Fratrik combines 
advertising revenue data based on two separate data sources without 
making a determination that the data was capable of being combined in 
this manner.
    Moreover, even Dr. Fratrik admitted that the ZenithOptimedia and 
Accustream advertising revenue estimates are ``challenging'' or 
difficult to produce because a vast number of webcasters do not report 
their revenues publicly. 4/27/10 Tr. at 1220:1-20 (Fratrik). Thus, 
these databases have clear limitations and the uncritical manner in 
which Dr. Fratrik mixes and matches data from these two separate 
advertising revenue databases and then further combines subscription 
revenue data from a third separate source (i.e., the Live365 
subscription revenue data) plainly suggests a less than rigorous 
approach to his analysis.
    Finally, with respect to revenues, Dr. Fratrik's analysis reports, 
but neither takes into account nor provides an adequate explanation 
for, the growth in the ZenithOptimedia advertising revenues forecast 
from his 2008 base through 2011 (i.e., growth from $200 million to $291 
million). Fratrik Corrected and Amended WDT, Ex. 8 at 187. It may be 
argued that growth in the level of revenues does not necessarily 
translate into growth in unit revenues. However, we find that it is 
difficult to accept Dr. Fratrik's unsupported assertion that he expects 
little improvement in such revenues on a unit basis (see Fratrik 
Corrected and Amended WDT at 5). Dr. Fratrik fails to provide any 
adequate empirical support for the implied assumption necessary to 
reach this conclusion--an assumption that the growth in performances 
will take place at precisely the pace necessary to assure that the 
anticipated growth in revenues over the relevant period will not alter 
the unit revenue ratio. Moreover, without such an implied assumption, 
it is difficult to avoid the conclusion that Dr. Fratrik's constant 
royalty rate should have been adjusted each year based on the 
implications of growing revenues for his own model. Yet, he offers no 
such adjusted royalty rate. At the very least, these changing 
advertising revenue totals call into question the reliability of the 
unchanging royalty rate derived by Dr. Fratrik from the lowest of the 
revenue totals available from the same data source (i.e., $200 million 
instead of $291 million).
    Dr. Fratrik's assumption of a 20% operating margin for webcasters 
in his analysis is not solidly supported. That operating profit margin 
is not put forward as either a historical profit margin or a forecasted 
profit margin for webcasters, but rather as a profit margin derived 
from the over-the-air broadcasting industry. SX PFF at ]] 328, 330. The 
record of evidence in this proceeding does not support the notion that 
profit margins for webcasters are likely to be similar to the more 
capital intensive terrestrial radio industry. SX PFF at ]] 332-5. 
Furthermore, we find that Dr. Fratrik failed to establish a solid basis 
for concluding that the minimum operating profit margin for his 
representative webcaster was comparable to the average firm experience 
from firms that operate on a different platform (over-the-air radio).
    Live365 argues in its proposed reply findings at ] 327 that Dr. 
Fratrik's 20% profit margin assumption is further corroborated by the 
recording industry's own expert testimony in Webcaster I (offered by 
Dr. Thomas Nagle, Chairman, Strategic Pricing Group, Inc.) which 
purportedly ``recommended that webcasters should be able to achieve 
margins between 13.2% and 21.8%.'' However, although the Nagle exhibit 
referred to by Live365 was appended to Dr. Salinger's written rebuttal 
testimony, the exhibit was only mentioned briefly in a footnote to the 
Salinger testimony and then only to make a different argument. Dr. 
Salinger, in fact, made no specific reference to any of the varying 
operating profit-margin figures utilized in that 2001 Recording 
Industry Association of America (``RIAA'') study. In other words, it 
can hardly be said that the figures in question were offered as 
``corroborative'' evidence to support Dr. Fratrik's assumptions. 
Moreover, the point of this 2001 study appears to have been to 
recommend a royalty rate based on the operating profit margins 
necessary to generate an assumed range of rates of return on investment 
for webcasters. In fact, the Nagle study utilized an operating profit 
margin in the range of 8.43% to 17.05% in order to ``arrive at the 
appropriate range for the statutory license royalty fee.'' See Salinger 
WRT, Exhibit 3 at 16 and Appendix 3 at 1. Dr. Fratrik's 20% assumption 
for webcaster operating profit margins lies substantially outside this 
range. Moreover, the CARP rejected Dr. Nagle's analysis as 
corroborating evidence in Webcaster I. [``Dr. Nagle's analysis 
necessarily relies upon a myriad of highly questionable assumptions 
that appear inconsistent with foreseeable market conditions.''] 
Webcaster I CARP Report at 73; [``We conclude that Dr. Nagle's analysis 
does not support any particular rate level.''] Id. at 74. We find it 
provides no corroborative support for Dr. Fratrik's assumed 20% 
webcaster operating profit margin in this proceeding.
    Thus, we find that Dr. Fratrik's ``model'' is based upon a series 
of assumptions and analogies that, taken individually, add such a 
degree of uncertainty or inexactitude to the resulting model as to make 
it unsatisfactory for the purpose of portraying the likely outcome of 
negotiations between willing buyers and willing sellers in the market 
for sound recording inputs that are used in webcasting services. 
Indeed, Dr. Fratrik's model does not even adequately address some of 
the modest considerations for a modeling approach laid out by Live365's 
rebuttal expert, Dr. Salinger. SX PFF at ] 307. Questionable 
assumptions, reservations about the methodological appropriateness of 
mixing disparate data sources, and concerns over the resulting 
reliability of the data used in the Fratrik model lead us to find that 
this theoretical construct suffers serious deficiencies that do not 
lend themselves to remediation.

[[Page 13031]]

iii. Other Factors Put forward for Consideration
    Live365 offers several other arguments to buttress its request for 
a royalty rate that would effectively return the statutory rates to 
near their 2006 statutory level.
    First, Dr. Fratrik maintains that ``[a]s industry projections for 
more robust growth in the Internet radio advertising market have 
clearly not materialized over the past few years,'' his valuation model 
must give rise to the conclusion that a ``reduction in royalty rates 
from the prescribed rates covering 2006-2010'' is warranted. Fratrik 
Corrected and Amended WDT at 31. In so doing, he incorrectly attributes 
the annual increase in rates established in Webcaster II to projections 
of growth primarily provided by Dr. Erik Brynjolffson and Mr. James 
Griffin in that proceeding. Fratrik Corrected and Amended WDT at 12-14. 
Similarly, Live365 argues that ``[g]iven that the lofty expectations 
from the Webcasting II proceeding have not been fulfilled, it follows 
that the rates for the next five years should be set lower than the 
rates determined by the CRB [Judges] in Webcasting II.'' See Live365 
PFF at ] 38. But, quite to the contrary, the Judges' determination in 
Webcaster II did not rely on those particular predictions in setting 
rates. Indeed, the Judges expressly rejected Dr. Brynjolfsson's 
modeling attempt and specifically cited the flaws in his effort ``to 
project future growth rates'' as a basis for not relying on them. 
Webcaster II, 72 FR 24093. Moreover, the evidence in the record on 
industry growth over the 2006-2010 period which shows increased 
advertising revenues, increased performances, and increased listening 
does not support a rate reduction. It more likely would support at 
least some modest rate increase. See SX PFF at ]] 390-395, 398-401. 
While some Live365 data may show a flattening or decline for a 
particular pair of years, the overall trend of that same data does not 
show a decrease. For example, data presented by Live365 shows a year-
to-year decline in listenership from 2006 to 2007, but this is followed 
by substantial increases in 2008 and 2009 and maintenance of 2009 
levels in 2010. Overall, the trend in such listenership recorded since 
2000 has been decidedly upward, even though the growth has occurred 
unevenly from year to year. See Smallens Corrected WRT at 7, Table 1.
    Second, Live365 also contends that a downward adjustment of the 
current royalty rate is appropriate based on (1) The promotional value 
of statutory webcasting relative to its non-substitutional effect on 
other sales of music, including the promotional value to copyright 
owners stemming from the wide array of music and artists played on 
statutory webcasting services; (2) the relative creative contributions, 
technical contributions, investments, costs and risks made or borne by 
commercial webcasters compared to copyright owners; and (3) the 
relative disparate impact of certain competitive factors on webcasters 
as compared to copyright owners. After careful consideration, we find 
that the evidence submitted by Live365 on each of these claims is weak 
at best and, most certainly, too weak to establish the basis for a 
decrease in webcaster royalty rates. SX PFF at ]] 415, 419-21, 426, 
431, 446-9; SX RFF at ]] 176, 179-180. Then too, Live365 does not 
present an acceptable empirical basis for quantifying the individual 
asserted effects of these various factors and/or for deriving a method 
for translating such magnitudes into a rate adjustment. Moreover, to 
the extent that Live365 claims that the Fratrik valuation model makes 
such a quantifiable translation, we need not further address these 
issues separate from our examination of that model which we have found 
seriously flawed and an inadequate representation of the market.
b. The SoundExchange Benchmark Approach
i. The Interactive Webcasting Market Benchmark
    As in Webcaster II, SoundExchange maintains that one set of 
benchmark agreements with clear relevance for this proceeding as shown 
by an analysis prepared by its expert economist, Dr. Michael Pelcovits, 
consists of those agreements found in the market for interactive 
webcasting covering the digital performance of sound recordings. That 
is because the interactive webcasting market has characteristics 
reasonably similar to non-interactive webcasting, particularly after 
Dr. Pelcovits' final adjustment for the difference in interactivity.
    Both markets have similar buyers and sellers and a similar set of 
rights to be licensed (a blanket license in sound recordings). Both 
markets are input markets and demand for these inputs is driven by or 
derived from the ultimate consumer markets in which these inputs are 
put to use. In these ultimate consumer markets, music is delivered to 
consumers in a similar fashion, except that in the interactive case the 
choice of music that is delivered is usually influenced by the ultimate 
consumer, while in the non-interactive case the consumer usually plays 
a more passive role. This difference is accounted for in the Pelcovits 
analysis. In order to make the benchmark interactive market more 
comparable to the non-interactive market, Dr. Pelcovits adjusts the 
benchmark by the added value associated with the interactivity 
characteristic. Pelcovits Amended and Corrected WDT at 23. This results 
in a rate of $0.0036 per play for a statutory non-interactive webcaster 
as a possible outcome in the target market. Pelcovits Amended and 
Corrected WDT at 4, 33.
    The Judges find the interactive webcasting benchmark to be of the 
comparable type that the Copyright Act invites us to consider. 17 
U.S.C. 114(f)(2)(B). (``In establishing such rates and terms, the 
Copyright Royalty Judges may consider the rates and terms for 
comparable types of digital audio transmission services and comparable 
circumstances under voluntary license agreements negotiated under 
subparagraph (A).'') Nevertheless, as we indicated in Webcaster II, 
this particular Pelcovits benchmark analysis is not without warts. 
Webcaster II, 72 FR 24094 (May 1, 2007).
    In Webcaster II we recognized the potential implications of a 
benchmark analysis that focuses on only subscription services as does 
the interactive benchmark presented by Dr. Pelcovits. That is, ad-
supported non-interactive services might pay less than subscription-
based interactive services to use the same music if their advertising 
revenues failed to evolve to the point where ad-supported non-
interactive services were just as lucrative as subscription-based 
interactive services on a per-listener hour basis. In that proceeding 
the Judges indicated that to the extent that ad-supported revenues did 
not come to match subscription revenues on a per-listener hour basis 
during the 2006-2010 term and, absent clear information on the 
substitutability of the subscription and non-subscription options among 
consumers, any resulting shortfall related to ad-supported webcasting 
revenues would likely be adequately mitigated by a phase-in of the per 
performance rates to the level indicated by the benchmark analysis, 
such that the benchmark recommended rate for 2006 would not become 
effective until the last year of the term. Webcaster II, 72 FR 24094 
(May 1, 2007).
    Here, unlike the absence of data supporting this critique which we 
noted in Webcaster II, Dr. Salinger provides some empirical data to 
support the position that a benchmark which

[[Page 13032]]

reflects a weighted average of revenues obtained from subscribers and 
non-subscribers may result in a lower estimated royalty rate than Dr. 
Pelcovits' benchmark which focuses on only subscription rates. Salinger 
WRT at 10-11. Therefore, we are not persuaded that Dr. Pelcovits' 
benchmark estimates are sufficiently reflective of the hypothetical 
target market as to support the immediate implementation of a royalty 
rate equivalent to the $0.0036 outcome estimated by Dr. Pelcovits. Some 
further downward adjustment to his recommendation to adequately address 
the subscription/non-subscription revenue level differences may well be 
in order, although the magnitude of such an adjustment is not clear.
    While Dr. Salinger shows that there is likely some ``upward bias'' 
introduced into the Pelcovits analysis through its focus on only 
subscription-based services in the benchmark market, the amount of such 
upward bias is not persuasively determined. Non-interactive webcasters 
in the market like Live365 often provide both subscription and non-
subscription offerings. 7/28/10 Tr. at 40:10-15 (Salinger). Therefore, 
subscription-based revenues clearly must be considered. Moreover, the 
data used by Dr. Salinger to support his criticism, as Dr. Salinger 
admits, is not without its shortcomings. 7/28/10 Tr. at 98:2-104:6 
(Salinger). Similarly, Dr. Fratrik admitted that the ZenithOptimedia 
and Accustream advertising revenue estimates are ``challenging'' or 
difficult to produce because a vast number of webcasters do not report 
their revenues publicly. 4/27/10 Tr. at 1220:1-20 (Fratrik). There is 
also the difficulty of segmenting intermingled revenues from webcasting 
business models that may often directly and/or indirectly depend on 
both subscription and nonsubscription lines of business, as well as 
potentially on other sources of revenue. 7/28/10 Tr. at 40:10-15, 92:1-
19 (Salinger); Ordover WRT at 10-11. Nevertheless, Dr. Salinger's 
critique is sufficiently supported to raise legitimate concerns about 
the potential for upward bias in the Pelcovits estimates. It is only 
the magnitude of the potential upward bias that is not clearly 
quantified. What is clear from the record of evidence in this 
proceeding is that $0.0036 can be no more than the upper bounds of the 
range of possible rates reasonably applicable to the target market and 
that the most likely prevailing rate in that market is currently lower 
than $0.0036.
    Dr. Salinger also criticizes the Pelcovits interactive webcasting 
benchmark analysis for: (1) Relying only on contracts with the four 
major record companies to the exclusion of the independent record 
labels; (2) ignoring the downward trend in the effective play rates 
paid by interactive services by utilizing the average rate in his 
calculations; and (3) inappropriately constructing the hedonic 
regression model that is used as one alternative measure of 
interactivity in the analysis. Salinger WRT at 15-21.
    The first of these criticisms fails for lack of persuasive evidence 
in the record that the use of independent record contracts would have 
made a material difference. SX RFF at ]] 101-103.
    Although the second and third criticisms have some merit, the 
Judges find that these criticisms indicate that the Pelcovits 
interactive webcasting benchmark may overstate the likely prevailing 
market rate in the target market without necessarily rendering the 
Pelcovits analysis fatally flawed. With respect to the second 
criticism, Dr. Salinger acknowledged that this concern could be 
addressed by multiplying the recommended rate by 0.8737.\12\ SX PFF at 
] 209. Such an adjustment, of course, would reduce the recommended 
rate. SoundExchange offers no evidence that such an adjustment is 
unwarranted and even appears to endorse such an approach by performing 
this exact calculation with respect to the $0.0036 rate and reducing it 
to $0.0031. See SX PFF at ] 210. But SoundExchange's calculation was 
applied to the highest possible outcome Dr. Pelcovits lists for his 
benchmark analysis (i.e., $0.0036), when in fact, Dr. Pelcovits 
indicates that his rate after substitution adjustment would result in a 
``range of recommended rates'' with a ``simple average of $0.0033.'' 
Thus, it appears that this $0.0033 average also requires adjustment to 
meet Dr. Salinger's criticism (e.g., to approximately $0.0029). This is 
not a trivial consideration in light of the fact that in Webcaster II, 
it was Dr. Pelcovits' recommended rates after the substitution 
adjustment that formed the basis for SoundExchange's rate proposal and 
that formed the basis for the determination by the Judges of a royalty 
rate to be achieved by the end of the term in 2010 (i.e., a per play 
rate of $0.19). See Webcaster II, 72 FR 24096 (May 1, 2007). In any 
event, the validity of this criticism of the Pelcovits approach 
regarding the effective per play rate clearly erodes the weight to be 
accorded to the $0.0036 figure.
---------------------------------------------------------------------------

    \12\ The 0.8737 multiplier represents the value of a ratio where 
the numerator consists of the effective per play rate for 2009 
(i.e., 0.01917) and the denominator consists of the average 
effective play rate over the three years in question (i.e., 
0.02194).
---------------------------------------------------------------------------

    Dr. Salinger also criticizes the Pelcovits hedonic regression 
analysis that formed the basis for one of the alternative measures of 
interactivity in the interactive webcasting benchmark approach. Dr. 
Salinger expressed concerns about the use of certain fixed effects 
variables (alternatively described as dummy variables) in the 
specification of the regression model and about the broad confidence 
interval surrounding the estimated interactivity coefficient in the 
hedonic regression. Salinger WRT at 20; 21 n.31 and Exhibit 6; 7/28/10 
Tr. at 66:4-69:22 (Salinger). These criticisms have some merit, 
especially in light of Dr. Pelcovits' admitted lack of familiarity with 
some of the relevant economic literature, including recent literature 
cautioning against the indiscriminant use of dummy variables in certain 
hedonic estimations. 4/20/10 Tr. at 373:18-376:15 (Pelcovits). 
SoundExchange, in response to this criticism, claims that any problem 
associated with the hedonic regression is negated by Dr. Pelcovits' use 
of other methods that result in rates almost identical to the $0.0036 
average. See, for example, SX RFF at ] 107. However, this does not 
wholly obviate the impact of any resulting overstatement. The rate 
associated with the hedonic regression is the highest of the three 
values that are used to calculate the $0.0036 average. Removing the 
rate associated with the hedonic regression from the average would, in 
this case, reduce the average. Thus, this criticism of the Pelcovits 
approach additionally erodes the weight that the Judges accord to the 
$0.0036 figure.
    In short, the potential for upward bias or actual demonstrated 
upward bias in the Pelcovits estimates persuade us that $0.0036 can be 
no more than the upper bounds of the range of possible rates reasonably 
applicable to the target market and that the most likely prevailing 
rate at the present time in that market is significantly lower than 
$0.0036.
ii. The National Association of Broadcasters and SiriusXM Agreements
    In addition to the interactive webcasting benchmark, Dr. Pelcovits 
offers a second benchmark based on the average of rates established for 
the 2011-2015 term in precedential Webcaster Settlement Act Agreements 
(``WSA agreements'') between SoundExchange and the National Association 
of Broadcasters and between SoundExchange and SiriusXM (``SiriusXM 
agreement'' or ``Commercial

[[Page 13033]]

Webcasters agreement''). Pelcovits Amended and Corrected WDT at 22.
    While these precedential WSA agreements certainly pertain to rates 
to be paid by non-interactive webcasters in the commercial webcasting 
market at issue in this proceeding, the buyers' and sellers' 
circumstances are not comparable to those that would prevail in the 
absence of the Webcaster Settlement Act. Rather than a single seller, 
the sellers in the hypothetical market we are to consider consist of 
multiple record companies. Webcaster II, 72 FR 24087, 24091 (May 1, 
2007); Webcaster I, 67 FR 45244 (July 8, 2002). Thus, in Webcaster II 
we found that the fact that there were multiple buyers and multiple 
sellers in the benchmark market as well as in the target market 
supported a benchmark analysis. Webcaster II, 72 FR 24093 (May 1, 
2007). While the applicable law does not require a perfectly 
competitive benchmark market, the market must be at least 
``competitive'' in the sense that buyers and sellers have comparable 
resources and market power. Webcaster II, 72 FR 24093 (May 1, 2007); 
Webcaster I, 67 FR 45245 (July 8, 2002). This would be generally 
consistent with free market principles. Yet, the buyers' and sellers' 
circumstances underlying the WSA agreements were not comparable to 
market conditions that would prevail in the absence of the WSA. That 
legislation permitted a single seller representative to enter into 
negotiations with buyers in the market with respect to rates that would 
be permitted to supplant the statutory rates previously established in 
the 2006-2010 period, as well as with respect to rates applicable to 
the 2011-2015 period. Even Dr. Pelcovits admits that ``[e]ach of these 
contracts, of course, was negotiated in the shadow of the regulatory 
scheme and against the background of statutory rates previously set by 
this Court. To that extent, they may or may not represent the same 
outcome that would result in a pure market negotiation with no 
regulatory overtones.'' Pelcovits Amended and Corrected WDT at 15. 
Therefore, we find that these precedential WSA agreements, which may be 
fairly characterized as single-seller agreements reached under atypical 
marketplace conditions, cannot satisfy the comparability requirements 
for an appropriate benchmark.
    However, we further find that, because the NAB-SoundExchange and 
SiriusXM-SoundExchange agreements clearly govern the rates for a 
substantial number of commercial webcasters over the relevant 2011-2015 
period (Pelcovits Amended and Corrected WDT at 15) and the commercial 
webcasters covered by these agreements are competitors with the other 
commercial webcasters who comprise the remainder of the non-interactive 
webcasting services (Salinger WRT at 24; Smallens Corrected WRT at 21), 
these agreements are a useful gauge of the weight to be assigned to the 
rates suggested by the interactive webcasting benchmark discussed supra 
at Section II.B.3.b.i. Moreover, nothing in the Webcaster Settlement 
Act constrains us from using these agreements for that purpose. See 17 
U.S.C. 114(f)(5)(C).
    The NAB-SoundExchange and SiriusXM agreements provide for royalty 
rates on a per performance basis. For the five-year period beginning 
2011, the NAB-SoundExchange agreement sets the following rates: $0.0017 
for 2011, $0.0020 for 2012, $0.0022 for 2013, $0.0023 for 2014 and 
$0.0025 for 2015. For the same period, the SiriusXM agreement sets the 
following rates: $0.0018 for 2011, $0.0020 for 2012, $0.0021 for 2013, 
$0.0022 for 2014 and $0.0024 for 2015. Pelcovits Amended and Corrected 
WDT at 15. Two characteristics of these rates are noteworthy. First, 
the 2011 rate is slightly less than the current 2010 statutory rate of 
$0.0019 and the rates in the precedential WSA agreements covering the 
years 2009 and 2010 were somewhat lower than the corresponding 
statutory rate for those years. Pelcovits Amended and Corrected WDT at 
15. Second, the rates in the NAB-SoundExchange and SiriusXM agreements 
over their entire term are substantially lower than the range of annual 
rate possibilities suggested for implementation pursuant to the 
proposed interactive benchmark ($0.0036) or the interactive benchmark 
after Dr. Pelcovits' substitution adjustment ($0.0033) or the 
interactive benchmark adjusted to give a more likely reading of the 
impact of downward trend in the effective play rates paid by 
interactive services ($0.0031).
    Thus, we find that these negotiated rates indicate that the 
interactive benchmark may likely overstate the prevailing market rate 
in the target market even when subjected to Dr. Pelcovits' substitution 
adjustment or Dr. Salinger's adjustment to mitigate the impact of 
downward trend in the effective play rates paid by interactive 
services. As a consequence, we further find that the interactive 
benchmark, even when subjected to these alternative adjustments, 
provides for rates near the upper bounds of the range of possible rates 
reasonably applicable to the target market, when the most likely 
prevailing rate in that market appears to be lower than the interactive 
benchmark rates. In other words, the NAB-SoundExchange and SiriusXM 
agreements lend weight to the need for a further downward adjustment in 
the benchmark rate to reflect a prevailing rate in the target market 
closer to the current statutory rate.
    Dr. Fratrik contends that the royalty rates in the NAB-
SoundExchange agreement must overvalue the input in question, because 
the NAB received a particularly valuable concession with respect to the 
waiver of performance complement rules as part of the rate agreement. 
See Fratrik Corrected and Amended WDT at 43-44. [``Consequently, these 
terrestrial broadcasters, already with the programming established to 
webcast, should be willing to pay more than other webcasters in order 
to relieve themselves of these provisions.'' (emphasis added)]. This 
claim of a one-sided benefit to broadcasters is not adequately 
supported in the record. The testimony of Dr. Pelcovits, Dr. Ordover 
and Mr. McCrady indicates that the waivers had value to both the NAB 
and to the record companies. Pelcovits Amended and Corrected WDT at 20 
n.21; Ordover WRT at 5, 18; McCrady WDT at 5-6. There is no clear 
evidence in the record to support either the notion that the limited 
performance complement waiver in the NAB-SoundExchange agreement was a 
largely one-sided benefit accruing only to the broadcasters or that 
broadcasters did, in fact, pay more than other webcasters to obtain 
these provisions.
    Dr. Fratrik also contends that terrestrial broadcasters were 
willing to pay more because they have fewer other costs to cover than 
pure webcasters. But Dr. Fratrik offers less than persuasive evidence 
of major cost differences between pure webcasters and broadcasters who 
engage in webcasting generally or between pure webcasters and the more 
limiting case of those broadcasters who exclusively simulcast. Dr. 
Fratrik appears to center his analysis on the latter case. Of course, 
focusing on this latter comparison simplifies from the reality of the 
market by assuming that all the webcasting performed by broadcasters 
consists of simulcasting when, in fact, the NAB-SoundExchange agreement 
provides for other types of webcasting (e.g., through side channels). 
See SX Ex. 102-DP at Article 1.1(d), 4.2. In addition to that 
analytical shortcoming, Dr. Fratrik's analysis suffers from other 
unsupported conclusions. Dr. Fratrik's cost-based contention appears to 
largely rest on the notion that simulcasters, unlike other

[[Page 13034]]

commercial webcasters, have no additional programming costs as those 
costs have already been paid in connection with their over-the-air 
operations. See Fratrik Corrected and Amended WDT at 41. But no 
specific empirical data in the record unambiguously supports this 
asserted relative difference. For example, Dr. Fratrik's conclusion 
ignores the wide range of business models utilized by commercial 
webcasters, including that of Live365, a webcaster that is apparently 
paid to put on programming designed by its clients as opposed to 
incurring a cost for originating such programming itself. Floater 
Corrected WDT at 4-8; 4/27/10 Tr. at 1274:5-16; 1301:1-4 (Fratrik).
    Several other theories are offered by the contending parties to 
suggest that the precedential WSA agreements are either higher or lower 
than the likely prevailing rate in the target market.
    For example, the possibility is raised that since the rates in the 
NAB-SoundExchange agreement were negotiated collectively on behalf of 
the record companies by SoundExchange, the rates might reflect some 
additional bargaining power exercised by SoundExchange as a single 
seller, relative to the bargaining power that would have otherwise been 
exercised by the individual record companies, leading to higher than 
free market-determined royalty rates. See Ordover WRT at 22, Salinger 
WRT at 27. While, at first blush, this contention appears to be 
consistent with economic theory, the facts surrounding the 
SoundExchange-NAB negotiation and the rates resulting from the 
negotiation cast serious doubt on the operation of normal economic 
theory in this case.
    These negotiations took place in the context of the WSA legislation 
specifically providing for SoundExchange to engage in such negotiations 
as a collective in order to reach agreements that would exempt 
webcasters from the 2006-2010 statutory rates, as well as allow for 
2011-2015 negotiated rates in lieu of any statutory rates that might be 
determined by the Judges for that term of the applicable license 
pursuant to a statutory proceeding. 17 U.S.C. 114(f)(5)(A). That is, 
the rates were to be negotiated in response to a specifically 
legislated, post-determination, second-chance opportunity afforded the 
parties to voluntarily reshape applicable webcasting rates. Thus, the 
rates could be said to have been negotiated both in the shadow of a 
specific regulatory scheme, as well as against the background of 
previously set statutory rates, which influenced the outcomes available 
to the parties and, in particular, constrained the exercise of monopoly 
power. Failing to reach an agreement for the 2011-2015 period, the 
buyers could still avail themselves of the statutory rate-setting 
procedure. That is, the buyers retained their rights to reject a 
settlement with SoundExchange and resort to the statutory rate-setting 
procedure for the 2011-2015 term of the license. Pelcovits Amended and 
Corrected WDT at 17; Ordover WRT at 23; Salinger WRT at 27. In other 
words, the buyers in this case maintained some leverage that otherwise 
would be absent if they faced a monopolist seller without any such 
recourse.
    Additionally, here, the NAB, which negotiated on behalf of 
broadcasters, effectively served as a single buyer and, thus, may be 
said to have exercised countervailing market power relative to 
SoundExchange. Ordover WRT at 23. At the same time, the SoundExchange-
SiriusXM agreement certainly offers the example of a non-NAB webcasting 
buyer for whom negotiations produced rates very similar to the NAB-
SoundExchange agreement, indicating that the NAB-SoundExchange 
agreement, on its face, did not result in the price discrimination 
sometimes associated with monopoly power.
    In short, the NAB-SoundExchange negotiated royalty rates do not 
appear to have been pushed above what might prevail in a multi-seller 
market as a result of SoundExchange's legislatively permitted role as a 
single seller in these negotiations because, under the circumstances, 
it was unlikely to have the ability to exercise the equivalent of the 
unchecked bargaining power of an unregulated monopolist.
    On the other hand, Dr. Ordover's attempt to cast the NAB-
SoundExchange agreement as producing royalty rates below what might 
prevail in a free market is also not supported by the record of 
evidence in this proceeding. Dr. Ordover suggests that, if certain 
circumstances can be assumed to be present, the NAB-SoundExchange 
agreement may represent a situation where SoundExchange, acting as a 
single seller, nevertheless would agree to lower royalty rates as 
compared to those that would occur in a free market in which individual 
record companies function as sellers. But Dr. Ordover's analysis is 
predicated on, among other assumptions, the key notion that the 
repertoire of all four major labels is necessary for simulcasters to 
operate a viable streaming service. That is, the sound recordings of 
record companies must be perceived as complementary inputs rather than 
as substitutes. Here, there is no evidence in the record which 
establishes that to be the case for any of the particular broadcasters 
who have opted into the NAB-SoundExchange agreement, let alone that it 
is the case generally for all broadcasters.\13\ For example, Dr. 
Ordover offers no evidence that these sound recording inputs are 
complements based on standard measures such as the cross-elasticity of 
demand. Moreover, the proffered notion that the NAB-SoundExchange 
agreement for broadcasters represents lower than average webcasting 
royalty rates based on some assumed unique requirement associated with 
simulcasting, is not borne out by the agreement itself which provides 
for no distinction between the royalty rate applicable to simulcasting 
and the royalty rate applicable to broadcasters who engage in other 
types of webcasting (e.g., side channels). See SX Ex. 102-DP at Article 
1.1(d), 4.2. Nor is there a substantial difference between the royalty 
rates applicable to simulcasting in the NAB-SoundExchange agreement and 
the royalty rates applicable to commercial webcasting in the SiriusXM-
SoundExchange agreement. In short, while Dr. Ordover's proposed 
explanation may be a plausible theory under certain circumstances, here 
it suffers from a lack of sufficient empirical support to demonstrate 
the presence of those circumstances.
---------------------------------------------------------------------------

    \13\ In Webcaster II, a similar assumption that a viable 
streaming service requires the repertoire of all four major labels 
was rejected by the Judges. See Webcaster II, 72 FR 24091 (May 1, 
2007).
---------------------------------------------------------------------------

    Finally, Dr. Salinger claims that the rates in both the NAB-
SoundExchange and SiriusXM agreements are higher than average 
webcasting royalty rates in the period 2011-2015 based on a theory that 
the NAB and SiriusXM structured their agreements with SoundExchange to 
provide for lower-than-statutory-rates for the years 2009-2010, but 
above-market rates for the 2011-2015 period, in anticipation that such 
a restructuring would adversely affect their rivals' costs in the 
latter period.
    Yet, this is also a theory without sufficient facts to support it 
in the instant case. There is no evidence in the record to suggest any 
coordination between the NAB and SiriusXM to reach their separate 
agreements with SoundExchange. Indeed, as NAB broadcasters and SiriusXM 
are competitors not only with respect to webcasting but also for 
listeners more generally, it would appear such coordination is 
unlikely. In addition, for the strategy of raising rivals' costs to 
work, SoundExchange would have to agree to go along with the NAB and

[[Page 13035]]

SiriusXM. 7/28/10 Tr. at 132:1-10 (Salinger). There is no evidence in 
the record to support this additional coordination. A further condition 
necessary to the success of the strategy is that the NAB and SiriusXM 
would have to feel assured that a rate setting proceeding would not 
result in a lower rate than those in their agreements with 
SoundExchange. There is no evidence in the record to suggest that any 
protection against a lower statutory rate was embodied in their 
agreements with SoundExchange. SX PFF at ] 270.
    Dr. Salinger suggests that one of the possible benefits to 
SoundExchange from cooperating with a NAB-SiriusXM raising rivals' 
costs strategy is that copyright owners may ``get a rate that's so high 
but then they get to practice price discrimination by negotiating 
lower.'' 7/28/10 Tr. at 133:18-22 (Salinger). However, as Dr. Fratrik 
acknowledged, in order to price discriminate the seller must ``be able 
to segment out customers.'' 4/27/10 Tr. at 1249:8-13 (Fratrik). No such 
market segmentation is supported by the record of evidence in this 
proceeding. On the contrary, simulcasting and other commercial 
webcasting compete for the same ultimate consumers who may easily 
substitute one service for the other as their listening choice. SX PFF 
at ]] 277, 278. In Webcaster II, similarly noting that the balance of 
the evidence in the record did not persuade us that these simulcasters 
operate in a submarket separate from and noncompetitive with other 
commercial webcasters, we declined to set a differentiated rate for 
commercial broadcasters. By contrast, where we did find sufficient 
evidence in the record that supported a finding that certain 
noncommercial webcasters constituted a distinct segment of the market, 
we did set a differentiated rate. Webcaster II, 72 FR 24095, 24097 (May 
1, 2007). In Webcaster II we noted that ``[a] segmented marketplace may 
have multiple equilibrium prices because it has multiple demand curves 
for the same commodity relative to a single supply curve'' and further, 
that ``[t]he multiple demand curves represent distinct classes of 
buyers and each demand curve exhibits a different price elasticity of 
demand.'' Webcaster II, 72 FR 24097. Price discrimination is a feature 
of such markets. Id. Dr. Salinger offers no persuasive empirical 
evidence of price discrimination related to different price 
elasticities of demand associated with distinct classes of buyers in 
the market.
    Dr. Salinger's analysis also fails to address other important 
features of the ``raising rivals' costs'' construct. For example, he 
does not empirically examine whether it would make economic sense for 
NAB and SiriusXM in terms of profitability, to effectively shift up 
their respective average cost curves at the original output's average 
cost. In other words, by agreeing to a higher price for the sound 
recording input, NAB and SiriusXM may sacrifice some of their 
profitability, depending on the demand for their output. Dr. Salinger 
does not empirically address the extent to which that may or may not 
occur. Nor does he examine how the results of such a profitability 
analysis might support or undermine the incentives behind the ``raising 
rivals' costs'' strategy that he opines was operative in motivating NAB 
and SiriusXM negotiating behavior. For all these reasons, we do not 
find Dr. Salinger's ``raising rivals' costs'' theory persuasive.
    However, it cannot be disputed that the 2009 and 2010 rates 
negotiated in these settlements were lower than the statutory rates 
otherwise applicable to commercial webcasters. Dr. Pelcovits offers 
another possible adjustment to mitigate the effects of the lower 2009-
2010 rates enjoyed by the NAB and SiriusXM as compared to those 
commercial webcasters that remained subject to the statutory rate. The 
rates resulting from Dr. Pelcovits' calculation ``would give webcasters 
that are not part of the WSA settlements the same effective rate over 
the eight-year period [2009-2015] as the NAB and SiriusXM, assuming 
they all experience the same level of growth in performances.'' 
Pelcovits Amended and Corrected WDT at Appendix II. This calculation 
results in rates equal to the current statutory rate for the first year 
of the 2011-2015 term and only somewhat higher thereafter. For the 
five-year period beginning 2011, these adjusted NAB/SiriusXM agreement 
rates are as follows: $0.0019 for 2011, $0.0020 for 2012, $0.0020 for 
2013, $0.0020 for 2014 and $0.0021 for 2015. Pelcovits Amended and 
Corrected WDT at Appendix II.
    After a careful consideration of the evidence presented on the 
various suggested sources of potential overvaluation and undervaluation 
of the market rates by the NAB-SoundExchange and SiriusXM agreements, 
we find that the rates in these agreements do not appear to seriously 
overvalue or undervalue input prices likely to prevail in the market. 
Therefore, because the NAB-SoundExchange and SiriusXM agreements 
clearly govern the rates for a substantial number of commercial 
webcasters over the relevant 2011-2015 period and the commercial 
webcasters covered by these agreements are competitors with the other 
commercial webcasters who comprise the remainder of the non-interactive 
webcasting services, we find these agreements are a useful gauge of the 
weight to be assigned to the rates suggested by the interactive 
webcasting benchmark. See supra at Section II.B.3.b.ii.
    Inasmuch as there are only small differences between the 2011, 2012 
and 2013 rates in the NAB and SiriusXM agreements and the 2010 
statutory rate, we decline to assign a weight to the interactive 
webcasting benchmark that results in a rate at great variance with the 
current statutory rate. In other words, the rates in these negotiated 
agreements serve as a caution to us not to depart radically from past 
rates where we cannot be confident, based on the quality of the 
benchmark evidence in the record, that the magnitude of such a 
departure is fully supported in the target market. Here, the NAB and 
SirusXM agreements serve as a means of roughly correcting the 
interactive benchmark for any overvaluation not captured by the 
variables directly considered in the analysis. As a consequence, we 
find that the current statutory rate ($0.0019) sets the lower bounds 
for a range of rates reasonably applicable to the target market and 
that the most likely prevailing rate in that market is closer to this 
lower boundary than to the upper boundary identified hereinabove.
4. The Section 114 Commercial Webcaster Rates Determined by the Judges
    As previously indicated, supra at Section II.B.3.b.i., the Judges 
find the interactive webcasting benchmark to be of the comparable type 
that the Copyright Act invites us to consider. It is a benchmark with 
characteristics reasonably similar to non-interactive webcasting, 
particularly after some adjustment to account for the differences 
attributable to interactivity. Id. However, we cannot find sufficient 
evidence in the record to support an increase that fully implements the 
rates proposed on the basis of the interactive benchmark. Rather, we 
find that a rate of $0.0036, derived from the interactive market and 
adjusted for interactivity differences, can be no more than the upper 
bounds of a range of possible rates reasonably applicable to the target 
market. That is because: (1) There is likely some ``upward bias'' 
introduced into the interactive benchmark analysis through its focus on 
only subscription-based services in the benchmark market (see supra at 
Section II.B.3.b.i.) and (2) there is some merit to Dr. Salinger's

[[Page 13036]]

identification of some additional sources of upward bias in the 
Pelcovits interactive benchmark analysis. Id.
    Two measures available to test the magnitude of such upward bias 
are the NAB-SoundExchange and SiriusXM-SoundExchange agreements. That 
is, we find that these agreements are a useful gauge of the weights to 
be assigned to the rates suggested by the interactive webcasting 
benchmark, because the NAB-SoundExchange and SiriusXM-SoundExchange 
agreements clearly govern the rates for a substantial number of 
commercial webcasters over the relevant 2011-2015 period and the 
commercial webcasters covered by these agreements are competitors with 
the other commercial webcasters who comprise the remainder of the non-
interactive webcasting services (see supra at Section II.B.3.b.ii.). 
These negotiated rates indicate that the interactive benchmark may 
likely overstate the prevailing market rate in the target market even 
when subjected to Dr. Pelcovits' substitution adjustment or Dr. 
Salinger's adjustment to mitigate the impact of downward trend in the 
effective play rates paid by interactive services. Id. Indeed, the NAB-
SoundExchange and SiriusXM agreements lend weight to the need for a 
further downward adjustment in the benchmark rate to reflect a 
prevailing rate in the target market closer to the current statutory 
rate. Id. In this way, the NAB-SoundExchange and SirusXM agreements 
serve as a means of roughly correcting the interactive benchmark for 
any overvaluation not captured by the variables directly considered in 
the analysis. Therefore, inasmuch as there appears to be only a small 
difference between the 2011 rate in the NAB-SoundExchange and SiriusXM 
agreements and the 2010 statutory rate, we find that the current 
statutory rate ($0.0019) sets the lower bounds for a range of rates 
reasonably applicable to the target market and that the most likely 
prevailing rate in that market is closer to this lower boundary than to 
the interactive benchmark rates recommended by Dr. Pelcovits.
    In other words, while we accept the interactive benchmark as 
suggesting an increase in royalty rates for non-interactive webcasting 
over or by the end of the period 2011-2015, we find that the weight of 
the evidence does not allow us to accept the full amount of the 
increases suggested by either the unadjusted or the various adjusted 
versions of the interactive benchmark. Rather having identified the 
$0.0036 rate as the upper boundary for a zone of reasonableness for 
potential marketplace benchmarks and the $0.0019 rate as the lower 
boundary for a zone of reasonableness for potential marketplace 
benchmarks, we find that the most likely prevailing rate in the target 
market is closer to the lower boundary than to the upper boundary of 
this zone of reasonableness (see supra at Section II.B.3.b.ii.).
    However, the most likely prevailing rate at the present time is 
also likely to shift upward over the 2011-2015 term. We recognize that 
the interactive benchmark derived in this proceeding after adjusting 
for interactivity and accounting for substitution (i.e., $0.0033) 
itself indicates an increase when compared to a similarly adjusted 
interactive benchmark derived in Webcaster II (i.e., $0.0019). See 
supra at Section II.B.3.b.i.; Webcaster II, 72 FR 24094, 24096. 
Similarly, the NAB-SoundExchange and SiriusXM-SoundExchange agreements 
exhibit an increase in rates over the 2011-2015 term for competing 
webcasters. See supra at Section II.B.3.b.ii. Moreover, we also find 
that the evidence in the record on industry growth in increased 
advertising revenues, increased performances, and increased listening 
likely support at least a modest increase over the 2011-2015 term. See 
supra at Section II.B.3.a.iii. However, we recognize that while the 
trend in industry growth, as captured by some measures such as 
listenership, has been decidedly upward, that growth has occurred 
unevenly from year to year, with two-year plateaus succeeded by large 
jumps in growth. Id.
    Our findings suggest three criteria for an appropriate rate based 
on the marketplace evidence we have been presented. These criteria are: 
(1) A rate structure that reflects our finding that the most likely 
prevailing rate in the target market is closer to the lower boundary 
than to the upper boundary of the zone of reasonableness for potential 
marketplace benchmarks; (2) a rate structure that accommodates some 
modest growth in rates over the term of the license period; and (3) a 
rate structure that provides for longer periods of stable rates during 
the term of the license period. We find that the following rate 
structure for commercial webcasters, based on our downward adjustment 
of the interactive benchmark, meets these three criteria: For the five-
year period beginning 2011, the per play rate applicable to each year 
of the license for Commercial Webcasters is: $0.0019 for 2011, $0.0021 
for 2012, $0.0021 for 2013, $0.0023 for 2014 and $0.0023 for 2015.
    The willing buyer/willing seller standard in the Copyright Act 
encompasses consideration of economic, competitive and programming 
information presented by the parties, including (1) the promotional or 
substitution effects of the use of webcasting services by the public on 
the sales of phonorecords or other effects of the use of webcasting 
that may interfere with or enhance the sound recording copyright 
owner's other streams of revenue from its sound recordings; and (2) the 
relative contributions made by the copyright owner and the webcasting 
service with respect to creativity, technology, capital investment, 
cost and risk in bringing the copyrighted work and the service to the 
public. Because we adopt an adjusted benchmark approach to determining 
the rates, we agree with Webcaster II and Webcaster I that such 
considerations would have already been factored into the negotiated 
price in the benchmark agreements. 72 FR 24095 (May 1, 2007); 67 FR 
45244 (July 8, 2002). Therefore, such considerations have been reviewed 
by the Copyright Royalty Judges in our determination of the most 
appropriate benchmark from which to set rates. Similar considerations 
would have been factored into the negotiated price of the NAB-
SoundExchange and SiriusXM-SoundExchange agreements which we utilized 
to roughly gauge the further downward adjustment necessary to assure 
that the interactive benchmark rates reasonably reflected likely rates 
in the target market.
    Nevertheless, we have also further separately reviewed the evidence 
bearing on these considerations. We find that no further upward or 
downward adjustment is indicated. We have previously noted that the 
evidence submitted by Live365 on each of these considerations is too 
weak to establish a basis for a decrease in webcaster royalty rates 
from the current statutory rate (see supra at Section II.B.3.a.iii.). 
Nor does Live365 present an acceptable empirical basis for quantifying 
the individual asserted effects of these various factors and/or for 
deriving a method for translating such magnitudes into a rate 
adjustment. Id. Similarly, to the extent that SoundExchange treats each 
of these factors separate from its proffered benchmark analysis, it 
also does not present an acceptable empirical basis for quantifying the 
individual asserted effects of these various factors and/or for 
deriving a method for translating such magnitudes into a rate 
adjustment. Moreover, SoundExchange explicitly relies on Dr. Pelcovits' 
interactive services benchmark analysis to encompass these 
considerations. SX RCL at ] 20. Therefore, our further consideration of

[[Page 13037]]

these factors leads us to find no need for any further adjustment to 
the rates determined hereinabove.
5. The Proposed Aggregator Discount to the Section 114 Commercial 
Webcaster Rates
    Live365 seeks a further 20% discount applicable to the commercial 
webcasting per performance rate for certain ``qualified webcast 
aggregation services'' who operate a network of at least 100 
independently operated ``aggregated webcasters'' that individually 
``stream less than 100,000 ATH per month of royalty-bearing 
performances.'' Rate Proposal For Live365, Inc., Appendix A, Proposed 
Regulations at Sec.  380.2 and Sec.  380.3(a)(2). This ``discount'' 
proposal may be more properly understood as a proposed term rather than 
an additional rate proposal. It is conditional; that is, it is 
applicable only to the extent that certain defined conditions are met 
(e.g., minimum number of 100 aggregated webcasters and each individual 
aggregated webcaster streaming less than 100,000 ATH per month). It 
proposes to establish a mechanism whereby a group of commercial 
webcasters under certain qualifying conditions may utilize a ``webcast 
aggregation service'' to aggregate their monitoring and reporting 
functions. Rate Proposal For Live365, Inc., Appendix A, Proposed 
Regulations at Sec.  380.2(m). Monitoring and reporting are compliance-
related functions that are currently required of all individual 
webcaster licensees.
    We find no persuasive evidence in the record to support the 
imposition of an aggregator discount that would apply to the statutory 
rate for commercial webcasters. Live365 submitted testimony from Dr. 
Fratrik and Mr. Floater to support this request. The testimony of the 
latter witness does not, in any meaningful way, address the purported 
rationale behind this request--namely, that an administrative benefit 
accrues to the collective which, by implication, reduces transactions 
costs. Rather Mr. Floater's testimony speaks largely about the asserted 
benefits of using an aggregation service that flow to ``individual 
webcasters'' who make use of the service and to copyright owners of 
having multiple webcaster stations assembled on a single platform. [``* 
* * a streaming architecture that can aggregate tens of thousands of 
individual webcasters * * * Live365's broadcast tools and services 
enable broadcasters to economically and efficiently stream their 
programming * * * Live365's aggregation helps broadcasters contain 
their costs * * * Live365 allows small webcasters to broadcast content 
* * * while generating increased performances, sales, royalties and 
promotional benefits for a wide range of artists and copyright 
holders.''] Floater Corrected WDT at 11-14. These asserted benefits to 
individual webcasters and copyright owners, which are not quantified 
sufficiently to ascertain their value, are benefits that are largely 
indistinguishable from those that might be asserted by any multi-
channel webcaster. Nor do these benefits address the issues at heart of 
the proposal; that is, whether an aggregator like Live365 provides any 
administrative benefit that could be shown to reduce transactions 
costs, whether any administrative benefit provided by the aggregator 
can be measured and translated into a discount applicable to the 
commercial webcasting royalty rate, and whether the full amount of the 
purported administrative benefit should properly flow to the 
aggregator, to the individual webcasters so aggregated, to the 
copyright owners or to some combination thereof.\14\ We do not find Mr. 
Floater's testimony helpful in resolving any of these issues.
---------------------------------------------------------------------------

    \14\ For example, it is obvious that if the full amount of any 
purported administrative savings were to flow to the aggregator, 
then no benefit accrues to anyone else. In such a formulation, the 
aggregator proposal would seem to reduce to a mere stalking horse 
for obtaining a less than competitive market rate that advantages 
Live365 as compared to other commercial webcasters and simulcasters.
---------------------------------------------------------------------------

    Live365 also submitted testimony from Dr. Fratrik to support its 
request for an aggregator discount that attempts, in part, to address 
the administrative savings issue. Dr. Fratrik opines that aggregators 
are entitled to this discount because they ``collect and compile all of 
the necessary documentation of the actual copyrighted works that are 
streamed and the number of total listening levels for each of these 
copyrighted works'' and because ``aggregators make royalty payments to 
the appropriate parties.'' Fratrik Corrected and Amended WDT at 38. But 
again these functions are part of the same sort of compliance 
activities for which any multi-channel webcaster would necessarily be 
responsible on behalf of the multiplicity of channels it offered. They 
do not appear to be unique to an ``aggregator.'' Indeed, when 
questioned about his description of the aggregator discount, Dr. 
Fratrik offered no practical distinction between an ``aggregator'' and 
any commercial webcaster or simulcaster who offered 100 or more 
channels. 4/27/10 Tr. at 1265:9-1266:22; 1267:7-1270:15 (Fratrik). We 
find that Dr. Fratrik's claim of administrative cost savings provided 
by aggregators describes a benefit that is largely indistinguishable 
from those that might be asserted by any multi-channel webcaster. 
Therefore, inasmuch as multi-channel webcasters already receive a 
benefit under current regulations \15\ (37 CFR 380.3(b)(1)) by way of a 
$50,000 cap on the minimum fee for services with 100 or more stations 
or channels, the proposed additional discount for indistinguishable 
administrative services provided by an ``aggregator'' is unwarrantedly 
cumulative. SX PFF at ] 597.
---------------------------------------------------------------------------

    \15\ Under the May 14, 2010 Stipulation executed by 
SoundExchange and Live365, the $50,000 cap on minimum fees was also 
agreed to by the parties for the 2011-2015 term. See supra at 
Section II.B.1.
---------------------------------------------------------------------------

    Furthermore, Dr. Fratrik admitted that the choice of 100 channels 
or stations as the threshold for triggering the proposed aggregator 
discount was not supported by any examination of administrative costs 
to see what relative administrative cost savings specifically 
demarcated the boundaries of the discount's applicability. 4/27/10 Tr. 
at 1270:12-1271:3 (Fratrik). In other words, Dr. Fratrik establishes no 
cost savings basis in the record for a distinction between the 
administrative cost savings that might accrue from aggregating 100 
stations as compared to 50 or 300 stations where each such station 
meets the additional condition of accounting for streaming of less than 
100,000 ATH per month.
    At the same time, Dr. Fratrik reaches his estimated 20% discount 
rate through the offer of a kind of benchmark analysis that uses 
purported aggregator discounts provided to Live365 in its agreements 
with the Performance Rights Organizations (``PROs'') pertaining to 
musical works royalties. But Dr. Fratrik indicated in his testimony 
that the Live365-BMI agreement he utilized to support this benchmark 
does not provide a discount to Live365 for aggregating webcasters. 
Instead, the agreement apparently provides a discount more directly to 
very small webcasters that utilize Live365 for certain administrative 
functions related to compliance. 4/27/10 Tr. 1261:18-1262:19 (Fratrik). 
That is not comparable to the proposal before us which calls for the 
aggregator to receive the full benefits of any discount.
    In any case, even if Live365 were to receive the full benefits of 
any aggregator discount in the BMI agreement, such PRO agreements do 
not constitute a benchmark that inspires sufficient confidence to be 
useful. Dr. Fratrik asserts that Live365 provides centralized 
administration for the

[[Page 13038]]

benefit of the PROs, including centralized collection, reporting and 
compliance. But he offers no evidence to suggest that the types and 
level of centralized administrative services provided to the PROs are 
comparable to the administrative services to be provided by the 
aggregator to SoundExchange. In Webcaster II, we found that another 
benchmark offered in that proceeding based on the musical works market 
was flawed because the sellers in that market are different and they 
are selling different rights. 72 FR 24094 (May 1, 2007). Yet, in the 
instant proceeding, Dr. Fratrik fails to show that these different 
sellers and different rights give rise to comparably valued 
``centralized'' administrative services provided by a third party in 
the target sound recordings market. Nor does Dr. Fratrik address the 
issue of whether any adjustments to the data from the benchmark musical 
works market are required that could make it more comparable to the 
target sound recordings market.
    In short, we find that Live365 makes no sufficient showing that an 
aggregator discount can be justified in general, or adequately measured 
in particular, on the basis of the evidence in the record.
    To the extent that Live365's proposed aggregator discount is viewed 
strictly as a rate proposal rather than a term, Live365 also fails to 
delineate a basis for a different royalty rate applicable to a distinct 
submarket of the larger commercial webcasting market. Webcasting II 
determined that a key factor in differentiating between classes of 
webcasters for rate purposes is whether the webcasters operate in a 
distinct market segment or submarket that does not directly compete 
with the remainder of all webcasters. Webcaster II, 72 FR 24095, 24097 
(May 1, 2007); see also supra at Section II.B.3.b.ii. Live365 as the 
aggregator does not appear to meet this standard. The record clearly 
establishes that Live365 competes directly with other commercial 
webcasters. SX PFF at ] 280. And, of course, whether considered as a 
proposed rate for a new category of commercial webcasters or, as noted 
hereinabove as a proposed term, we are not persuaded by the record of 
evidence in this proceeding of a particular market value provided by an 
aggregator in terms of reduced transactions costs that can, or should, 
be translated into a discount applicable to the commercial webcasting 
royalty rate.
    In addition, some aspects of the Live365 proposal appear likely to 
engender confusion. For example, Live365 proposes definitions for a 
``webcast aggregation service,'' ``aggregated webcasters,'' 
``commercial webcaster,'' and ``licensee.'' Taken together, these 
definitions fail to explicitly delineate that Live365 intends the 
webcast aggregation service to serve as the licensee in its proposed 
arrangement and that the webcasters whose programming is transmitted 
are not the licensees. The proposed regulations, by contrast, identify 
webcasters specifically as licensees and, therefore, suggest that any 
commercial webcaster, whether aggregated or unaggregated, remains 
responsible for payment of the applicable statutory license fee. See 
Rate Proposal For Live365, Inc., Appendix A, Proposed Regulations at 
Sec.  380.2(b), Sec.  380.2(e), Sec.  380.2(h), Sec.  380.2(o); 9/30/10 
Tr. at 622:14-22, 669:18-677:12 (Closing Arguments, Oxenford). Such 
confusion has practical consequences. Given that the aggregator, as the 
licensee, is not obligated to provide a list of webcasters for whom it 
purports to pay SoundExchange and the aggregator, as licensee, may not 
voluntarily provide such a list to SoundExchange, it may result in more 
time-consuming administrative effort for SoundExchange to determine 
whether a particular webcaster is subject to or properly complying with 
the statutory licenses. This burden was pointed out by Mr. Funn in the 
context of SoundExchange's specific experience with Live365. Funn WRT 
at 2; 8/2/10 Tr. at 445:13-446:2 (Funn).
    For all the above reasons, we decline to adopt Live365's proposal 
for a 20% aggregator discount, applicable under certain conditions to 
the commercial webcasting royalty rate.

III. Noncommercial Webcasters

    Having determined the rates for commercial webcasters, the Judges 
now turn to the noncommercial category. As previously mentioned, 
certain services argued in Webcaster II that they were distinguishable 
from commercial webcasters and, as a result, deserved a lower royalty 
rate. We observed:

    Based on the available evidence, we find that, up to a point, 
certain ``noncommercial'' webcasters may constitute a distinct 
segment of the noninteractive webcasting market that in a willing 
buyer/willing seller hypothetical marketplace would produce 
different, lower rates than we have determined hereinabove for 
Commercial Webcasters. A segmented marketplace may have multiple 
equilibrium prices because it has multiple demand curves for the 
same commodity relative to a single supply curve. An example of a 
segmented market is a market for electricity with different prices 
for commercial users and residential users. In other words, price 
differentiation or price discrimination is a feature of such 
markets. The multiple demand curves represent distinct classes of 
buyers and each demand curve exhibits a different price elasticity 
of demand. By definition, if the commodity in question derives its 
demand from its ultimate use, then the marketplace can remain 
segmented only if buyers are unable to transfer the commodity easily 
among ultimate uses. Put another way, each type of ultimate use must 
be different.

Webcaster II, 72 FR 24097 (footnote omitted). We found that the 
evidence supported a submarket for noncommercial webcasting, but 
included safeguards to assure that the submarket did not converge or 
overlap with the submarket for commercial webcasting. A cap of 159,140 
ATH per month marked the boundary between noncommercial and commercial 
webcasting, and we adopted a $500 per station or channel rate which 
included the annual, non-refundable, but recoupable, $500 minimum fee 
payable in advance.\16\
---------------------------------------------------------------------------

    \16\ The United States Court of Appeals for the District of 
Columbia Circuit remanded the $500 minimum fee for lack of evidence. 
Intercollegiate Broadcast System, Inc. v. Copyright Royalty Board, 
574 F.3d 748, 767 (DC Cir. 2009). After taking evidence, we adopted 
a $500 minimum fee. Digital Performance Right in Sound Recordings 
and Ephemeral Recordings (Remand order), 75 FR 56873, 56784 
(September 17, 2010).
---------------------------------------------------------------------------

    In this proceeding, certain participants have once again asked us 
for adoption of lower rates for noncommercial webcasting. Greater 
refinements to the category are also sought; namely, separate rates for 
distinct ``types'' of services (all still under the general rubric of 
noncommercial). SoundExchange and CBI have submitted an agreement, 
pursuant to 17 U.S.C. 801(b)(7)(A), for rates and terms for a type of 
service that they identify as ``noncommercial educational webcasters.'' 
SX PFF at ] 65; CBI PFF at ] 5. IBS urges us to recognize and set rates 
for two types of services: small noncommercial webcasters, defined as 
those whose ATH does not exceed 15,914 per month, and very small 
noncommercial webcasters, defined as those whose ATH does not exceed 
6,365 per month. IBS PFF (Reformatted) at ] 26. We address these 
requests beginning with the SoundExchange-CBI agreement.

A. Noncommercial Educational Webcasters

    On August 13, 2009, slightly more than eight months into the cycle 
of this proceeding, SoundExchange and CBI submitted a joint motion to 
adopt a partial settlement ``for certain internet transmissions by 
college radio stations and other noncommercial educational 
webcasters.'' Joint Motion to Adopt

[[Page 13039]]

Partial Settlement at 1. The settlement was achieved under 
authorization granted by the Webcaster Settlement Act of 2009, Public 
Law 111-36, discussed supra at Section I.B., and was published by the 
Copyright Office in the Federal Register. See 74 FR 40616 (August 12, 
2009). By virtue of that publication, the SoundExchange-CBI agreement 
is now ``available, as an option, to any * * * noncommercial webcaster 
meeting the eligibility conditions of such agreement.'' 17 U.S.C. 
114(f)(5)(B). In submitting the agreement to the Judges, SoundExchange 
and CBI urged us to likewise publish it in the Federal Register and 
adopt it, under 17 U.S.C. 801(b)(7)(A), as the rates and terms 
applicable to noncommercial educational webcasters for the period 2011 
through 2015.\17\
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    \17\ At the hearing to consider the SoundExchange/CBI motion, 
there was significant discussion as to whether SoundExchange and CBI 
were asking the Judges to adopt the agreement as an option for 
noncommercial educational webcasters or whether the agreement would 
be binding on all noncommercial educational webcasters. See 5/5/10 
Tr. at 5:8-51:11 (Hearing on Joint Motion To Adopt Partial 
Settlement). The confusion was created by the last two sentences of 
proposed Sec.  380.20(b) to the Judges' rules, 37 CFR, which 
provided:
    However, if a Noncommercial Educational Webcaster is also 
eligible for any other rates and terms for its Eligible 
Transmissions during the period January 1, 2011, through December 
31, 2015, it may by written notice to the Collective in a form to be 
provided by the Collective, elect to be subject to such other rates 
and terms rather than the rates and terms specified in this subpart. 
If a single educational institution has more than one station making 
Eligible Transmissions, each such station may determine individually 
whether it elects to be subject to this subpart.
    Digital Performance Right in Sound Recordings and Ephemeral 
Recordings (Proposed rule), 75 FR 16377, 16383 (April 1, 2010). 
After deliberations, counsel for SoundExchange conceded that such 
language was confusing and unnecessary, since the purpose of the 
motion was to set the rates and terms for all services that met the 
definition of a noncommercial educational webcaster, and could be 
removed. 5/5/10 Tr. at 46:14-47:16, 50:12-51:11 (Hearing on Joint 
Motion To Adopt Partial Settlement). In adopting The SoundExchange/
CBI agreement today, we are accepting SoundExchange's offer and are 
not adopting this language.
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    On April 1, 2010, the Judges did publish the SoundExchange/CBI 
agreement under the authority of section 801(b)(7)(A). 75 FR 16377. 
With respect to rates, the agreement proposes an annual, nonrefundable 
minimum fee of $500 for each station or individual channel, including 
each of its individual side channels. Id. at 16384 (April 1, 2010). For 
those noncommercial educational webcasters whose monthly ATH exceed 
159,140, additional fees are paid on a per-performance basis. There is 
also an optional $100 proxy fee that may be paid by noncommercial 
educational webcasters in lieu of submitting reports of use of sound 
recordings. The agreement also contains a number of terms of payment.
    Our consideration of the SoundExchange-CBI agreement, as is the 
case with the NAB-SoundExchange agreement is governed by 17 U.S.C. 
801(b)(7)(A). The Judges received 24 comments, from managers and 
representatives of terrestrial radio stations, favoring adoption of the 
SoundExchange-CBI agreement. Many of these comments asserted that the 
rate structure was compatible with their budget restraints, see, e.g., 
Comment of Bill Keith for WSDP Radio, Plymouth-Canton Community Schools 
(``The monetary amount was reasonable and most college or high school 
stations can live with the amounts charged for webcasting''), and 
several expressed satisfaction with the $100 proxy fee in lieu of 
reports of use. See, e.g., Comments of Christopher Thuringer for WRFL, 
University of Kentucky; Comments of David Black, General Manager, WSUM-
FM. We received one comment objecting to the settlement from IBS.\18\ 
We held a hearing on the motion on May 5, 2010.
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    \18\ IBS has asserted several times throughout the course of 
this proceeding that it represents more college and high school 
radio stations than CBI. See, e.g. 5/5/10 Tr. at 80:16-81:3 (Hearing 
on Joint Motion to Adopt Partial Settlement). However, it has never 
provided any evidence to demonstrate this is true. In fact, IBS has 
never revealed to the Judges how many members it has, let alone 
their identities.
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    During the course of the hearing, it became clear that IBS' 
arguments centered upon the proposed annual $500 minimum fee for 
stations with less than 159,140 ATH. Most significantly, IBS contended 
that if the Judges adopted the proposed minimum fee for noncommercial 
educational webcasters, it would be precluded from presenting its own 
minimum fee proposal and, effectively, its participation in this 
proceeding would be ended. 5/5/10 Tr. at 51:22-52:2 (``I think Mr. 
DeSanctis' [counsel for SoundExchange] last remarks indicate that this 
is an attempt to freeze IBS out of statutory rights to a decision from 
the Board on the record.'') (Hearing on Joint Motion to Adopt Partial 
Settlement). After conclusion of the hearing, the Judges did not render 
a decision on the adoption of the settlement, preferring instead to let 
IBS present its case in the main and consider the matter after all 
testimony had been presented.
    It is now evident that IBS' contention of a ``freeze out'' was 
erroneous from the start, for IBS never proposed any rates and terms 
for noncommercial educational webcasters. Rather, as noted above, IBS 
requested rates and terms only for certain noncommercial webcasters 
(defined by it as ``small'' and ``very small''). The Judges pressed 
counsel for IBS at closing argument as to whether he still objected to 
adoption of the SoundExchange-CBI agreement as the basis for 
establishing rates and terms for noncommercial educational webcasters. 
After some dissembling, he concluded that he did to the extent that 
adoption of the agreement might influence or prejudice his rate 
proposal.\19\ We find that his response does not support a proper 
objection raised under section 801(b)(7)(A)(ii) which would require us 
to consider the reasonableness of the SoundExchange/CBI agreement. Cf. 
37 CFR 351.10 (admissible evidence must be relevant); FRE 401. Even if 
we were to conclude otherwise, IBS has not presented any credible 
testimony that the agreement is unreasonable. Twenty-four noncommercial 
broadcasters that purportedly will operate their webcasting services 
under the agreement find it to be reasonable and affordable. IBS has 
not provided documented testimony to the contrary, despite an 
invitation to do so. 5/5/10 Tr. at 81:7-82:10 (Hearing on Joint Motion 
to Adopt Partial Settlement). Instead, it has relied upon the bald 
assertions of its counsel and its witnesses, arguing that some 
unidentified and unspecified number of its members cannot afford the 
fees contained in the agreement and will be driven from the webcasting 
business.

[[Page 13040]]

Without proper evidence, we could not find the agreement unreasonable, 
were we inclined to do so.
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    \19\ [THE JUDGES]: You're not proposing a rate for noncommercial 
educational webcasters. Only CBI and SoundExchange are.
     MR. MALONE: Right.
     [THE JUDGES]: So why are you objecting to the adoption of that 
if you have a--two separate categories that you want adopted?
     MR. MALONE: Well, the judges can certainly say that--I mean, 
there's nothing incompatible with them. The--
     [THE JUDGES]: But I'm asking you why are you still objecting to 
the adoption of a $500 minimum fee for noncommercial educational 
webcasters when you have proposed new fees for two new types of 
services and have not proposed a fee for something called a 
noncommercial educational webcaster?
     MR. MALONE: Well, our--
     [THE JUDGES]: Where is your dog in that fight? I don't see it.
     MR. MALONE: All right. The dog in that fight is--and, again, 
excluding indirect effects that I understand to be the context of 
your question.
     We have no objection to the terms that are there as long as 
they don't apply to our small stations.
     [THE JUDGES]: So you're just objecting to it on the theory that 
you just hope that what's ever in there doesn't somehow get applied 
to your case, even though you're asking for two completely different 
services?
     MR. MALONE: That's essentially correct, Your Honor.
    9/30/10 Tr. at 660:13--661:22 (IBS Closing Argument).
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    Finding neither a proper nor a credible objection to the 
SoundExchange-CBI agreement, nor other grounds requiring rejection, we 
adopt the agreement (see supra n.17) as the basis for rates and terms 
for noncommercial educational webcasters for the period 2011-2015. See 
supra Section II.A.

B. All Other Noncommercial Webcasters

1. Rate Proposals for the Section 114 License for Noncommercial 
Webcasters
    The Judges' adoption of the SoundExchange-CBI agreement under 
section 801(b)(7)(A) does not resolve the matter of rates for the 
broader category of noncommercial webcasters that we recognized in 
Webcaster II. SoundExchange urges adoption of the same rates for 
noncommercial webcasters as noncommercial educational webcasters. IBS 
agrees, but proposes that we recognize two new types of services: small 
and very small noncommercial webcasters. We address these proposals 
separately.
    For noncommercial webcasters operating under the sections 112 and 
114 licenses, SoundExchange proposes a royalty of $500 per station or 
channel per year, subject to the 159,140 ATH limit. The base royalty 
would be paid in the form of a $500 per station or channel annual 
minimum fee, with no cap. If a station or channel exceeds the ATH 
limit, then the noncommercial webcaster would pay at the commercial 
usage rates for any overage. SX PFF at ]] 489, 471. In support of its 
proposal, SoundExchange points to the fact that 363 noncommercial 
webcasters paid royalties in 2009 similar to its current proposal, with 
305 of those webcasters paying only the $500 minimum fee. Id. at ] 493. 
This, in its view, demonstrates noncommercial webcasters' ability and 
willingness to pay the requested fees.
    SoundExchange also submits that the reasonableness of the $500 
minimum fee is confirmed by the testimony of Barrie Kessler, its chief 
operating officer. While SoundExchange does not track its 
administrative costs on a service-by-service basis, Ms. Kessler 
presented a ``reasonableness check'' by estimating its administrative 
cost per service and per channel. First, she divided SoundExchange's 
total expenses for 2008 by the number of licensees, and then divided 
that number by the average number of stations or channels per licensee 
(seven). The result was an approximate average administrative cost of 
$825 per station or channel. Kessler Corrected WDT at 25.
    Finally, SoundExchange offers its agreement with CBI, discussed 
above, as support for its rate proposal. The fees are the same, along 
with the 159,140 ATH limitation and no cap on the minimum fee. The 
agreement, along with the 24 comments received in favor of it, ``is 
strong evidence of the rates and terms that noncommercial webcasters 
are willing to pay.'' SX PFF at ] 501.
    IBS agrees with SoundExchange's proposal for noncommercial 
webcasters, but asks the Judges to recognize two additional types of 
noncommercial services that it identifies as ``small'' and ``very 
small.'' Its arrival at this request has followed a decidedly 
convoluted path throughout this proceeding, metamorphosing from the 
written direct statements through the closing argument. Section 
351.4(a)(3) of the Judges' rules, which governs the content of written 
direct statements, provides that in a rate proceeding, ``each party 
must state its requested rate.'' IBS did not do this in plain fashion, 
instead including its request within the body of testimony of one of 
its three witnesses. Frederick J. Kass, Jr., the ``treasurer, director 
of operation (chief operating officer), and a director of'' IBS stated 
that: ``IBS Members should only pay for their direct use of the 
statutory license by the IBS Member. There should be no minimum fee 
greater than that which would reasonably approximate the annual direct 
use of the statutory license, not to exceed $25.00 annually.'' Kass WDT 
at 1, 9. However, Mr. Kass attached as an exhibit to his statement a 
joint petition to adopt an agreement negotiated between the RIAA, IBS, 
and the Harvard Radio Broadcasting, Co. that was submitted to the 
Copyright Office on August 26, 2004.\20\ That agreement provided for a 
minimum annual fee of $500 for noncommercial educational webcasters, 
except that the fee was $250 for any noncommercial educational 
webcaster that affiliated with an educational institution with fewer 
than 10,000 enrolled students or where substantially all of the 
programming transmitted was classified as news, talk, sports or 
business programming. Kass WDT, Exhibit A at 5. Despite the inclusion 
of this exhibit, Mr. Kass expressly disavowed endorsement of its rates 
in the hearing on his written direct statement. Instead, he asserted 
that ``the appropriate rates are what most people were paying in the 
marketplace for the direct use of the statutory license,'' without 
stating what that fee or amount should be. 4/22/10 Tr. at 779:22-780:2 
(Kass). When the Judges questioned Mr. Kass as to exactly what was his 
rate proposal, he responded that IBS members should pay only for their 
actual use of sound recordings and that the fee should be 50 cents per 
continuous listener per year to a station or channel,\21\ not to exceed 
$25 per year. Id. at 781:3-792:12 (Kass). He then later characterized 
the $25 as a ``flat fee'' and concluded his testimony on this point 
that each IBS station should pay an annual $25 flat fee. Id. at 791:17-
792:12 (Kass).
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    \20\ The joint petition was submitted to the Copyright Office as 
a settlement of rates and terms for the sections 112 and 114 
licenses for the period 2005 and 2006. It was not acted upon by the 
Office.
    \21\ This fee is very roughly derived from an agreement 
negotiated between the RIAA and the Corporation for Public 
Broadcasting under the Small Webcaster Settlement Act of 2002, which 
was submitted by IBS in the Webcaster II proceeding.
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    After the close of the direct case hearings and before the 
submission of written rebuttal cases, IBS filed a ``Restatement of IBS' 
Rate Proposal.'' This proposal identified two new types of services: a 
``small noncommercial webcaster,'' described as a service with total 
performances of digitally recorded music less than 15,914 ATH per month 
or the equivalent; and a ``very small noncommercial webcaster,'' 
described as a service with total performances of less than 6,365 ATH 
per month or the equivalent. For small noncommercial webcasters, IBS 
proposed a flat annual fee of $50, and for very small noncommercial 
webcasters a flat annual fee of $20. No mention was made of the broader 
category of noncommercial webcaster. On July 29, 2010, after the 
submission of written rebuttal cases, IBS filed an ``Amplification of 
IBS' Restated Rate Proposal.'' This filing was far more than an 
amplification, because for the first time it proposed an annual minimum 
fee of $500 for noncommercial webcasters per station or channel, along 
with annual minimum fees of $50 and $20 for small noncommercial 
webcasters and very small noncommercial webcasters, respectively. IBS 
also expressly endorsed SoundExchange's per performance rate proposal 
for the sections 114 and 112 licenses.\22\ And, as an alternative to 
this rate structure, IBS proposed paying an annual lump sum of $10,000 
to SoundExchange to cover all performances by IBS members that are not 
covered by a negotiated agreement.

[[Page 13041]]

IBS added that ``[i]f the amount of IBS members participating exceeds 
$10,000.00 there will be a true up within 15 days of the end of the 
year.'' Amplification of IBS' Restated Rate Proposal at 3 (July 29, 
2010).\23\
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    \22\ IBS does not define ``noncommercial webcaster,'' but the 
proposal suggests that it is a webcaster with no more than 159,140 
ATH per month per station or channel, but no less than 15,915 ATH. 
The endorsement of the SoundExchange per performance proposal would 
then apply to the overage of 159,140 ATH. 9/30/10 Tr. at 651:11-
652:21 (IBS Closing Argument).
    \23\ IBS does not explain what is meant by IBS members exceeding 
$10,000 in participation. However, the pleading does offer a number 
of annual statutory performances covered by the $50 annual minimum 
fees for small noncommercial webcasters (2,291,616) and very small 
noncommercial webcasters (916,646). Presumably, IBS is offering to 
pay additional unspecified amounts for those members that exceed 
that number of performances in a given year.
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    During the hearings on the written rebuttal cases, SoundExchange 
objected to the testimony of Mr. Kass, IBS' only rebuttal witness, on 
the grounds that he did not verify his testimony as required by Sec.  
350.4(d) of the Judges' rules, and did not appear to know what was in 
his testimony.\24\ The Judges granted the motion and his testimony was 
not admitted.\25\ IBS sought reconsideration of the decision, which was 
denied. Order Denying IBS' Motion For Reconsideration of the Rulings 
Excluding Its Rebuttal Case, Docket No. 2009-1 CRB Webcasting III 
(August 18, 2010). Even if his testimony had been admitted, it did not 
contain support for IBS' new rate proposals, nor could it given that 
such testimony would be outside the scope of the rebuttal proceedings.
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    \24\ Section 350.4(d) provides that ``[t]he testimony of each 
witness shall be accompanied by an affidavit or a declaration made 
pursuant to 28 U.S.C. 1746 supporting the testimony.''
    \25\ It was apparent after voir dire of the witness that not 
only did he not comply with the verification rule in filing his 
written rebuttal statement, but that he was not familiar with 
substantial portions of his testimony, which had been drafted by 
IBS' counsel. 7/29/10 Tr. at 292:1-296:15 (Kass).
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    IBS changed its proposed rates one final time with the filing of 
its proposed findings of fact and conclusions of law. It withdrew its 
proposal of a $10,000 annual lump sum payment, and proposed regulatory 
language that permitted SoundExchange to accept unspecified collective 
payments on behalf of small and very small noncommercial 
webcasters.\26\
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    \26\ To further roil the waters, IBS attached to its proposed 
findings its Amplification of IBS' Restated Rate Proposal which does 
contain the $10,000 lump sum payment language.
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2. The Section 114 Noncommercial Webcaster Rates Determined by the 
Judges
    The statutory standards that apply to the Judges' determination of 
section 114 rates for commercial webcasters apply with equal force to 
our consideration of rates for noncommercial webcasters. IBS requests 
that we distinguish between two different types of noncommercial 
webcasters--small and very small--within the broader category, thereby 
invoking the provision of section 114(f)(2)(B) that requires that rates 
(and terms)

shall distinguish among different types of eligible nonsubscription 
transmission services then in operation and shall include a minimum 
fee for each such type of service, such differences to be based on 
criteria including, but not limited to, the quantity and nature of 
the use of sound recordings and the degree to which use of the 
service may substitute for or may promote the purchase of 
phonorecords by consumers.

17 U.S.C. 114(f)(2)(B). IBS asks that we make such a distinction for 
small and very small noncommercial webcasters despite the fact that it 
has not presented one iota of evidence regarding the relative 
quantities of music used by these services,\27\ nor the nature of their 
use of sound recordings covered by the license.\28\ Likewise, it has 
completely failed to present any evidence that would enable the Judges 
to determine the degree to which these proposed services promoted or 
substituted for the purchase of phonorecords by consumers. IBS has done 
nothing more than create two arbitrary subcategories of noncommercial 
webcaster, separated by unsupported amounts of monthly aggregated 
tuning hours, in an effort to obtain lower royalty rates for its 
members. IBS has failed to satisfy the statutory burden of presenting 
evidence to enable the Judges to determine if distinctions within the 
noncommercial webcaster category are required or warranted, and there 
is nothing in the record of this proceeding that requires the Judges 
under section 114(f)(2)(B) to establish separate terms and rates for 
types of services other than noncommercial webcasters.
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    \27\ IBS distinguishes between the services based upon the 
number of ATH, but ATH is not a measurement of the quantity of use 
of sound recordings covered by the section 114 license. It is only a 
time measurement of reception of a transmission.
    \28\ Counsel for IBS conceded at closing argument that the 
record was devoid of evidence on this statutory requirement. 9/30/10 
Tr. at 647:12-651:5 (IBS Closing Argument).
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    IBS' failure on this point is endemic to its failure to the even 
greater task at hand: The rates that would be negotiated in the 
marketplace between a willing buyer and willing seller. IBS' constantly 
changing rate proposals were not fashioned with this standard in mind 
(let alone the evidence to support it), but rather appeared to spring 
from some undefined meaning of ``fairness,'' or more likely the 
impressions of Mr. Kass as to what his members would like to pay for 
statutory royalties. Indeed, even with respect to Mr. Kass' somewhat 
consistent mantra, that IBS members should not pay for any more than 
the music that they used, there was no proffer of evidence to 
demonstrate the nature or volume of that use, by what stations, or 
under what circumstances. The aridity of the record necessitates the 
rejection of IBS' proposal.
    There is no dispute between SoundExchange and IBS that 
noncommercial webcasting is a distinct segment of the noninteractive 
webcasting market for which a willing buyer/willing seller hypothetical 
marketplace would produce different, lower rates than we have 
determined hereinabove for commercial webcasters. SX PFF at ]] 489-90; 
IBS PFF at ]] 4, 26. There is also no dispute that the boundary of that 
submarket is marked by 159,140 ATH per month per station or channel and 
that any noncommercial webcaster exceeding this limitation should pay 
the commercial rates adopted in this proceeding for the overage. SX PFF 
at ] 489; IBS PFF at ] 26. There is a dispute as to the annual $500 
minimum, recoupable fee (i.e., the flat fee rate) proposed by 
SoundExchange and adopted by the Judges in the Webcaster II proceeding. 
See 75 FR 56873 (September 17, 2010) (Remand order). IBS contends that 
many of its members cannot afford the fee and will cease webcasting 
activities, but it did not provide any financial records, data or other 
information, beyond bare allegations of its counsel and Mr. Kass, to 
support its claim. To the contrary, financial data obtained from IBS' 
witness John E. Murphy, General Manager of WHUS, licensed to the 
University of Connecticut, revealed that in 2009 WHUS generated total 
revenues of $527,364.21 and had a profit of $87,041.55. 4/21/10 Tr. at 
583:1-586:12 (Murphy).\29\ Mr. Murphy was the only witness to present 
radio station financial data. Even Mr. Kass' statement that the average 
operating budget of IBS members is $9,000, though wholly unsupported by 
documentation, does not demonstrate a lack of ability to pay.\30\ Three 
hundred and five noncommercial webcasters paid SoundExchange the $500 
minimum fee in 2009 pursuant to the decision in Webcaster II, with an 
additional 58

[[Page 13042]]

services paying more for exceeding the ATH cap or streaming more than 
one station or channel. 75 FR 56874 (September 17, 2010) (Remand 
order). Twenty-four noncommercial educational stations endorsed the 
SoundExchange-CBI agreement which contains the same flat $500 fee. See 
supra at Section III.A. In sum, we reject IBS' contention that the $500 
fee is not affordable and cannot represent what a willing buyer would 
pay in the hypothetical marketplace.
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    \29\ It was revealed that WHUS did not pay any statutory license 
fees in 2009 nor did it file required reports of use. 4/21/10 Tr. at 
579:21-582:3, 594:5-600:2 (Murphy).
    \30\ Interestingly, IBS members pay an annual $125 membership 
fee to IBS, and pay $85 per person, or $480 per station, to attend 
IBS' annual conference in New York City, plus the cost of hotel 
rooms. 4/21/10 Tr. at 593:12-594:3 (Murphy).
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    Having rejected in toto the contentions and claims of IBS,\31\ we 
are persuaded that the presentation of SoundExchange best represents 
the rates that would be paid in the willing buyer/willing seller 
hypothetical marketplace for noncommercial webcasting. The annual 
minimum fee of $500 per station or channel functions as the royalty 
payable for usage of sound recordings up to 159,140 ATH per month. This 
flat fee is the same that we adopted in Webcaster II and, as discussed 
above, is demonstrably affordable to noncommercial webcasters. We find 
that the SoundExchange-CBI agreement, which contains the very same fee 
and rate structure, and the 24 comments supporting it are corroborative 
evidence that our determination satisfies the statutory standard. As a 
minimum fee, and mindful of the Court of Appeals' admonition regarding 
evidence of administrative costs administering the licenses, 
Intercollegiate Broadcast System, Inc. v. Copyright Royalty Bd., 574 
F.3d at 761 (DC Cir. 2009), we are persuaded that the testimony of Ms. 
Kessler as to estimates of average administrative costs per licensee 
shows that a $500 minimum fee for noncommercial webcasters is more than 
reasonable. SX PFF at ] 484; see also 75 FR 56874 (September 17, 2010) 
(Remand order).
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    \31\ In its proposed findings, and for the first time in this 
proceeding, IBS contends that ``Congress in Section 114(f)(2) 
intended that the minimum rate be tailored to the type of service in 
accord with the general public policy favoring small businesses,'' 
and that as a consequence the Judges are required under the 
Regulatory Flexibility Act, 5 U.S.C. 601(6), to determine whether 
the $500 fee unnecessarily burdens IBS' members. IBS PFF 
(Reformatted) at ]] 10-13. There is no support in the text or 
legislative history of the Copyright Act for the proposition that 
section 114(f)(2) favors small businesses, and, indeed, IBS does not 
supply any. To the contrary, section 114(f)(2)(B) is very clear as 
to our task in this proceeding: To fashion rates (and terms) that 
``most clearly represent the rates and terms that would have been 
negotiated in the marketplace between a willing buyer and a willing 
seller.'' IBS has also failed to support its contention that the 
Judges must conduct a Regulatory Flexibility Act assessment of 
impact of the $500 fee on IBS' members in particular. IBS has not 
supplied the Judges with any evidence to adduce whether its members 
are ``small entities'' within the meaning of 5 U.S.C. 601--IBS has 
not supplied us with any documentary evidence of its membership, 
even their names--nor has it demonstrated that the Regulatory 
Flexibility Act applies to rate proceedings before the Judges. See 5 
U.S.C. 601(2) (exempting from the definition of a rule of a 
government agency ``a rule of particular applicability relating to 
rates''); c.f. American Moving and Storage Assoc. v. DOD, 91 
F.Supp.2d 132, 136 (D.D.C. 2000) (exception for ``a rule of 
particular applicability relating to rates'' is explicit and broad). 
In any event, the Judges did consider the circumstances of 
noncommercial webcasters, discussed above, in establishing the $500 
fee.
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3. The Section 112 Noncommercial Webcaster Rates Determined by the 
Judges
    Although there is not a stipulation as to the rates for the section 
112 license for noncommercial webcasters as there is for commercial 
webcasters, supra at Section II.B.1, there is no disagreement between 
SoundExchange and IBS. SoundExchange proposes the same bundled rate 
approach for both the section 112 and 114 rights, five percent of which 
is allocated as the section 112 royalty for making ephemeral copies, 
and IBS endorses the proposal. SX PFF at ]] 671; IBS PFF at ] 24. The 
testimony offered by SoundExchange supports this proposal and we adopt 
it. SX PFF at ]] 672-688.

IV. Terms

    The standard for setting terms of payment is what the record 
reflects would have been agreed to by willing buyers and willing 
sellers in the marketplace. Webcaster II, 72 FR 24102 (May 1, 2007); 
see also Webcaster I, 67 FR 45266 (July 8, 2002). In Webcaster II, we 
further established that we are obligated to ``adopt royalty payment 
and distribution terms that are practical and efficient.'' Webcaster 
II, 72 FR 24102 (May 1, 2007). The parties each submitted proposals of 
the terms that they believe satisfy both of these requirements.\32\ 
SoundExchange based its proposal generally on the current terms as 
adopted in Webcaster II and the proceeding setting the sections 112 and 
114 rates and terms for preexisting satellite digital audio radio 
services, with certain revisions, and proposed conforming editorial 
changes to the webcasting terms in light of changes made in that 
proceeding. SX PFF at ] 549. Live365 proposed changes to the 
definitions of two terms in Sec.  380.2 of the current webcasting 
regulations.\33\ Live365 PFF at ]] 382-87; Live365 PCL at ]] 77-79. IBS 
proposed terms for noncommercial webcasters. IBS PFF at ] 26.
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    \32\ CBI's proposal consisted of the terms contained in the 
agreement with SoundExchange submitted for adoption by the Judges. 
Since we are adopting that agreement, see supra at Section III.A., 
CBI's proposal will not be discussed here.
    \33\ Live365's request for an aggregator discount initially was 
proposed as a term. However, as discussed supra at Section II.B.5., 
the aggregator discount was handled in the section on proposed rates 
and thus will not be discussed here. See also, 9/30/10 Tr. at 615:5-
22 (Live365 Closing Argument).
---------------------------------------------------------------------------

    SoundExchange and Live365 also stipulated to certain terms. See 
Stipulation of SoundExchange, Inc. and Live365, Inc. Regarding Certain 
Proposed Terms, Docket No. 2009-1 CRB Webcasting III (September 10, 
2010) (``Joint Stipulation'').
    When adopting royalty terms, we also strive, where possible, to 
maintain consistency across the licenses set forth in sections 112 and 
114 in order to maximize efficiency in and minimize the overall costs 
associated with the administration of the license. Determination of 
Rates and Terms for Preexisting Subscription Services and Satellite 
Digital Audio Radio Services (Final rule and order), 73 FR 4080, 4098 
(January 28, 2008) (``SDARS''). However, this goal is not overriding. 
We will vary terms across the licenses where a party can demonstrate 
the need for and the benefits of such variance. Id.

A. Collective

    SoundExchange requests to be named the sole collective for the 
collection and distribution of royalties paid by commercial and 
noncommercial webcasters under the sections 112 and 114 licenses for 
the period 2011-2015. SX PFF at ] 602; Second Revised Rates and Terms 
of SoundExchange, Inc., Docket No. 2009-1 CRB Webcasting III, at 
Proposed Regulations Sec.  380.4(b) (July 23, 2010). Live365 takes no 
position regarding SoundExchange's request, Live365 RFF at ] 602, and 
IBS does not appear to object, given its rate proposal refers to 
SoundExchange as the collective. See Amplification of IBS' Restated 
Rate Proposal, Docket No. 2009-1 CRB Webcasting III, at 2 (July 29, 
2010).
    We have determined previously that designation of a single 
Collective ``presents the most economically and administratively 
efficient system for collecting royalties under the blanket license 
framework created by the statutory licenses.'' Webcaster II, 72 FR 
24104 (May 1, 2007); see also SDARS, 73 FR 4099 (January 24, 2008). No 
party has submitted evidence that would compel us to alter that 
determination here. Indeed, no party requested the designation of 
multiple collectives, and SoundExchange was the only party requesting 
to be selected as a collective.\34\
---------------------------------------------------------------------------

    \34\ As noted supra at n.4, RLI filed a written direct statement 
but did not present oral testimony; therefore, their written direct 
statement was not considered. In any event, RLI did not seek 
designation as a Collective.

---------------------------------------------------------------------------

[[Page 13043]]

    SoundExchange (and its predecessor) has served as the Collective 
for the collection, processing and distribution of royalty payments 
made under the sections 112 and 114 statutory licenses since their 
inception thereby accumulating a wealth of knowledge and expertise in 
administering these licenses. See Kessler Corrected WDT at 4. Moreover, 
SoundExchange's designation as the sole Collective is supported by 
artists and copyright owners. See Roberts Hedgpeth WDT at 1-2; McCrady 
WDT at 19. This coupled with the absence of any opposition or record 
evidence to suggest that SoundExchange should not serve in that 
capacity here leads us to designate SoundExchange as the Collective for 
the 2011-2015 license period.

B. Stipulated Terms and Technical and Conforming Changes

    On September 10, 2010, SoundExchange and Live365 submitted a 
stipulation regarding certain proposed terms in the Proposed 
Regulations appearing as an attachment to Second Revised Proposed Rates 
and Terms of SoundExchange, Inc. filed July 23, 2010. In several 
instances, they have stipulated that current provisions of the 
webcasting terms will remain unchanged. For example, SoundExchange and 
Live365 agree that the current definitions of the following terms in 
Sec.  380.2 shall remain unchanged: ``Commercial Webcaster,'' 
``Copyright Owners,'' ``Ephemeral Recording,'' ``Noncommercial 
Webcaster,'' ``Performers,'' and ``Qualified Auditor.'' Joint 
Stipulation, Exhibit A at 2-4 (September 10, 2010). Similarly, the 
current provisions of Sec.  380.5 will remain unchanged. Id. at 9-11.
    In other instances, stipulated terms consist of eliminating 
provisions which were solely applicable to the 2006-2010 license period 
(see, e.g., Sec.  380.4(d)) and reflecting changes necessitated by the 
adoption of the NAB-SoundExchange and SoundExchange-CBI agreements 
(see, e.g., Sec.  380.2 definition of ``Licensee''). Id. at 3, 8.
    We find that the stipulated terms constitute for the most part 
technical and non-controversial changes that will add to the clarity of 
the regulations adopted today. Therefore, we are adopting the terms 
stipulated to by SoundExchange and Live365.
    For these same reasons, we are adopting the technical and 
conforming changes proposed by SoundExchange, and not opposed by any 
party, in Section IV of their Second Revised Rates and Terms, filed 
July 23, 2010.
    We now turn to those contested terms proposed for Commercial 
Webcasters.

C. Contested Terms for Commercial Webcasters

1. Terms Proposed by Live365
    Live365 proposes changes to the definitions of two terms in Sec.  
380.2, namely, ``performance'' and ``aggregate tuning hours.'' \35\ 
Live365 PFF at ] 387 and PCL at ] 79. Specifically, Live365 proposes to 
modify the definition of ``performance'' to ``exclude any performances 
of sound recording that are not more than thirty (30) consecutive 
seconds.'' Live365 PFF at ] 387. According to Live365, this proposed 
modification conforms the definition of ``performance'' in Sec.  380.2 
to that of a ``performance'' or ``play'' as defined in the four 
interactive service agreements reviewed by Dr. Pelcovits. Id. Live365 
also contends that past precedent has excluded partial performances 
from ``royalty-bearing'' performances, citing to the Librarian's 
adoption of a settlement agreement among SoundExchange, AFTRA, the 
American Federation of Musicians of the United States and Canada, and 
Digital Media Association which excluded from payment performances that 
suffered technical interruptions or the closing down of a media player 
or channel switching. Live365 PCL at ] 78, citing Digital Performance 
Right In Sound Recordings And Ephemeral Recordings, Docket Nos. 2002-1 
CARP DTRA3 & 2001-2 CARP DTNSRA, 74 FR 27506, 27509 (May 20, 2003).
---------------------------------------------------------------------------

    \35\ In the proposed regulations attached to its proposed 
findings of fact, Live365 included an additional term: A proposed 
deadline for the completion and issuance of a report regarding an 
audit to verify royalty payments. See Attachment to Live365's 
Proposed Findings of Fact and Conclusions of Law, Sec.  380.6(g). 
Since this proposal was not discussed in its proposed findings of 
fact and Live365 presented no evidence to support the need for such 
a term, we decline to adopt it.
---------------------------------------------------------------------------

    Similarly, Live365 seeks to revise the current definition of 
``aggregate tuning hours'' to exclude programming that does not contain 
sound recordings such as talk, sports, and advertising not containing 
sound recordings. Live365 PCL at ] 79. Live365 justifies its request by 
asserting that ``programming without sound recordings should not be 
subject to consideration in regulations dealing with a royalty to be 
paid for the use of sound recordings.'' Id.
    SoundExchange vehemently opposes adoption of either proposed 
modification. First, SoundExchange contends that these proposed 
modifications constitute new terms, not a revision to an existing 
proposal, in violation of Sec.  351.4(b)(3) which allows for revision 
of a rate proposal at any time up to and including submission of 
proposed findings of fact.\36\ SX RFF at ] 223. Next, SoundExchange 
asserts that Live365's citation to the four interactive service 
agreements without more does not provide sufficient record support for 
either the need for or benefit of this request. Id. at ]] 226-228. With 
regard to the request to redefine ``aggregate tuning hours,'' 
SoundExchange argues that Live365 fails to point to anything in the 
record explaining, much less supporting, the need for such proposal. 
Id. at ]] 231-232. Finally, SoundExchange points to Live365's failure 
to consider the potential effect of its definition of ``performance'' 
on the per-performance rate as yet another reason not to accept 
Live365's proposal. Id. at ] 230. Were Live365's definition adopted, 
SoundExchange contends that an upward adjustment would be needed to the 
per-performance rate since neither Drs. Pelcovits nor Fratrik excluded 
performances of less than 30 seconds in the calculation of their 
respective per-performance rates.\37\ Id.
---------------------------------------------------------------------------

    \36\ We need not address the validity of this argument since we 
decline to adopt this term on other grounds.
    \37\ According to SoundExchange, the upward adjustment would 
result from a reduction in the number of plays in the calculation of 
a per-performance rate. SX RFF at ] 230.
---------------------------------------------------------------------------

    The Judges decline to adopt either of Live365's proposed 
definitions. Live365 has provided insufficient record support for 
either of its proposals. This is especially true with regard to its 
proposed definition of ``aggregate tuning hours.'' It appears for the 
first time in Live365's proposed conclusions of law without any 
citation to the record or any substantive explanation as to why such a 
change is needed or what benefits would result from its adoption. All 
Live365 has provided is the unsupported assertions of counsel. Thus, 
Live365 has not met its burden regarding adoption of this term. See 
SDARS, 73 FR 4101 (January 28, 2008) (refusal to adopt bare proposals 
unsupported by record evidence).
    Likewise, Live365 has not met its burden with respect to adoption 
of its proffered definition of ``performance.'' Neither the mere 
citation to the four interactive service agreements in the record here 
without more nor a reference to a settlement agreement adopted by the 
Librarian in a CARP proceeding demonstrates that a willing buyer and a 
willing seller would agree to such a term in the non-interactive 
market. Live365 simply states that its

[[Page 13044]]

requested definition conforms to the definitions of ``performance'' and 
``play'' in the agreements reviewed by Dr. Pelcovits with no discussion 
of or cited support for why such conformance is needed or beneficial or 
even appropriate here.
    Live365's reference to adoption by the Librarian of the settlement 
agreement in a prior CARP proceeding is unpersuasive. As with its 
proposal regarding aggregate tuning hours, this justification is 
offered for the first time in Live365's proposed conclusions of law. 
Thus, like its proposed definition for aggregate tuning hours, the 
proffered justification amounts to nothing more than an unsupported 
argument of counsel.
    More importantly, as SoundExchange correctly observes, since 
neither Dr. Pelcovits nor Dr. Fratrik excluded performances from the 
calculation of their respective per-performance rates, there would be 
fewer plays in such calculations, thereby necessitating an upward 
adjustment to the per-performance rates. Live365 never acknowledges 
this effect much less addresses how to make the adjustment. See SX RFF 
at ] 230. The lack of supportive evidence presented by Live365 when 
combined with the potential problematic effect on the per-performance 
rates requires rejection of this term.
2. Terms Proposed by SoundExchange
    SoundExchange proposes several terms. We note at the outset that 
several of SoundExchange's proposed terms are contained in some or all 
of the WSA agreements, including the NAB-SoundExchange and 
SoundExchange-CBI agreements adopted herein. Parties are free to agree 
to whatever terms they choose. When such agreement is submitted to the 
Judges for adoption, we are obligated to adopt said agreement in the 
absence of objections after publication in the Federal Register. 17 
U.S.C. 801(b)(7)(A); see supra at Section II.A. However, when parties 
litigate over the adoption of a term, even one that is contained in an 
adopted agreement, the requesting party must meet its burden with 
respect to the standards set forth supra.
    Evaluating SoundExchange's proposals in this light, we find that 
SoundExchange has not met its burden.
a. Server Log Retention
    SoundExchange urges the Judges to clarify that server logs are 
among the records to be retained for three years pursuant to Sec.  
380.4(h) and to be made available during an audit conducted pursuant to 
Sec.  380.6. See Second Revised Rates and Terms of SoundExchange, Inc., 
Section III.A., Proposed Regulations, Sec.  380.4(h) (July 23, 2010); 
Kessler Corrected WDT at 27. Although SoundExchange believes that 
retention of these records is required under the current regulations, 
it requests an amendment to include server logs since oftentimes such 
logs are not retained. SX PFF at ]] 556-57; Kessler Corrected WDT at 
27. SoundExchange asserts that ``[t]he evidence indicates marketplace 
acceptance of such a term,'' citing to the SoundExchange-CBI agreement 
which contains an equivalent term. SX PFF at ] 555.
    In its opposition to this term, Live365 notes that neither the NAB-
SoundExchange agreement nor the Commercial Webcasters agreement 
contains this term nor do any of the interactive service agreements 
submitted in this proceeding. Live365 RFF at ] 555. Live365 further 
argues that SoundExchange failed to establish how the benefits to 
SoundExchange of this term outweigh the burden on licensees to comply. 
Id. at ] 557.
    Section 380.4(h), which governs the retention of records, requires 
licensees to retain ``books and records'' relating to royalty payments. 
The language does not include server logs and SoundExchange's 
assumption that it does is incorrect. The question remains, however, 
whether server logs should be included, and the Judges answer in the 
negative because the record evidence does not support such a finding. 
None of the interactive agreements in evidence here contain such 
specificity. Live365 Exs. 17 and 18; McCrady WDT, Exs. 104-DR & 106-DR. 
Rather, the agreements require licensees only to retain records 
relating to their obligations under the agreement and in terms no more 
specific than in the current regulation. See, e.g., Live365 Exs. 17 at 
] 7(h) and Ex. 18 at ] 7(h); McCrady WDT, Exs. 104-DR at ] 6(j) and 
106-DR at ] 4(h). Since these agreements were negotiated in a setting 
free from the constraints of the regulatory scheme, they provide the 
best evidence of the agreement of a willing buyer and a willing seller 
in this respect.
    We disagree with SoundExchange's assertion that inclusion of this 
term in the SoundExchange-CBI WSA agreement constitutes ``marketplace 
acceptance.'' As discussed supra and as acknowledged by SoundExchange, 
such agreements were reached under atypical marketplace conditions, 
since their negotiations were overshadowed by the possibility of a 
regulatory proceeding. See supra at Section II.B.3.b.ii.; see also 9/
30/10 Tr. at 547:20-548:5 (SoundExchange Closing Argument). 
Furthermore, while the SoundExchange-CBI agreement contains the term, 
the NAB-SoundExchange and Commercial Webcasters agreements do not 
despite the assertion of Ms. Kessler that server logs contain data that 
is ``critical for verifying that licensees have made the proper 
payments.'' Kessler Corrected WDT at 27; see also 4/20/10 Tr. at 
455:15-17 (Kessler). If such data is ``critical,'' it is difficult to 
understand why server logs were not included in the NAB-SoundExchange 
and Commercial Webcasters agreements, particularly where these 
agreement were negotiated by SoundExchange and cover ``webcasters 
representing a substantial part of [the webcasting] market.'' 9/30/10 
Tr. at 508:3-4 (SoundExchange Closing Argument); see supra at Section 
II.B.3.b.ii.
    Finally, retention of server logs for a three-year period may 
present significant issues to webcasters regarding storage and costs. 
No evidence was adduced by SoundExchange as to these important 
considerations, and the Judges are hesitant to adopt a term without 
such data. In sum, SoundExchange's request for retention of server logs 
appears to be more of a want than a need, and we decline to amend Sec.  
380.4(h) of our rules.
b. Standardized Forms for Statements of Account
    SoundExchange proposes to require licensees to submit statements of 
account on a standardized form prescribed by SoundExchange in order to 
simplify licensees' calculations of the royalties owed and to 
facilitate SoundExchange's ability to efficiently collect information 
from licensees. SX PFF at ]] 572, 575. SoundExchange currently provides 
a template statement of account on its Web site. Id. at ] 574. 
SoundExchange notes that noncommercial educational webcasters are 
required pursuant to their WSA agreement to use a form supplied by 
SoundExchange. McCrady WDT, Ex. 103-DP at section 4.4.1.
    Live365 opposes adoption of this term on the grounds that it is 
addressed more appropriately in a notice and recordkeeping proceeding. 
Live365 RFF at ] 574.
    We are not persuaded that a need for mandatory use of a 
standardized statement of account exists at this time nor do we find 
support in the record for adoption of this term. As Mr. Funn testified, 
the majority of webcasters currently use the template form made 
available on SoundExchange's Web site. Funn WRT at 2; 8/2/10 Tr. at 
492:2-3 (Funn) (``much more than half'' of

[[Page 13045]]

webcasters currently use template). Mr. Funn provided no information 
quantifying the additional work for SoundExchange to process a 
statement of account for the few webcasters who choose not to use the 
template. The only example given in this regard focused on Live365 and 
its submission of an altered form using incorrect rates, which is 
irrelevant to SoundExchange's request. See Funn WDT at 3-4; 8/2/10 Tr. 
at 465:19-22 (Funn).
    Our skepticism regarding the need to require use of a standardized 
form also stems from the fact that neither the NAB-SoundExchange WSA 
agreement nor the Commercial Webcasters WSA agreement contains this 
term. McCrady WDT, Exs. 101-DP and 102-DP. Moreover, although the 
SoundExchange-CBI WSA agreement requires use of a SoundExchange-
supplied form, see McCrady WDT, Ex. 103-DP at section 4.4.1, such 
language was not included in the SoundExchange-CBI agreement submitted 
to the Judges and adopted herein. See Digital Performance Right in 
Sound Recordings and Ephemeral Recordings (Proposed rule), 75 FR 16377, 
16385 (Sec.  380.23(f)) (April 1, 2010).
    Given the already widespread use of SoundExchange's template form, 
the lack of quantification in the record of the time savings to 
SoundExchange by having a standardized form, and SoundExchange's 
failure to include this term in the NAB-SoundExchange and Commercial 
Webcasters WSA agreements or the SoundExchange-CBI agreement submitted 
to the Judges, we find that the record before us does not support the 
adoption of this term.
c. Electronic Signature on Statement of Account
    SoundExchange seeks to eliminate the requirement in the current 
Sec.  380.4(f)(3) of a handwritten signature on the statement of 
account. SX PFF at ] 576. According to SoundExchange, allowing 
electronic signatures would make it easier for licensees to submit 
their statements of account. Id., citing Funn WRT at 3 n.1. 
SoundExchange further asserts that ``none [of the WSA agreements in 
evidence] requires that statements of account bear a handwritten 
signature.'' SX PFF at ] 577.
    Live365 does not oppose this request as its own proposed 
regulations eliminate the requirement for a handwritten signature on 
the statement of account. See Attachment to PFF, Proposed Regulations, 
Sec.  380.4(f)(3).
    The Judges determine that the record evidence does not support 
adoption of this term. The WSA agreements, as submitted as exhibits to 
Mr. McCrady's written direct testimony do, despite SoundExchange's 
assertions to the contrary, require a handwritten signature on a 
statement of account. SoundExchange is correct that each agreement 
requires statements of account to be provided each month, although 
neither agreement sets forth the specific information to be included. 
See McCrady WDT, Ex. 101-DP at section 4.6 (NAB), Ex. 102-DP at section 
4.5 (Commercial Webcasters), and Ex. 103-DP at section 4.4.1 (CBI). 
However, SoundExchange ignores the provision in each agreement which 
states ``[t]o the extent not inconsistent with the Rates and Terms 
herein, all applicable regulations, including 37 CFR Parts 370 and 380, 
shall apply to activities subject to these Rates and Terms.'' See 
McCrady WDT, Ex. 101-DP at section 6.1 (NAB), Ex. 102-DP at section 5.1 
(Commercial Webcasters) and Ex. 103-DP at section 6.1 (CBI). Current 
Sec.  380.4(f)(3) requires a handwritten signature; such requirement is 
not inconsistent with the agreements' general requirement to simply 
submit statements of account. Our interpretation is confirmed by the 
fact that the NAB-SoundExchange and SoundExchange-CBI WSA agreements 
submitted to the Judges for adoption here each retained the requirement 
for a handwritten signature. See Proposed rule, 75 FR 16380 (Sec.  
380.13(f)(3)), 16385 (Sec.  380.23(f)(4)) (April 1, 2010). Since we are 
adopting those provisions as proposed on April 1, 2010, to accept 
SoundExchange's proposal here would create an inconsistency in terms 
that does not exist currently.
d. Identification of Licensees and Late Fee for Reports of Use
    SoundExchange requests that the Judges harmonize identification of 
licensees among the notice of intent to use the sections 112 and 114 
licenses, the statements of account and the reports of use, and to 
impose a late fee for reports of use. These two requests differ from 
the rest of their requests in that these are notice and recordkeeping 
terms.38 39 See Kessler Corrected WDT at 20-23, 27-28. This 
is not the first time we have been asked to adopt terms regarding 
notice and recordkeeping in this context. Webcaster II, 72 FR 24109 
(May 1, 2007); SDARS, 73 FR 4101 (January 28, 2008). While the 
Copyright Act grants us the authority to adopt such terms here (said 
terms would supersede those set forth in 37 CFR Part 370), such 
authority is discretionary. 17 U.S.C. 803(c)(3). To date, we have 
declined to exercise this discretion. Webcaster II, 72 FR at 24109-10 
(May 1, 2007); SDARS, 73 FR at 4101 (January 28, 2008).
---------------------------------------------------------------------------

    \38\ SoundExchange requested these same, or similar, changes in 
a rulemaking concluded last year where we imposed census reporting 
for all services except those broadcasters paying no more than the 
minimum fee. See Comments of SoundExchange, Docket No. RM 2008-7, at 
20-23 (January 29, 2009). Such requests were outside the scope of 
that rulemaking, which was to improve the reporting regulations in 
light of technological developments since promulgation of the 
interim regulation, and were deferred for consideration in a future 
rulemaking. See Notice and Recordkeeping for Use of Sound Recordings 
Under Statutory License (Final rule), 74 FR 52418, 52422-23 (October 
13, 2009).
    \39\ Ms. Kessler acknowledges, at least with respect to the late 
fees for reports of use, that such proposals could be implemented in 
either the notice and recordkeeping regulations or in the license 
terms. Kessler Corrected WDT at 28.
---------------------------------------------------------------------------

    Our prior refusals stemmed from our findings that the issues 
presented, such as census reporting, were more appropriately addressed 
in the context of a rulemaking proceeding and that ``no persuasive 
testimony compelling an adjustment of the current recordkeeping 
regulations'' was presented in either instance. SDARS, 73 FR 4101 
(January 28, 2008), citing Webcaster II, 72 FR 24110 (May 1, 2007). In 
light of the record before us, we decline to adopt SoundExchange's 
proposals regarding the harmonization of licensee identification and 
the imposition of a late fee for reports of use because the evidence 
does not compel us to amend the current recordkeeping regulations here; 
rather, these issues are more appropriately addressed in a future 
rulemaking proceeding, for the reasons discussed below.
i. Identification of Licensees
    SoundExchange asserts that harmonization of the identification of 
licensees can be accomplished by (1) requiring licensees to identify 
themselves on their statements of account and reports of use ``in 
exactly the same way [they are] identified on the corresponding notice 
of use * * * and that they cover the same scope of activity (e.g., the 
same channels or stations),'' SX PFF at ] 568, Kessler Corrected WDT at 
28; (2) making the regulations clear that the ``Licensee'' is ``the 
entity identified on the notice of use, statement of account, and 
report of use and that each Licensee must submit its own notice of use, 
statement of account, and report of use,'' id. (emphasis in original); 
and (3) requiring licensees to use an account number issued by 
SoundExchange. Id. at ] 571. In support of these requests, Ms. Kessler 
testified that these proposals would allow SoundExchange to more 
quickly and efficiently match the requisite

[[Page 13046]]

notice of use, statement of account and report of use to the correct 
licensee. Kessler Corrected WDT at 29; 4/20/10 Tr. at 461:2-8 
(Kessler). She also claims that such requirements would impose ``little 
or no evident cost'' to licensees, and licensees' accounting and 
reporting efforts would be simplified by use of an account number. 
Kessler Corrected WDT at 29. SoundExchange also points out that these 
proposals are included in the NAB-SoundExchange and SoundExchange-CBI 
agreements.\40\ SX PFF at ] 569.
---------------------------------------------------------------------------

    \40\ We note that neither agreement mandates the use of an 
account number.
---------------------------------------------------------------------------

    While Live365 does not dispute SoundExchange's proposed findings of 
fact on this issue, it did not stipulate to the language provided by 
SoundExchange.
    These claims are not sufficiently supported in the record. For 
instance, there is nothing in the record that supports Ms. Kessler's 
assertion regarding the potential costs, or lack thereof, to licensees 
in complying with such a requirement. Without input from licensees 
regarding such information, we are reluctant to adopt such a proposal. 
Similarly, there is insufficient evidence to support mandating the use 
of an account number. None of the WSA agreements in evidence contain 
such a provision. McCrady WDT, Exs. 101-DP (NAB), 102-DP (Commercial 
Webcasters) and 103-DP (CBI). All that exists is Ms. Kessler's 
assertion that use of an account number may simplify a licensee's 
accounting and reporting. Kessler Corrected WDT at 29. Moreover, while 
the SoundExchange-CBI agreement as adopted herein requires that 
statements of account list the licensee's name as it appears on the 
notice of use, see Sec.  380.23(f)(1), it does not impose that 
requirement with regard to reports of use. Compare McCrady Ex. 103-DP, 
section 5.2.2 with Sec.  380.23(g). Thus, even if we adopted 
SoundExchange's proposal, there would still be an inconsistency within 
the webcasting regulations. We are, therefore, not persuaded that such 
a proposal should be adopted here; rather, this issue is more 
appropriately addressed in a future rulemaking proceeding.
ii. Late Fee for Reports of Use
    SoundExchange seeks the imposition of the same late fee of 1.5% for 
reports of use as currently exists for late payments and statements of 
account. See 37 CFR 380.4(c). In support of its request, SoundExchange 
proffered the testimony of Ms. Kessler. She testified that currently 
there is widespread noncompliance with reporting requirements, either 
failure to file a report of use at all or provision of late and/or 
``grossly inadequate'' reports. Kessler Corrected WDT at 28. Given that 
a report of use is ``a critical element in the fair and efficient 
distribution of the royalties,'' 4/20/10 Tr. at 458:21-22 (Kessler), 
such noncompliance significantly hampers SoundExchange's ability to 
timely distribute the royalties. Kessler Corrected WDT at 28. Ms. 
Kessler further noted ``that late fees in other areas does [sic] help 
with our compliance situation.'' 4/20/10 Tr. at 458:19-20 (Kessler). 
SoundExchange also points to the inclusion of a late fee for untimely 
reports of use in the NAB-SoundExchange and SoundExchange-CBI WSA 
agreements as further support for its request. SX PFF at ] 564.
    Live365 questions SoundExchange's characterization of a payment as 
being useless without a report of use given that both the NAB-
SoundExchange and CBI-SoundExchange agreements contain reporting 
waivers. Live365 RCL at ] 20.
    We are not persuaded by the record before us that there is a need 
to adopt a late fee for reports of use in this context. The record 
evidence does not show that a willing buyer and a willing seller would 
agree to a late fee with respect to reporting, as none of the 
interactive agreements in evidence contain such a term. Live365 Exs. 
17, 18; McCrady WDT, Exs.104-DR and 106-DR. Although the NAB-
SoundExchange and SoundExchange-CBI WSA agreements do contain the late 
fee, they were negotiated under the shadow of a regulatory proceeding, 
and we note that this late fee was not included in the Commercial 
Webcasters WSA agreement negotiated by SoundExchange.

D. Contested Terms for Noncommercial Webcasters

    IBS has proposed two terms. The first is an exemption from the 
recordkeeping reporting requirements for the small and very small 
noncommercial webcaster subcategories it proposed in its rate request. 
As discussed, supra, the Judges declined to recognize the proffered 
subcategories, thus making IBS' request for recordkeeping reporting 
exemptions moot. The second term proposed by IBS is an express 
authorization that SoundExchange ``may elect to accept collective 
payments on behalf of small and very small noncommercial webcasters.'' 
IBS PFF at ] 26. This request is also moot.\41\
---------------------------------------------------------------------------

    \41\ Even if the request were not moot, it seems unnecessary. 
SoundExchange is authorized, by virtue of its recognition as the 
collective under the sections 112 and 114 licenses, to accept 
payments on behalf of copyright owners, from one or more users of 
the licenses.
---------------------------------------------------------------------------

V. Determination and Order

    Having fully considered the record, the Copyright Royalty Judges 
make the above Findings of Fact based on the record. Relying on these 
Findings of Fact, the Copyright Royalty Judges unanimously adopt this 
Final Determination of Rates and Terms for the statutory licenses for 
the digital audio transmission of sound recordings, pursuant to 17 
U.S.C. 114, and for the making of ephemeral phonorecords, pursuant to 
17 U.S.C. 112(e), for the license period 2011-2015.
    So ordered.

    Dated: January 5, 2011.
James Scott Sledge,
Chief U.S. Copyright Royalty Judge.
William J. Roberts, Jr.,
U.S. Copyright Royalty Judge.
Stanley C. Wisniewski,
U.S. Copyright Royalty Judge.

List of Subjects in 37 CFR Part 380

    Copyright, Sound recordings.

Final Regulations

    For the reasons set forth in the preamble, the Copyright Royalty 
Judges revise part 380 of title 37 of the Code of Federal Regulations 
to read as follows:

PART 380--RATES AND TERMS FOR CERTAIN ELIGIBLE NONSUBSCRIPTION 
TRANSMISSIONS, NEW SUBSCRIPTION SERVICES AND THE MAKING OF 
EPHEMERAL REPRODUCTIONS

Subpart A--Commercial Webcasters and Noncommercial Webcasters
Sec.
380.1 General.
380.2 Definitions.
380.3 Royalty fees for the public performance of sound recordings 
and for ephemeral recordings.
380.4 Terms for making payment of royalty fees and statements of 
account.
380.5 Confidential Information.
380.6 Verification of royalty payments.
380.7 Verification of royalty distributions.
380.8 Unclaimed funds.
Subpart B--Broadcasters
380.10 General.
380.11 Definitions.
380.12 Royalty fees for the public performance of sound recordings 
and for ephemeral recordings.
380.13 Terms for making payment of royalty fees and statements of 
account.
380.14 Confidential Information.
380.15 Verification of royalty payments.
380.16 Verification of royalty distributions.
380.17 Unclaimed funds.

[[Page 13047]]

Subpart C--Noncommercial Educational Webcasters
380.20 General.
380.21 Definitions.
380.22 Royalty fees for the public performance of sound recordings 
and for ephemeral recordings.
380.23 Terms for making payment of royalty fees and statements of 
account.
380.24 Confidential Information.
380.25 Verification of royalty payments.
380.26 Verification of royalty distributions.
380.27 Unclaimed funds.

    Authority: 17 U.S.C. 112(e), 114(f), 804(b)(3).

Subpart A--Commercial Webcasters and Noncommercial Webcasters


Sec.  380.1  General.

    (a) Scope. This subpart establishes rates and terms of royalty 
payments for the public performance of sound recordings in certain 
digital transmissions by Licensees as set forth in this subpart in 
accordance with the provisions of 17 U.S.C. 114, and the making of 
Ephemeral Recordings by Licensees in accordance with the provisions of 
17 U.S.C. 112(e), during the period January 1, 2011, through December 
31, 2015.
    (b) Legal compliance. Licensees relying upon the statutory licenses 
set forth in 17 U.S.C. 112(e) and 114 shall comply with the 
requirements of those sections, the rates and terms of this subpart, 
and any other applicable regulations.
    (c) Relationship to voluntary agreements. Notwithstanding the 
royalty rates and terms established in this subpart, the rates and 
terms of any license agreements entered into by Copyright Owners and 
Licensees shall apply in lieu of the rates and terms of this subpart to 
transmission within the scope of such agreements.


Sec.  380.2  Definitions.

    For purposes of this subpart, the following definitions shall 
apply:
    Aggregate Tuning Hours (ATH) means the total hours of programming 
that the Licensee has transmitted during the relevant period to all 
listeners within the United States from all channels and stations that 
provide audio programming consisting, in whole or in part, of eligible 
nonsubscription transmissions or noninteractive digital audio 
transmissions as part of a new subscription service, less the actual 
running time of any sound recordings for which the Licensee has 
obtained direct licenses apart from 17 U.S.C. 114(d)(2) or which do not 
require a license under United States copyright law. By way of example, 
if a service transmitted one hour of programming to 10 simultaneous 
listeners, the service's Aggregate Tuning Hours would equal 10. If 3 
minutes of that hour consisted of transmission of a directly licensed 
recording, the service's Aggregate Tuning Hours would equal 9 hours and 
30 minutes. As an additional example, if one listener listened to a 
service for 10 hours (and none of the recordings transmitted during 
that time was directly licensed), the service's Aggregate Tuning Hours 
would equal 10.
    Broadcaster is a type of Licensee that owns and operates a 
terrestrial AM or FM radio station that is licensed by the Federal 
Communications Commission.
    Collective is the collection and distribution organization that is 
designated by the Copyright Royalty Judges. For the 2011-2015 license 
period, the Collective is SoundExchange, Inc.
    Commercial Webcaster is a Licensee, other than a Noncommercial 
Webcaster, that makes eligible digital audio transmissions.
    Copyright Owners are sound recording copyright owners who are 
entitled to royalty payments made under this subpart pursuant to the 
statutory licenses under 17 U.S.C. 112(e) and 114.
    Ephemeral Recording is a phonorecord created for the purpose of 
facilitating a transmission of a public performance of a sound 
recording under a statutory license in accordance with 17 U.S.C. 114, 
and subject to the limitations specified in 17 U.S.C. 112(e).
    Licensee is a person that has obtained a statutory license under 17 
U.S.C. 114, and the implementing regulations, to make eligible 
nonsubscription transmissions, or noninteractive digital audio 
transmissions as part of a new subscription service (as defined in 17 
U.S.C. 114(j)(8)) other than a Service as defined in Sec.  383.2(h) of 
this chapter, or that has obtained a statutory license under 17 U.S.C. 
112(e), and the implementing regulations, to make Ephemeral Recordings 
for use in facilitating such transmissions, but that is not--
    (1) A Broadcaster as defined in Sec.  380.11; or
    (2) A Noncommercial Educational Webcaster as defined in Sec.  
380.21.
    Noncommercial Webcaster is a Licensee that makes eligible digital 
audio transmissions and
    (1) Is exempt from taxation under section 501 of the Internal 
Revenue Code of 1986 (26 U.S.C. 501),
    (2) Has applied in good faith to the Internal Revenue Service for 
exemption from taxation under section 501 of the Internal Revenue Code 
and has a commercially reasonable expectation that such exemption shall 
be granted, or
    (3) Is operated by a State or possession or any governmental entity 
or subordinate thereof, or by the United States or District of 
Columbia, for exclusively public purposes.
    Performance is each instance in which any portion of a sound 
recording is publicly performed to a listener by means of a digital 
audio transmission (e.g., the delivery of any portion of a single track 
from a compact disc to one listener) but excluding the following:
    (1) A performance of a sound recording that does not require a 
license (e.g., a sound recording that is not copyrighted);
    (2) A performance of a sound recording for which the service has 
previously obtained a license from the Copyright Owner of such sound 
recording; and
    (3) An incidental performance that both:
    (i) Makes no more than incidental use of sound recordings 
including, but not limited to, brief musical transitions in and out of 
commercials or program segments, brief performances during news, talk 
and sports programming, brief background performances during disk 
jockey announcements, brief performances during commercials of sixty 
seconds or less in duration, or brief performances during sporting or 
other public events and
    (ii) Other than ambient music that is background at a public event, 
does not contain an entire sound recording and does not feature a 
particular sound recording of more than thirty seconds (as in the case 
of a sound recording used as a theme song).
    Performers means the independent administrators identified in 17 
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C. 
114(g)(2)(D).
    Qualified Auditor is a Certified Public Accountant.
    Side Channel is a channel on the Web site of a Broadcaster which 
channel transmits eligible transmissions that are not simultaneously 
transmitted over the air by the Broadcaster.


Sec.  380.3  Royalty fees for the public performance of sound 
recordings and for ephemeral recordings.

    (a) Royalty rates. Royalty rates and fees for eligible digital 
transmissions of sound recordings made pursuant to 17 U.S.C. 114, and 
the making of ephemeral recordings pursuant to 17 U.S.C. 112(e) are as 
follows:
    (1) Commercial Webcasters: For all digital audio transmissions, 
including simultaneous digital audio retransmissions of over-the-air AM 
or

[[Page 13048]]

FM radio broadcasts, and related Ephemeral Recordings, a Commercial 
Webcaster will pay a royalty of: $0.0019 per performance for 2011; 
$0.0021 per performance for 2012; $0.0021 per performance for 2013; 
$0.0023 per performance for 2014; and $0.0023 per performance for 2015.
    (2) Noncommercial Webcasters: (i) For all digital audio 
transmissions totaling not more than 159,140 Aggregate Tuning Hours 
(ATH) in a month, including simultaneous digital audio retransmissions 
of over-the-air AM or FM radio broadcasts, and related Ephemeral 
Recordings, a Noncommercial Webcaster will pay an annual per channel or 
per station performance royalty of $500 in 2011, 2012, 2013, 2014, and 
2015.
    (ii) For all digital audio transmissions totaling in excess of 
159,140 Aggregate Tuning Hours (ATH) in a month, including simultaneous 
digital audio retransmissions of over-the-air AM or FM radio 
broadcasts, and related Ephemeral Recordings, a Noncommercial Webcaster 
will pay a royalty of: $0.0019 per performance for 2011; $0.0021 per 
performance for 2012; $0.0021 per performance for 2013; $0.0023 per 
performance for 2014; and $0.0023 per performance for 2015.
    (b) Minimum fee--(1) Commercial Webcasters. Each Commercial 
Webcaster will pay an annual, nonrefundable minimum fee of $500 for 
each calendar year or part of a calendar year of the period 2011-2015 
during which it is a Licensee pursuant to 17 U.S.C. 112(e) or 114. This 
annual minimum fee is payable for each individual channel and each 
individual station maintained by Commercial Webcasters, and is also 
payable for each individual Side Channel maintained by Broadcasters who 
are Commercial Webcasters, provided that a Commercial Webcaster shall 
not be required to pay more than $50,000 per calendar year in minimum 
fees in the aggregate (for 100 or more channels or stations). For each 
such Commercial Webcaster, the annual minimum fee described in this 
paragraph (b)(1) shall constitute the minimum fees due under both 17 
U.S.C. 112(e)(4) and 114(f)(2)(B). Upon payment of the minimum fee, the 
Commercial Webcaster will receive a credit in the amount of the minimum 
fee against any additional royalty fees payable in the same calendar 
year.
    (2) Noncommercial Webcasters. Each Noncommercial Webcaster will pay 
an annual, nonrefundable minimum fee of $500 for each calendar year or 
part of a calendar year of the period 2011-2015 during which it is a 
Licensee pursuant to 17 U.S.C. 112(e) or 114. This annual minimum fee 
is payable for each individual channel and each individual station 
maintained by Noncommercial Webcasters, and is also payable for each 
individual Side Channel maintained by Broadcasters who are 
Noncommercial Webcasters. For each such Noncommercial Webcaster, the 
annual minimum fee described in this paragraph (b)(2) shall constitute 
the minimum fees due under both 17 U.S.C. 112(e)(4) and 114(f)(2)(B). 
Upon payment of the minimum fee, the Noncommercial Webcaster will 
receive a credit in the amount of the minimum fee against any 
additional royalty fees payable in the same calendar year.
    (c) Ephemeral recordings. The royalty payable under 17 U.S.C. 
112(e) for the making of all Ephemeral Recordings used by the Licensee 
solely to facilitate transmissions for which it pays royalties shall be 
included within, and constitute 5% of, the total royalties payable 
under 17 U.S.C. 112(e) and 114.


Sec.  380.4  Terms for making payment of royalty fees and statements of 
account.

    (a) Payment to the Collective. A Licensee shall make the royalty 
payments due under Sec.  380.3 to the Collective.
    (b) Designation of the Collective. (1) Until such time as a new 
designation is made, SoundExchange, Inc., is designated as the 
Collective to receive statements of account and royalty payments from 
Licensees due under Sec.  380.3 and to distribute such royalty payments 
to each Copyright Owner and Performer, or their designated agents, 
entitled to receive royalties under 17 U.S.C. 112(e) or 114(g).
    (2) If SoundExchange, Inc. should dissolve or cease to be governed 
by a board consisting of equal numbers of representatives of Copyright 
Owners and Performers, then it shall be replaced by a successor 
Collective upon the fulfillment of the requirements set forth in 
paragraph (b)(2)(i) of this section.
    (i) By a majority vote of the nine Copyright Owner representatives 
and the nine Performer representatives on the SoundExchange board as of 
the last day preceding the condition precedent in this paragraph 
(b)(2), such representatives shall file a petition with the Copyright 
Royalty Judges designating a successor to collect and distribute 
royalty payments to Copyright Owners and Performers entitled to receive 
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves 
authorized the Collective.
    (ii) The Copyright Royalty Judges shall publish in the Federal 
Register within 30 days of receipt of a petition filed under paragraph 
(b)(2)(i) of this section an order designating the Collective named in 
such petition.
    (c) Monthly payments. A Licensee shall make any payments due under 
Sec.  380.3 on a monthly basis on or before the 45th day after the end 
of each month for that month. All monthly payments shall be rounded to 
the nearest cent.
    (d) Minimum payments. A Licensee shall make any minimum payment due 
under Sec.  380.3(b) by January 31 of the applicable calendar year, 
except that payment for a Licensee that has not previously made 
eligible nonsubscription transmissions, noninteractive digital audio 
transmissions as part of a new subscription service or Ephemeral 
Recordings pursuant to the licenses in 17 U.S.C. 114 and/or 17 U.S.C. 
112(e) shall be due by the 45th day after the end of the month in which 
the Licensee commences to do so.
    (e) Late payments and statements of account. A Licensee shall pay a 
late fee of 1.5% per month, or the highest lawful rate, whichever is 
lower, for any payment and/or statement of account received by the 
Collective after the due date. Late fees shall accrue from the due date 
until payment and the related statement of account are received by the 
Collective.
    (f) Statements of account. Any payment due under Sec.  380.3 shall 
be accompanied by a corresponding statement of account. A statement of 
account shall contain the following information:
    (1) Such information as is necessary to calculate the accompanying 
royalty payment;
    (2) The name, address, business title, telephone number, facsimile 
number (if any), electronic mail address and other contact information 
of the person to be contacted for information or questions concerning 
the content of the statement of account;
    (3) The handwritten signature of:
    (i) The owner of the Licensee or a duly authorized agent of the 
owner, if the Licensee is not a partnership or corporation;
    (ii) A partner or delegee, if the Licensee is a partnership; or
    (iii) An officer of the corporation, if the Licensee is a 
corporation.
    (4) The printed or typewritten name of the person signing the 
statement of account;
    (5) The date of signature;
    (6) If the Licensee is a partnership or corporation, the title or 
official position held in the partnership or corporation by the person 
signing the statement of account;
    (7) A certification of the capacity of the person signing; and

[[Page 13049]]

    (8) A statement to the following effect:

    I, the undersigned owner or agent of the Licensee, or officer or 
partner, have examined this statement of account and hereby state 
that it is true, accurate, and complete to my knowledge after 
reasonable due diligence.

    (g) Distribution of royalties. (1) The Collective shall promptly 
distribute royalties received from Licensees to Copyright Owners and 
Performers, or their designated agents, that are entitled to such 
royalties. The Collective shall only be responsible for making 
distributions to those Copyright Owners, Performers, or their 
designated agents who provide the Collective with such information as 
is necessary to identify the correct recipient. The Collective shall 
distribute royalties on a basis that values all performances by a 
Licensee equally based upon the information provided under the reports 
of use requirements for Licensees contained in Sec.  370.4 of this 
chapter.
    (2) If the Collective is unable to locate a Copyright Owner or 
Performer entitled to a distribution of royalties under paragraph 
(g)(1) of the section within 3 years from the date of payment by a 
Licensee, such royalties shall be handled in accordance with Sec.  
380.8.
    (h) Retention of records. Books and records of a Licensee and of 
the Collective relating to payments of and distributions of royalties 
shall be kept for a period of not less than the prior 3 calendar years.


Sec.  380.5  Confidential Information.

    (a) Definition. For purposes of this subpart, ``Confidential 
Information'' shall include the statements of account and any 
information contained therein, including the amount of royalty 
payments, and any information pertaining to the statements of account 
reasonably designated as confidential by the Licensee submitting the 
statement.
    (b) Exclusion. Confidential Information shall not include documents 
or information that at the time of delivery to the Collective are 
public knowledge. The party claiming the benefit of this provision 
shall have the burden of proving that the disclosed information was 
public knowledge.
    (c) Use of Confidential Information. In no event shall the 
Collective use any Confidential Information for any purpose other than 
royalty collection and distribution and activities related directly 
thereto.
    (d) Disclosure of Confidential Information. Access to Confidential 
Information shall be limited to:
    (1) Those employees, agents, attorneys, consultants and independent 
contractors of the Collective, subject to an appropriate 
confidentiality agreement, who are engaged in the collection and 
distribution of royalty payments hereunder and activities related 
thereto, for the purpose of performing such duties during the ordinary 
course of their work and who require access to the Confidential 
Information;
    (2) An independent and Qualified Auditor, subject to an appropriate 
confidentiality agreement, who is authorized to act on behalf of the 
Collective with respect to verification of a Licensee's statement of 
account pursuant to Sec.  380.6 or on behalf of a Copyright Owner or 
Performer with respect to the verification of royalty distributions 
pursuant to Sec.  380.7;
    (3) Copyright Owners and Performers, including their designated 
agents, whose works have been used under the statutory licenses set 
forth in 17 U.S.C. 112(e) and 114 by the Licensee whose Confidential 
Information is being supplied, subject to an appropriate 
confidentiality agreement, and including those employees, agents, 
attorneys, consultants and independent contractors of such Copyright 
Owners and Performers and their designated agents, subject to an 
appropriate confidentiality agreement, for the purpose of performing 
their duties during the ordinary course of their work and who require 
access to the Confidential Information; and
    (4) In connection with future proceedings under 17 U.S.C. 112(e) 
and 114 before the Copyright Royalty Judges, and under an appropriate 
protective order, attorneys, consultants and other authorized agents of 
the parties to the proceedings or the courts.
    (e) Safeguarding of Confidential Information. The Collective and 
any person identified in paragraph (d) of this section shall implement 
procedures to safeguard against unauthorized access to or dissemination 
of any Confidential Information using a reasonable standard of care, 
but no less than the same degree of security used to protect 
Confidential Information or similarly sensitive information belonging 
to the Collective or person.


Sec.  380.6  Verification of royalty payments.

    (a) General. This section prescribes procedures by which the 
Collective may verify the royalty payments made by a Licensee.
    (b) Frequency of verification. The Collective may conduct a single 
audit of a Licensee, upon reasonable notice and during reasonable 
business hours, during any given calendar year, for any or all of the 
prior 3 calendar years, but no calendar year shall be subject to audit 
more than once.
    (c) Notice of intent to audit. The Collective must file with the 
Copyright Royalty Judges a notice of intent to audit a particular 
Licensee, which shall, within 30 days of the filing of the notice, 
publish in the Federal Register a notice announcing such filing. The 
notification of intent to audit shall be served at the same time on the 
Licensee to be audited. Any such audit shall be conducted by an 
independent and Qualified Auditor identified in the notice, and shall 
be binding on all parties.
    (d) Acquisition and retention of report. The Licensee shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit. The Collective shall retain the report of the 
verification for a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to the 
Collective, except where the auditor has a reasonable basis to suspect 
fraud and disclosure would, in the reasonable opinion of the auditor, 
prejudice the investigation of such suspected fraud, the auditor shall 
review the tentative written findings of the audit with the appropriate 
agent or employee of the Licensee being audited in order to remedy any 
factual errors and clarify any issues relating to the audit; Provided 
that an appropriate agent or employee of the Licensee reasonably 
cooperates with the auditor to remedy promptly any factual errors or 
clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Collective shall pay 
the cost of the verification procedure, unless it is finally determined 
that there was an underpayment of 10% or more, in which case the 
Licensee shall, in addition to paying the amount of any underpayment, 
bear the reasonable costs of the verification procedure.


Sec.  380.7  Verification of royalty distributions.

    (a) General. This section prescribes procedures by which any 
Copyright Owner or Performer may verify the royalty distributions made 
by the Collective; provided, however, that

[[Page 13050]]

nothing contained in this section shall apply to situations where a 
Copyright Owner or Performer and the Collective have agreed as to 
proper verification methods.
    (b) Frequency of verification. A Copyright Owner or Performer may 
conduct a single audit of the Collective upon reasonable notice and 
during reasonable business hours, during any given calendar year, for 
any or all of the prior 3 calendar years, but no calendar year shall be 
subject to audit more than once.
    (c) Notice of intent to audit. A Copyright Owner or Performer must 
file with the Copyright Royalty Judges a notice of intent to audit the 
Collective, which shall, within 30 days of the filing of the notice, 
publish in the Federal Register a notice announcing such filing. The 
notification of intent to audit shall be served at the same time on the 
Collective. Any audit shall be conducted by an independent and 
Qualified Auditor identified in the notice, and shall be binding on all 
Copyright Owners and Performers.
    (d) Acquisition and retention of report. The Collective shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit. The Copyright Owner or Performer requesting the 
verification procedure shall retain the report of the verification for 
a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to a Copyright 
Owner or Performer, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Collective in order to remedy 
any factual errors and clarify any issues relating to the audit; 
Provided that the appropriate agent or employee of the Collective 
reasonably cooperates with the auditor to remedy promptly any factual 
errors or clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Copyright Owner or 
Performer requesting the verification procedure shall pay the cost of 
the procedure, unless it is finally determined that there was an 
underpayment of 10% or more, in which case the Collective shall, in 
addition to paying the amount of any underpayment, bear the reasonable 
costs of the verification procedure.


Sec.  380.8  Unclaimed funds.

    If the Collective is unable to identify or locate a Copyright Owner 
or Performer who is entitled to receive a royalty distribution under 
this subpart, the Collective shall retain the required payment in a 
segregated trust account for a period of 3 years from the date of 
distribution. No claim to such distribution shall be valid after the 
expiration of the 3-year period. After expiration of this period, the 
Collective may apply the unclaimed funds to offset any costs deductible 
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding 
the common law or statutes of any State.

Subpart B--Broadcasters


Sec.  380.10  General.

    (a) Scope. This subpart establishes rates and terms of royalty 
payments for the public performance of sound recordings in certain 
digital transmissions made by Broadcasters as set forth herein in 
accordance with the provisions of 17 U.S.C. 114, and the making of 
Ephemeral Recordings by Broadcasters as set forth herein in accordance 
with the provisions of 17 U.S.C. 112(e), during the period January 1, 
2011, through December 31, 2015.
    (b) Legal compliance. Broadcasters relying upon the statutory 
licenses set forth in 17 U.S.C. 112(e) and 114 shall comply with the 
requirements of those sections, the rates and terms of this subpart, 
and any other applicable regulations not inconsistent with the rates 
and terms set forth herein.
    (c) Relationship to voluntary agreements. Notwithstanding the 
royalty rates and terms established in this subpart, the rates and 
terms of any license agreements entered into by Copyright Owners and 
digital audio services shall apply in lieu of the rates and terms of 
this subpart to transmission within the scope of such agreements.


Sec.  380.11  Definitions.

    For purposes of this subpart, the following definitions shall 
apply:
    Aggregate Tuning Hours means the total hours of programming that 
the Broadcaster has transmitted during the relevant period to all 
listeners within the United States from any channels and stations that 
provide audio programming consisting, in whole or in part, of Eligible 
Transmissions.
    Broadcaster means an entity that:
    (1) Has a substantial business owning and operating one or more 
terrestrial AM or FM radio stations that are licensed as such by the 
Federal Communications Commission;
    (2) Has obtained a compulsory license under 17 U.S.C. 112(e) and 
114 and the implementing regulations therefor to make Eligible 
Transmissions and related ephemeral recordings;
    (3) Complies with all applicable provisions of Sections 112(e) and 
114 and applicable regulations; and
    (4) Is not a noncommercial webcaster as defined in 17 U.S.C. 
114(f)(5)(E)(i).
    Broadcaster Webcasts mean eligible nonsubscription transmissions 
made by a Broadcaster over the Internet that are not Broadcast 
Retransmissions.
    Broadcast Retransmissions mean eligible nonsubscription 
transmissions made by a Broadcaster over the Internet that are 
retransmissions of terrestrial over-the-air broadcast programming 
transmitted by the Broadcaster through its AM or FM radio station, 
including ones with substitute advertisements or other programming 
occasionally substituted for programming for which requisite licenses 
or clearances to transmit over the Internet have not been obtained. For 
the avoidance of doubt, a Broadcast Retransmission does not include 
programming that does not require a license under United States 
copyright law or that is transmitted on an Internet-only side channel.
    Collective is the collection and distribution organization that is 
designated by the Copyright Royalty Judges. For the 2011-2015 license 
period, the Collective is SoundExchange, Inc.
    Copyright Owners are sound recording copyright owners who are 
entitled to royalty payments made under this subpart pursuant to the 
statutory licenses under 17 U.S.C. 112(e) and 114(f).
    Eligible Transmission shall mean either a Broadcaster Webcast or a 
Broadcast Retransmission.
    Ephemeral Recording is a phonorecord created for the purpose of 
facilitating an Eligible Transmission of a public performance of a 
sound recording under a statutory license in accordance with 17 U.S.C. 
114(f), and subject to the limitations specified in 17 U.S.C. 112(e).
    Performance is each instance in which any portion of a sound 
recording is publicly performed to a listener by means of a digital 
audio transmission (e.g., the delivery of any portion of a

[[Page 13051]]

single track from a compact disc to one listener) but excluding the 
following:
    (1) A performance of a sound recording that does not require a 
license (e.g., a sound recording that is not copyrighted);
    (2) A performance of a sound recording for which the Broadcaster 
has previously obtained a license from the Copyright Owner of such 
sound recording; and
    (3) An incidental performance that both:
    (i) Makes no more than incidental use of sound recordings 
including, but not limited to, brief musical transitions in and out of 
commercials or program segments, brief performances during news, talk 
and sports programming, brief background performances during disk 
jockey announcements, brief performances during commercials of sixty 
seconds or less in duration, or brief performances during sporting or 
other public events and
    (ii) Other than ambient music that is background at a public event, 
does not contain an entire sound recording and does not feature a 
particular sound recording of more than thirty seconds (as in the case 
of a sound recording used as a theme song).
    Performers means the independent administrators identified in 17 
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C. 
114(g)(2)(D).
    Qualified Auditor is a Certified Public Accountant.
    Small Broadcaster is a Broadcaster that, for any of its channels 
and stations (determined as provided in Sec.  380.12(c)) over which it 
transmits Broadcast Retransmissions, and for all of its channels and 
stations over which it transmits Broadcaster Webcasts in the aggregate, 
in any calendar year in which it is to be considered a Small 
Broadcaster, meets the following additional eligibility criteria:
    (1) During the prior year it made Eligible Transmissions totaling 
less than 27,777 Aggregate Tuning Hours; and
    (2) During the applicable year it reasonably expects to make 
Eligible Transmissions totaling less than 27,777 Aggregate Tuning 
Hours; provided that, one time during the period 2011-2015, a 
Broadcaster that qualified as a Small Broadcaster under the foregoing 
definition as of January 31 of one year, elected Small Broadcaster 
status for that year, and unexpectedly made Eligible Transmissions on 
one or more channels or stations in excess of 27,777 aggregate tuning 
hours during that year, may choose to be treated as a Small Broadcaster 
during the following year notwithstanding paragraph (1) of the 
definition of ``Small Broadcaster'' if it implements measures 
reasonably calculated to ensure that it will not make Eligible 
Transmissions exceeding 27,777 aggregate tuning hours during that 
following year. As to channels or stations over which a Broadcaster 
transmits Broadcast Retransmissions, the Broadcaster may elect Small 
Broadcaster status only with respect to any of its channels or stations 
that meet all of the foregoing criteria.


Sec.  380.12  Royalty fees for the public performance of sound 
recordings and for ephemeral recordings.

    (a) Royalty rates. Royalties for Eligible Transmissions made 
pursuant to 17 U.S.C. 114, and the making of related ephemeral 
recordings pursuant to 17 U.S.C. 112(e), shall, except as provided in 
Sec.  380.13(g)(3), be payable on a per-performance basis, as follows:
    (1) 2011: $0.0017;
    (2) 2012: $0.0020;
    (3) 2013: $0.0022;
    (4) 2014: $0.0023;
    (5) 2015: $0.0025.
    (b) Ephemeral royalty. The royalty payable under 17 U.S.C. 112(e) 
for any reproduction of a phonorecord made by a Broadcaster during this 
license period and used solely by the Broadcaster to facilitate 
transmissions for which it pays royalties as and when provided in this 
section is deemed to be included within such royalty payments and to 
equal the percentage of such royalty payments determined by the 
Copyright Royalty Judges for other webcasting as set forth in Sec.  
380.3.
    (c) Minimum fee. Each Broadcaster will pay an annual, nonrefundable 
minimum fee of $500 for each of its individual channels, including each 
of its individual side channels, and each of its individual stations, 
through which (in each case) it makes Eligible Transmissions, for each 
calendar year or part of a calendar year during 2011-2015 during which 
the Broadcaster is a licensee pursuant to licenses under 17 U.S.C. 
112(e) and 114, provided that a Broadcaster shall not be required to 
pay more than $50,000 in minimum fees in the aggregate (for 100 or more 
channels or stations). For the purpose of this subpart, each individual 
stream (e.g., HD radio side channels, different stations owned by a 
single licensee) will be treated separately and be subject to a 
separate minimum, except that identical streams for simulcast stations 
will be treated as a single stream if the streams are available at a 
single Uniform Resource Locator (URL) and performances from all such 
stations are aggregated for purposes of determining the number of 
payable performances hereunder. Upon payment of the minimum fee, the 
Broadcaster will receive a credit in the amount of the minimum fee 
against any additional royalties payable for the same calendar year for 
the same channel or station. In addition, an electing Small Broadcaster 
also shall pay a $100 annual fee (the ``Proxy Fee'') to the Collective 
for the reporting waiver discussed in Sec.  380.13(g)(2).


Sec.  380.13  Terms for making payment of royalty fees and statements 
of account.

    (a) Payment to the Collective. A Broadcaster shall make the royalty 
payments due under Sec.  380.12 to the Collective.
    (b) Designation of the Collective. (1) Until such time as a new 
designation is made, SoundExchange, Inc., is designated as the 
Collective to receive statements of account and royalty payments from 
Broadcasters due under Sec.  380.12 and to distribute such royalty 
payments to each Copyright Owner and Performer, or their designated 
agents, entitled to receive royalties under 17 U.S.C. 112(e) and 
114(g).
    (2) If SoundExchange, Inc. should dissolve or cease to be governed 
by a board consisting of equal numbers of representatives of Copyright 
Owners and Performers, then it shall be replaced by a successor 
Collective upon the fulfillment of the requirements set forth in 
paragraph (b)(2)(i) of this section.
    (i) By a majority vote of the nine Copyright Owner representatives 
and the nine Performer representatives on the SoundExchange board as of 
the last day preceding the condition precedent in this paragraph 
(b)(2), such representatives shall file a petition with the Copyright 
Royalty Board designating a successor to collect and distribute royalty 
payments to Copyright Owners and Performers entitled to receive 
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves 
authorized such Collective.
    (ii) The Copyright Royalty Judges shall publish in the Federal 
Register within 30 days of receipt of a petition filed under paragraph 
(b)(2)(i) of this section an order designating the Collective named in 
such petition.
    (c) Monthly payments and reporting. Broadcasters must make monthly 
payments where required by Sec.  380.12, and provide statements of 
account and reports of use, for each month on the 45th day following 
the month in which the Eligible Transmissions subject to the payments, 
statements of account, and reports of use were made. All monthly 
payments shall be rounded to the nearest cent.
    (d) Minimum payments. A Broadcaster shall make any minimum

[[Page 13052]]

payment due under Sec.  380.12(b) by January 31 of the applicable 
calendar year, except that payment by a Broadcaster that was not making 
Eligible Transmissions or Ephemeral Recordings pursuant to the licenses 
in 17 U.S.C. 114 and/or 17 U.S.C. 112(e) as of said date but begins 
doing so thereafter shall be due by the 45th day after the end of the 
month in which the Broadcaster commences to do so.
    (e) Late fees. A Broadcaster shall pay a late fee for each instance 
in which any payment, any statement of account or any report of use is 
not received by the Collective in compliance with applicable 
regulations by the due date. The amount of the late fee shall be 1.5% 
of a late payment, or 1.5% of the payment associated with a late 
statement of account or report of use, per month, or the highest lawful 
rate, whichever is lower. The late fee shall accrue from the due date 
of the payment, statement of account or report of use until a fully 
compliant payment, statement of account or report of use is received by 
the Collective, provided that, in the case of a timely provided but 
noncompliant statement of account or report of use, the Collective has 
notified the Broadcaster within 90 days regarding any noncompliance 
that is reasonably evident to the Collective.
    (f) Statements of account. Any payment due under Sec.  380.12 shall 
be accompanied by a corresponding statement of account. A statement of 
account shall contain the following information:
    (1) Such information as is necessary to calculate the accompanying 
royalty payment;
    (2) The name, address, business title, telephone number, facsimile 
number (if any), electronic mail address (if any) and other contact 
information of the person to be contacted for information or questions 
concerning the content of the statement of account;
    (3) The handwritten signature of:
    (i) The owner of the Broadcaster or a duly authorized agent of the 
owner, if the Broadcaster is not a partnership or corporation;
    (ii) A partner or delegee, if the Broadcaster is a partnership; or
    (iii) An officer of the corporation, if the Broadcaster is a 
corporation.
    (4) The printed or typewritten name of the person signing the 
statement of account;
    (5) The date of signature;
    (6) If the Broadcaster is a partnership or corporation, the title 
or official position held in the partnership or corporation by the 
person signing the statement of account;
    (7) A certification of the capacity of the person signing; and
    (8) A statement to the following effect:

    I, the undersigned owner or agent of the Broadcaster, or officer 
or partner, have examined this statement of account and hereby state 
that it is true, accurate, and complete to my knowledge after 
reasonable due diligence.

    (g) Reporting by Broadcasters in General. (1) Broadcasters other 
than electing Small Broadcasters covered by paragraph (g)(2) of this 
section shall submit reports of use on a per-performance basis in 
compliance with the regulations set forth in part 370 of this chapter, 
except that the following provisions shall apply notwithstanding the 
provisions of such part 370 of this chapter from time to time in 
effect:
    (i) Broadcasters may pay for, and report usage in, a percentage of 
their programming hours on an Aggregate Tuning Hour basis as provided 
in paragraph (g)(3) of this section.
    (ii) Broadcasters shall submit reports of use to the Collective on 
a monthly basis.
    (iii) As provided in paragraph (d) of this section, Broadcasters 
shall submit reports of use by no later than the 45th day following the 
last day of the month to which they pertain.
    (iv) Except as provided in paragraph (g)(3) of this section, 
Broadcasters shall submit reports of use to the Collective on a census 
reporting basis (i.e., reports of use shall include every sound 
recording performed in the relevant month and the number of 
performances thereof).
    (v) Broadcasters shall either submit a separate report of use for 
each of their stations, or a collective report of use covering all of 
their stations but identifying usage on a station-by-station basis;
    (vi) Broadcasters shall transmit each report of use in a file the 
name of which includes:
    (A) The name of the Broadcaster, exactly as it appears on its 
notice of use, and
    (B) If the report covers a single station only, the call letters of 
the station.
    (vii) Broadcasters shall submit reports of use with headers, as 
presently described in Sec.  370.4(e)(7) of this chapter.
    (viii) Broadcasters shall submit a separate statement of account 
corresponding to each of their reports of use, transmitted in a file 
the name of which includes:
    (A) The name of the Broadcaster, exactly as it appears on its 
notice of use, and
    (B) If the statement covers a single station only, the call letters 
of the station.
    (2) On a transitional basis for a limited time in light of the 
unique business and operational circumstances currently existing with 
respect to Small Broadcasters and with the expectation that Small 
Broadcasters will be required, effective January 1, 2016, to report 
their actual usage in compliance with then-applicable regulations. 
Small Broadcasters that have made an election pursuant to paragraph (h) 
of this section for the relevant year shall not be required to provide 
reports of their use of sound recordings for Eligible Transmissions and 
related Ephemeral Recordings. The immediately preceding sentence 
applies even if the Small Broadcaster actually makes Eligible 
Transmissions for the year exceeding 27,777 Aggregate Tuning Hours, so 
long as it qualified as a Small Broadcaster at the time of its election 
for that year. In addition to minimum royalties hereunder, electing 
Small Broadcasters will pay to the Collective a $100 Proxy Fee to 
defray costs associated with this reporting waiver, including 
development of proxy usage data.
    (3) Broadcasters generally reporting pursuant to paragraph (g)(1) 
of this section may pay for, and report usage in, a percentage of their 
programming hours on an Aggregate Tuning Hours basis, if
    (i) Census reporting is not reasonably practical for the 
programming during those hours, and
    (ii) If the total number of hours on a single report of use, 
provided pursuant to paragraph (g)(1) of this section, for which this 
type of reporting is used is below the maximum percentage set forth 
below for the relevant year:
    (A) 2011: 16%;
    (B) 2012: 14%;
    (C) 2013: 12%;
    (D) 2014: 10%;
    (E) 2015: 8%.
    (iii) To the extent that a Broadcaster chooses to report and pay 
for usage on an Aggregate Tuning Hours basis pursuant to this paragraph 
(g)(3), the Broadcaster shall
    (A) Report and pay based on the assumption that the number of sound 
recordings performed during the relevant programming hours is 12 per 
hour;
    (B) Pay royalties (or recoup minimum fees) at the per-performance 
rates provided in Sec.  380.12 on the basis of paragraph (g)(3)(iii)(A) 
of this section;
    (C) Include Aggregate Tuning Hours in reports of use; and
    (D) Include in reports of use complete playlist information for 
usage reported on the basis of Aggregate Tuning Hours.

[[Page 13053]]

    (h) Election of Small Broadcaster Status. To be eligible for the 
reporting waiver for Small Broadcasters with respect to any particular 
channel in a given year, a Broadcaster must satisfy the definition set 
forth in Sec.  380.11 and must submit to the Collective a completed and 
signed election form (available on the SoundExchange Web site at http://www.soundexchange.com) by no later than January 31 of the applicable 
year. Even if a Broadcaster has once elected to be treated as a Small 
Broadcaster, it must make a separate, timely election in each 
subsequent year in which it wishes to be treated as a Small 
Broadcaster.
    (i) Distribution of royalties. (1) The Collective shall promptly 
distribute royalties received from Broadcasters to Copyright Owners and 
Performers, or their designated agents, that are entitled to such 
royalties. The Collective shall only be responsible for making 
distributions to those Copyright Owners, Performers, or their 
designated agents who provide the Collective with such information as 
is necessary to identify and pay the correct recipient. The Collective 
shall distribute royalties on a basis that values all performances by a 
Broadcaster equally based upon information provided under the report of 
use requirements for Broadcasters contained in Sec.  370.4 of this 
chapter and this subpart, except that in the case of electing Small 
Broadcasters, the Collective shall distribute royalties based on proxy 
usage data in accordance with a methodology adopted by the Collective's 
Board of Directors.
    (2) If the Collective is unable to locate a Copyright Owner or 
Performer entitled to a distribution of royalties under paragraph 
(g)(1) of this section within 3 years from the date of payment by a 
Broadcaster, such distribution may be first applied to the costs 
directly attributable to the administration of that distribution. The 
foregoing shall apply notwithstanding the common law or statutes of any 
State.
    (j) Retention of records. Books and records of a Broadcaster and of 
the Collective relating to payments of and distributions of royalties 
shall be kept for a period of not less than the prior 3 calendar years.


Sec.  380.14  Confidential Information.

    (a) Definition. For purposes of this subpart, ``Confidential 
Information'' shall include the statements of account and any 
information contained therein, including the amount of royalty 
payments, and any information pertaining to the statements of account 
reasonably designated as confidential by the Broadcaster submitting the 
statement.
    (b) Exclusion. Confidential Information shall not include documents 
or information that at the time of delivery to the Collective are 
public knowledge. The party claiming the benefit of this provision 
shall have the burden of proving that the disclosed information was 
public knowledge.
    (c) Use of Confidential Information. In no event shall the 
Collective use any Confidential Information for any purpose other than 
royalty collection and distribution and activities related directly 
thereto.
    (d) Disclosure of Confidential Information. Access to Confidential 
Information shall be limited to:
    (1) Those employees, agents, attorneys, consultants and independent 
contractors of the Collective, subject to an appropriate 
confidentiality agreement, who are engaged in the collection and 
distribution of royalty payments hereunder and activities related 
thereto, for the purpose of performing such duties during the ordinary 
course of their work and who require access to the Confidential 
Information;
    (2) An independent and Qualified Auditor, subject to an appropriate 
confidentiality agreement, who is authorized to act on behalf of the 
Collective with respect to verification of a Broadcaster's statement of 
account pursuant to Sec.  380.15 or on behalf of a Copyright Owner or 
Performer with respect to the verification of royalty distributions 
pursuant to Sec.  380.16;
    (3) Copyright Owners and Performers, including their designated 
agents, whose works have been used under the statutory licenses set 
forth in 17 U.S.C. 112(e) and 114(f) by the Broadcaster whose 
Confidential Information is being supplied, subject to an appropriate 
confidentiality agreement, and including those employees, agents, 
attorneys, consultants and independent contractors of such Copyright 
Owners and Performers and their designated agents, subject to an 
appropriate confidentiality agreement, for the purpose of performing 
their duties during the ordinary course of their work and who require 
access to the Confidential Information; and
    (4) In connection with future proceedings under 17 U.S.C. 112(e) 
and 114(f) before the Copyright Royalty Judges, and under an 
appropriate protective order, attorneys, consultants and other 
authorized agents of the parties to the proceedings or the courts.
    (e) Safeguarding of Confidential Information. The Collective and 
any person identified in paragraph (d) of this section shall implement 
procedures to safeguard against unauthorized access to or dissemination 
of any Confidential Information using a reasonable standard of care, 
but not less than the same degree of security used to protect 
Confidential Information or similarly sensitive information belonging 
to the Collective or person.


Sec.  380.15  Verification of royalty payments.

    (a) General. This section prescribes procedures by which the 
Collective may verify the royalty payments made by a Broadcaster.
    (b) Frequency of verification. The Collective may conduct a single 
audit of a Broadcaster, upon reasonable notice and during reasonable 
business hours, during any given calendar year, for any or all of the 
prior 3 calendar years, but no calendar year shall be subject to audit 
more than once.
    (c) Notice of intent to audit. The Collective must file with the 
Copyright Royalty Board a notice of intent to audit a particular 
Broadcaster, which shall, within 30 days of the filing of the notice, 
publish in the Federal Register a notice announcing such filing. The 
notification of intent to audit shall be served at the same time on the 
Broadcaster to be audited. Any such audit shall be conducted by an 
independent and Qualified Auditor identified in the notice, and shall 
be binding on all parties.
    (d) Acquisition and retention of report. The Broadcaster shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit. The Collective shall retain the report of the 
verification for a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to the 
Collective, except where the auditor has a reasonable basis to suspect 
fraud and disclosure would, in the reasonable opinion of the auditor, 
prejudice the investigation of such suspected fraud, the auditor shall 
review the tentative written findings of the audit with the appropriate 
agent or employee of the Broadcaster being audited in order to remedy 
any factual errors and clarify any issues relating to the audit; 
Provided that an appropriate

[[Page 13054]]

agent or employee of the Broadcaster reasonably cooperates with the 
auditor to remedy promptly any factual error or clarify any issues 
raised by the audit.
    (g) Costs of the verification procedure. The Collective shall pay 
the cost of the verification procedure, unless it is finally determined 
that there was an underpayment of 10% or more, in which case the 
Broadcaster shall, in addition to paying the amount of any 
underpayment, bear the reasonable costs of the verification procedure.


Sec.  380.16  Verification of royalty distributions.

    (a) General. This section prescribes procedures by which any 
Copyright Owner or Performer may verify the royalty distributions made 
by the Collective; Provided, however, that nothing contained in this 
section shall apply to situations where a Copyright Owner or Performer 
and the Collective have agreed as to proper verification methods.
    (b) Frequency of verification. A Copyright Owner or Performer may 
conduct a single audit of the Collective upon reasonable notice and 
during reasonable business hours, during any given calendar year, for 
any or all of the prior 3 calendar years, but no calendar year shall be 
subject to audit more than once.
    (c) Notice of intent to audit. A Copyright Owner or Performer must 
file with the Copyright Royalty Board a notice of intent to audit the 
Collective, which shall, within 30 days of the filing of the notice, 
publish in the Federal Register a notice announcing such filing. The 
notification of intent to audit shall be served at the same time on the 
Collective. Any audit shall be conducted by an independent and 
Qualified Auditor identified in the notice, and shall be binding on all 
Copyright Owners and Performers.
    (d) Acquisition and retention of report. The Collective shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit. The Copyright Owner or Performer requesting the 
verification procedure shall retain the report of the verification for 
a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent and Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to a Copyright 
Owner or Performer, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Collective in order to remedy 
any factual errors and clarify any issues relating to the audit; 
Provided that the appropriate agent or employee of the Collective 
reasonably cooperates with the auditor to remedy promptly any factual 
errors or clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Copyright Owner or 
Performer requesting the verification procedure shall pay the cost of 
the procedure, unless it is finally determined that there was an 
underpayment of 10% or more, in which case the Collective shall, in 
addition to paying the amount of any underpayment, bear the reasonable 
costs of the verification procedure.


Sec.  380.17  Unclaimed funds.

    If the Collective is unable to identify or locate a Copyright Owner 
or Performer who is entitled to receive a royalty distribution under 
this subpart, the Collective shall retain the required payment in a 
segregated trust account for a period of 3 years from the date of 
distribution. No claim to such distribution shall be valid after the 
expiration of the 3-year period. After expiration of this period, the 
Collective may apply the unclaimed funds to offset any costs deductible 
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding 
the common law or statutes of any State.

Subpart C--Noncommercial Educational Webcasters


Sec.  380.20  General.

    (a) Scope. This subpart establishes rates and terms, including 
requirements for royalty payments, recordkeeping and reports of use, 
for the public performance of sound recordings in certain digital 
transmissions made by Noncommercial Educational Webcasters as set forth 
herein in accordance with the provisions of 17 U.S.C. 114, and the 
making of Ephemeral Recordings by Noncommercial Educational Webcasters 
as set forth herein in accordance with the provisions of 17 U.S.C. 
112(e), during the period January 1, 2011, through December 31, 2015.
    (b) Legal compliance. Noncommercial Educational Webcasters relying 
upon the statutory licenses set forth in 17 U.S.C. 112(e) and 114 shall 
comply with the requirements of those sections, the rates and terms of 
this subpart, and any other applicable regulations not inconsistent 
with the rates and terms set forth herein.
    (c) Relationship to voluntary agreements. Notwithstanding the 
royalty rates and terms established in this subpart, the rates and 
terms of any license agreements entered into by Copyright Owners and 
digital audio services shall apply in lieu of the rates and terms of 
this subpart to transmissions within the scope of such agreements.


Sec.  380.21  Definitions.

    For purposes of this subpart, the following definitions shall 
apply:
    ATH or Aggregate Tuning Hours means the total hours of programming 
that a Noncommercial Educational Webcaster has transmitted during the 
relevant period to all listeners within the United States over all 
channels and stations that provide audio programming consisting, in 
whole or in part, of Eligible Transmissions, including from any 
archived programs, less the actual running time of any sound recordings 
for which the Noncommercial Educational Webcaster has obtained direct 
licenses apart from 17 U.S.C. 114(d)(2) or which do not require a 
license under United States copyright law. By way of example, if a 
Noncommercial Educational Webcaster transmitted one hour of programming 
to 10 simultaneous listeners, the Noncommercial Educational Webcaster's 
Aggregate Tuning Hours would equal 10. If three minutes of that hour 
consisted of transmission of a directly licensed recording, the 
Noncommercial Educational Webcaster's Aggregate Tuning Hours would 
equal 9 hours and 30 minutes. As an additional example, if one listener 
listened to a Noncommercial Educational Webcaster for 10 hours (and 
none of the recordings transmitted during that time was directly 
licensed), the Noncommercial Educational Webcaster's Aggregate Tuning 
Hours would equal 10.
    Collective is the collection and distribution organization that is 
designated by the Copyright Royalty Judges. For the 2011-2015 license 
period, the Collective is SoundExchange, Inc.
    Copyright Owners are sound recording copyright owners who are 
entitled to royalty payments made under this subpart pursuant to the

[[Page 13055]]

statutory licenses under 17 U.S.C. 112(e) and 114(f).
    Eligible Transmission means an eligible nonsubscription 
transmission made by a Noncommercial Educational Webcaster over the 
Internet.
    Ephemeral Recording is a phonorecord created for the purpose of 
facilitating an Eligible Transmission of a public performance of a 
sound recording under a statutory license in accordance with 17 U.S.C. 
114(f), and subject to the limitations specified in 17 U.S.C. 112(e).
    Noncommercial Educational Webcaster means Noncommercial Webcaster 
(as defined in 17 U.S.C. 114(f)(5)(E)(i)) that
    (1) Has obtained a compulsory license under 17 U.S.C. 112(e) and 
114 and the implementing regulations therefor to make Eligible 
Transmissions and related ephemeral recordings;
    (2) Complies with all applicable provisions of Sections 112(e) and 
114 and applicable regulations;
    (3) Is directly operated by, or is affiliated with and officially 
sanctioned by, and the digital audio transmission operations of which 
are staffed substantially by students enrolled at, a domestically 
accredited primary or secondary school, college, university or other 
post-secondary degree-granting educational institution; and
    (4) Is not a ``public broadcasting entity'' (as defined in 17 
U.S.C. 118(g)) qualified to receive funding from the Corporation for 
Public Broadcasting pursuant to the criteria set forth in 47 U.S.C. 
396.
    Performance is each instance in which any portion of a sound 
recording is publicly performed to a listener by means of a digital 
audio transmission (e.g., the delivery of any portion of a single track 
from a compact disc to one listener) but excluding the following:
    (1) A performance of a sound recording that does not require a 
license (e.g., a sound recording that is not copyrighted);
    (2) A performance of a sound recording for which the Noncommercial 
Educational Webcaster has previously obtained a license from the 
Copyright Owner of such sound recording; and
    (3) An incidental performance that both:
    (i) Makes no more than incidental use of sound recordings, 
including, but not limited to, brief musical transitions in and out of 
commercials or program segments, brief performances during news, talk 
and sports programming, brief background performances during disk 
jockey announcements, brief performances during commercials of sixty 
seconds or less in duration, or brief performances during sporting or 
other public events; and
    (ii) Other than ambient music that is background at a public event, 
does not contain an entire sound recording and does not feature a 
particular sound recording of more than thirty seconds (as in the case 
of a sound recording used as a theme song).
    Performers means the independent administrators identified in 17 
U.S.C. 114(g)(2)(B) and (C) and the parties identified in 17 U.S.C. 
114(g)(2)(D).
    Qualified Auditor is a Certified Public Accountant.


Sec.  380.22  Royalty fees for the public performance of sound 
recordings and for ephemeral recordings.

    (a) Minimum fee. Each Noncommercial Educational Webcaster shall pay 
an annual, nonrefundable minimum fee of $500 (the ``Minimum Fee'') for 
each of its individual channels, including each of its individual side 
channels, and each of its individual stations, through which (in each 
case) it makes Eligible Transmissions, for each calendar year it makes 
Eligible Transmissions subject to this subpart. For clarity, each 
individual stream (e.g., HD radio side channels, different stations 
owned by a single licensee) will be treated separately and be subject 
to a separate minimum. In addition, a Noncommercial Educational 
Webcaster electing the reporting waiver described in Sec.  
380.23(g)(1), shall pay a $100 annual fee (the ``Proxy Fee'') to the 
Collective.
    (b) Additional usage fees. If, in any month, a Noncommercial 
Educational Webcaster makes total transmissions in excess of 159,140 
Aggregate Tuning Hours on any individual channel or station, the 
Noncommercial Educational Webcaster shall pay additional usage fees 
(``Usage Fees'') for the Eligible Transmissions it makes on that 
channel or station after exceeding 159,140 total ATH at the following 
per-performance rates:
    (1) 2011: $0.0017;
    (2) 2012: $0.0020;
    (3) 2013: $0.0022;
    (4) 2014: $0.0023;
    (5) 2015: $0.0025.
    (6) For a Noncommercial Educational Webcaster unable to calculate 
actual total performances and not required to report ATH or actual 
total performances under Sec.  380.23(g)(3), the Noncommercial 
Educational Webcaster may pay its Usage Fees on an ATH basis, provided 
that the Noncommercial Educational Webcaster shall pay its Usage Fees 
at the per-performance rates provided in paragraphs (b)(1) through (5) 
of this section based on the assumption that the number of sound 
recordings performed is 12 per hour. The Collective may distribute 
royalties paid on the basis of ATH hereunder in accordance with its 
generally applicable methodology for distributing royalties paid on 
such basis. In addition, and for the avoidance of doubt, a 
Noncommercial Educational Webcaster offering more than one channel or 
station shall pay Usage Fees on a per-channel or -station basis.
    (c) Ephemeral royalty. The royalty payable under 17 U.S.C. 112(e) 
for any ephemeral reproductions made by a Noncommercial Educational 
Webcaster and covered by this subpart is deemed to be included within 
the royalty payments set forth in paragraphs (a) and (b)(1) through (5) 
of this section and to equal the percentage of such royalty payments 
determined by the Copyright Royalty Judges for other webcasting in 
Sec.  380.3.


Sec.  380.23  Terms for making payment of royalty fees and statements 
of account.

    (a) Payment to the Collective. A Noncommercial Educational 
Webcaster shall make the royalty payments due under Sec.  380.22 to the 
Collective.
    (b) Designation of the Collective. (1) Until such time as a new 
designation is made, SoundExchange, Inc., is designated as the 
Collective to receive statements of account and royalty payments from 
Noncommercial Educational Webcasters due under Sec.  380.22 and to 
distribute such royalty payments to each Copyright Owner and Performer, 
or their designated agents, entitled to receive royalties under 17 
U.S.C. 112(e) or 114(g).
    (2) If SoundExchange, Inc., should dissolve or cease to be governed 
by a board consisting of equal numbers of representatives of Copyright 
Owners and Performers, then it shall be replaced by a successor 
Collective upon the fulfillment of the requirements set forth in 
paragraph (b)(2)(i) of this section.
    (i) By a majority vote of the nine Copyright Owner representatives 
and the nine Performer representatives on the SoundExchange board as of 
the last day preceding the condition precedent in this paragraph 
(b)(2), such representatives shall file a petition with the Copyright 
Royalty Board designating a successor to collect and distribute royalty 
payments to Copyright Owners and Performers entitled to receive 
royalties under 17 U.S.C. 112(e) or 114(g) that have themselves 
authorized such Collective.
    (ii) The Copyright Royalty Judges shall publish in the Federal 
Register within 30 days of receipt of a petition filed under paragraph 
(b)(2)(i) of this

[[Page 13056]]

section an order designating the Collective named in such petition.
    (c) Minimum fee. Noncommercial Educational Webcasters shall submit 
the Minimum Fee, and Proxy Fee if applicable, accompanied by a 
statement of account, by January 31st of each calendar year, except 
that payment of the Minimum Fee, and Proxy Fee if applicable, by a 
Noncommercial Educational Webcaster that was not making Eligible 
Transmissions or Ephemeral Recordings pursuant to the licenses in 17 
U.S.C. 114 and/or 17 U.S.C. 112(e) as of said date but begins doing so 
thereafter shall be due by the 45th day after the end of the month in 
which the Noncommercial Educational Webcaster commences doing so. 
Payments of minimum fees must be accompanied by a certification, signed 
by an officer or another duly authorized faculty member or 
administrator of the institution with which the Noncommercial 
Educational Webcaster is affiliated, on a form provided by the 
Collective, that the Noncommercial Educational Webcaster.
    (1) Qualifies as a Noncommercial Educational Webcaster for the 
relevant year; and
    (2) Did not exceed 159,140 total ATH in any month of the prior year 
for which the Noncommercial Educational Webcaster did not submit a 
statement of account and pay any required Usage Fees. At the same time 
the Noncommercial Educational Webcaster must identify all its stations 
making Eligible Transmissions and identify which of the reporting 
options set forth in paragraph (g) of this section it elects for the 
relevant year (provided that it must be eligible for the option it 
elects).
    (d) Usage fees. In addition to its obligations pursuant to 
paragraph (c) of this section, a Noncommercial Educational Webcaster 
must make monthly payments of Usage Fees where required by Sec.  
380.22(b), and provide statements of account to accompany these 
payments, for each month on the 45th day following the month in which 
the Eligible Transmissions subject to the Usage Fees and statements of 
account were made. All monthly payments shall be rounded to the nearest 
cent.
    (e) Late fees. A Noncommercial Educational Webcaster shall pay a 
late fee for each instance in which any payment, any statement of 
account or any report of use is not received by the Collective in 
compliance with the applicable regulations by the due date. The amount 
of the late fee shall be 1.5% of the late payment, or 1.5% of the 
payment associated with a late statement of account or report of use, 
per month, compounded monthly for the balance due, or the highest 
lawful rate, whichever is lower. The late fee shall accrue from the due 
date of the payment, statement of account or report of use until a 
fully compliant payment, statement of account or report of use (as 
applicable) is received by the Collective, provided that, in the case 
of a timely provided but noncompliant statement of account or report of 
use, the Collective has notified the Noncommercial Educational 
Webcaster within 90 days regarding any noncompliance that is reasonably 
evident to the Collective.
    (f) Statements of account. Any payment due under Sec.  380.22 shall 
be accompanied by a corresponding statement of account. A statement of 
account shall contain the following information:
    (1) The name of the Noncommercial Educational Webcaster, exactly as 
it appears on the notice of use, and if the statement of account covers 
a single station only, the call letters or name of the station;
    (2) Such information as is necessary to calculate the accompanying 
royalty payment as prescribed in this subpart;
    (3) The name, address, business title, telephone number, facsimile 
number (if any), electronic mail address (if any) and other contact 
information of the person to be contacted for information or questions 
concerning the content of the statement of account;
    (4) The handwritten signature of an officer or another duly 
authorized faculty member or administrator of the applicable 
educational institution;
    (5) The printed or typewritten name of the person signing the 
statement of account;
    (6) The date of signature;
    (7) The title or official position held by the person signing the 
statement of account;
    (8) A certification of the capacity of the person signing; and
    (9) A statement to the following effect:

    I, the undersigned officer or other duly authorized faculty 
member or administrator of the applicable educational institution, 
have examined this statement of account and hereby state that it is 
true, accurate, and complete to my knowledge after reasonable due 
diligence.

    (g) Reporting by Noncommercial Educational Webcasters in general-- 
(1) Reporting waiver. In light of the unique business and operational 
circumstances currently existing with respect to Noncommercial 
Educational Webcasters, and for the purposes of this subpart only, a 
Noncommercial Educational Webcaster that did not exceed 55,000 total 
ATH for any individual channel or station for more than one calendar 
month in the immediately preceding calendar year and that does not 
expect to exceed 55,000 total ATH for any individual channel or station 
for any calendar month during the applicable calendar year may elect to 
pay to the Collective a nonrefundable, annual Proxy Fee of $100 in lieu 
of providing reports of use for the calendar year pursuant to the 
regulations at Sec.  370.4 of this chapter. In addition, a 
Noncommercial Educational Webcaster that unexpectedly exceeded 55,000 
total ATH on one or more channels or stations for more than one month 
during the immediately preceding calendar year may elect to pay the 
Proxy Fee and receive the reporting waiver described in this paragraph 
(g)(1) during a calendar year, if it implements measures reasonably 
calculated to ensure that it will not make Eligible Transmissions 
exceeding 55,000 total ATH during any month of that calendar year. The 
Proxy Fee is intended to defray the Collective's costs associated with 
this reporting waiver, including development of proxy usage data. The 
Proxy Fee shall be paid by the date specified in paragraph (c) of this 
section for paying the Minimum Fee for the applicable calendar year and 
shall be accompanied by a certification on a form provided by the 
Collective, signed by an officer or another duly authorized faculty 
member or administrator of the applicable educational institution, 
stating that the Noncommercial Educational Webcaster is eligible for 
the Proxy Fee option because of its past and expected future usage and, 
if applicable, has implemented measures to ensure that it will not make 
excess Eligible Transmissions in the future.
    (2) Sample-basis reports. A Noncommercial Educational Webcaster 
that did not exceed 159,140 total ATH for any individual channel or 
station for more than one calendar month in the immediately preceding 
calendar year and that does not expect to exceed 159,140 total ATH for 
any individual channel or station for any calendar month during the 
applicable calendar year may elect to provide reports of use on a 
sample basis (two weeks per calendar quarter) in accordance with the 
regulations at Sec.  370.4 of this chapter, except that, 
notwithstanding Sec.  370.4(d)(2)(vi), such an electing Noncommercial 
Educational Webcaster shall not be required to include ATH or actual 
total performances and may in lieu thereof provide channel or station 
name and play frequency. Notwithstanding the foregoing, a Noncommercial 
Educational Webcaster that is able to report ATH or actual total 
performances is encouraged to do so.

[[Page 13057]]

These reports of use shall be submitted to the Collective no later than 
January 31st of the year immediately following the year to which they 
pertain.
    (3) Census-basis reports. If any of the following three conditions 
is satisfied, a Noncommercial Educational Webcaster must report 
pursuant to this paragraph (g)(3):
    (i) The Noncommercial Educational Webcaster exceeded 159,140 total 
ATH for any individual channel or station for more than one calendar 
month in the immediately preceding calendar year;
    (ii) The Noncommercial Educational Webcaster expects to exceed 
159,140 total ATH for any individual channel or station for any 
calendar month in the applicable calendar year; or
    (iii) The Noncommercial Educational Webcaster otherwise does not 
elect to be subject to paragraphs (g)(1) or (2) of this section. A 
Noncommercial Educational Webcaster required to report pursuant to this 
paragraph (g)(3) shall provide reports of use to the Collective 
quarterly on a census reporting basis (i.e., reports of use shall 
include every sound recording performed in the relevant quarter), 
containing information otherwise complying with applicable regulations 
(but no less information than required by Sec.  370.4 of this chapter), 
except that, notwithstanding Sec.  370.4(d)(2)(vi), such a 
Noncommercial Educational Webcaster shall not be required to include 
ATH or actual total performances, and may in lieu thereof provide 
channel or station name and play frequency, during the first calendar 
year it reports in accordance with this paragraph (g)(3). For the 
avoidance of doubt, after a Noncommercial Educational Webcaster has 
been required to report in accordance with this paragraph (g)(3) for a 
full calendar year, it must thereafter include ATH or actual total 
performances in its reports of use. All reports of use under this 
paragraph (g)(3) shall be submitted to the Collective no later than the 
45th day after the end of each calendar quarter.
    (h) Distribution of royalties. (1) The Collective shall promptly 
distribute royalties received from Noncommercial Educational Webcasters 
to Copyright Owners and Performers, or their designated agents, that 
are entitled to such royalties. The Collective shall only be 
responsible for making distributions to those Copyright Owners, 
Performers, or their designated agents who provide the Collective with 
such information as is necessary to identify and pay the correct 
recipient. The Collective shall distribute royalties on a basis that 
values all performances by a Noncommercial Educational Webcaster 
equally based upon the information provided under the report of use 
requirements for Noncommercial Educational Webcasters contained in 
Sec.  370.4 of this chapter and this subpart, except that in the case 
of Noncommercial Educational Webcasters that elect to pay a Proxy Fee 
in lieu of providing reports of use pursuant to paragraph (g)(1) of 
this section, the Collective shall distribute the aggregate royalties 
paid by electing Noncommercial Educational Webcasters based on proxy 
usage data in accordance with a methodology adopted by the Collective's 
Board of Directors.
    (2) If the Collective is unable to locate a Copyright Owner or 
Performer entitled to a distribution of royalties under paragraph 
(h)(1) of this section within 3 years from the date of payment by a 
Noncommercial Educational Webcaster, such distribution may first be 
applied to the costs directly attributable to the administration of 
that distribution. The foregoing shall apply notwithstanding the common 
law or statutes of any State.
    (i) Server logs. Noncommercial Educational Webcasters shall retain 
for a period of no less than three full calendar years server logs 
sufficient to substantiate all information relevant to eligibility, 
rate calculation and reporting under this subpart. To the extent that a 
third-party Web hosting or service provider maintains equipment or 
software for a Noncommercial Educational Webcaster and/or such third 
party creates, maintains, or can reasonably create such server logs, 
the Noncommercial Educational Webcaster shall direct that such server 
logs be created and maintained by said third party for a period of no 
less than three full calendar years and/or that such server logs be 
provided to, and maintained by, the Noncommercial Educational 
Webcaster.


Sec.  380.24  Confidential Information.

    (a) Definition. For purposes of this subpart, ``Confidential 
Information'' shall include the statements of account and any 
information contained therein, including the amount of Usage Fees paid, 
and any information pertaining to the statements of account reasonably 
designated as confidential by the Noncommercial Educational Webcaster 
submitting the statement.
    (b) Exclusion. Confidential Information shall not include documents 
or information that at the time of delivery to the Collective are 
public knowledge. The party claiming the benefit of this provision 
shall have the burden of proving that the disclosed information was 
public knowledge.
    (c) Use of Confidential Information. In no event shall the 
Collective use any Confidential Information for any purpose other than 
royalty collection and distribution and activities related directly 
thereto.
    (d) Disclosure of Confidential Information. Access to Confidential 
Information shall be limited to:
    (1) Those employees, agents, attorneys, consultants and independent 
contractors of the Collective, subject to an appropriate 
confidentiality agreement, who are engaged in the collection and 
distribution of royalty payments hereunder and activities related 
thereto, for the purpose of performing such duties during the ordinary 
course of their work and who require access to Confidential 
Information;
    (2) An independent Qualified Auditor, subject to an appropriate 
confidentiality agreement, who is authorized to act on behalf of the 
Collective with respect to verification of a Noncommercial Educational 
Webcaster's statement of account pursuant to Sec.  380.25 or on behalf 
of a Copyright Owner or Performer with respect to the verification of 
royalty distributions pursuant to Sec.  380.26;
    (3) Copyright Owners and Performers, including their designated 
agents, whose works have been used under the statutory licenses set 
forth in 17 U.S.C. 112(e) and 114(f) by the Noncommercial Educational 
Webcaster whose Confidential Information is being supplied, subject to 
an appropriate confidentiality agreement, and including those 
employees, agents, attorneys, consultants and independent contractors 
of such Copyright Owners and Performers and their designated agents, 
subject to an appropriate confidentiality agreement, for the purpose of 
performing their duties during the ordinary course of their work and 
who require access to the Confidential Information; and
    (4) In connection with future proceedings under 17 U.S.C. 112(e) 
and 114(f) before the Copyright Royalty Judges, and under an 
appropriate protective order, attorneys, consultants and other 
authorized agents of the parties to the proceedings or the courts.
    (e) Safeguarding of Confidential Information. The Collective and 
any person identified in paragraph (d) of this section shall implement 
procedures to safeguard against unauthorized access to or dissemination 
of any Confidential Information using a reasonable standard of care, 
but no less than the same degree of security used to protect 
Confidential Information or similarly sensitive information belonging 
to the Collective or person.

[[Page 13058]]

Sec.  380.25  Verification of royalty payments.

    (a) General. This section prescribes procedures by which the 
Collective may verify the royalty payments made by a Noncommercial 
Educational Webcaster.
    (b) Frequency of verification. The Collective may conduct a single 
audit of a Noncommercial Educational Webcaster, upon reasonable notice 
and during reasonable business hours, during any given calendar year, 
for any or all of the prior 3 calendar years, but no calendar year 
shall be subject to audit more than once.
    (c) Notice of intent to audit. The Collective must file with the 
Copyright Royalty Board a notice of intent to audit a particular 
Noncommercial Educational Webcaster, which shall, within 30 days of the 
filing of the notice, publish in the Federal Register a notice 
announcing such filing. The notification of intent to audit shall be 
served at the same time on the Noncommercial Educational Webcaster to 
be audited. Any such audit shall be conducted by an independent 
Qualified Auditor identified in the notice and shall be binding on all 
parties.
    (d) Acquisition and retention of report. The Noncommercial 
Educational Webcaster shall use commercially reasonable efforts to 
obtain or to provide access to any relevant books and records 
maintained by third parties for the purpose of the audit. The 
Collective shall retain the report of the verification for a period of 
not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to the 
Collective, except where the auditor has a reasonable basis to suspect 
fraud and disclosure would, in the reasonable opinion of the auditor, 
prejudice the investigation of such suspected fraud, the auditor shall 
review the tentative written findings of the audit with the appropriate 
agent or employee of the Noncommercial Educational Webcaster being 
audited in order to remedy any factual errors and clarify any issues 
relating to the audit; Provided that an appropriate agent or employee 
of the Noncommercial Educational Webcaster reasonably cooperates with 
the auditor to remedy promptly any factual errors or clarify any issues 
raised by the audit.
    (g) Costs of the verification procedure. The Collective shall pay 
the cost of the verification procedure, unless it is finally determined 
that there was an underpayment of 10% or more, in which case the 
Noncommercial Educational Webcaster shall, in addition to paying the 
amount of any underpayment, bear the reasonable costs of the 
verification procedure.


Sec.  380.26  Verification of royalty distributions.

    (a) General. This section prescribes procedures by which any 
Copyright Owner or Performer may verify the royalty distributions made 
by the Collective; Provided, however, that nothing contained in this 
section shall apply to situations where a Copyright Owner or Performer 
and the Collective have agreed as to proper verification methods.
    (b) Frequency of verification. A Copyright Owner or Performer may 
conduct a single audit of the Collective upon reasonable notice and 
during reasonable business hours, during any given calendar year, for 
any or all of the prior 3 calendar years, but no calendar year shall be 
subject to audit more than once.
    (c) Notice of intent to audit. A Copyright Owner or Performer must 
file with the Copyright Royalty Board a notice of intent to audit the 
Collective, which shall, within 30 days of the filing of the notice, 
publish in the Federal Register a notice announcing such filing. The 
notification of intent to audit shall be served at the same time on the 
Collective. Any audit shall be conducted by an independent Qualified 
Auditor identified in the notice, and shall be binding on all Copyright 
Owners and Performers.
    (d) Acquisition and retention of report. The Collective shall use 
commercially reasonable efforts to obtain or to provide access to any 
relevant books and records maintained by third parties for the purpose 
of the audit. The Copyright Owner or Performer requesting the 
verification procedure shall retain the report of the verification for 
a period of not less than 3 years.
    (e) Acceptable verification procedure. An audit, including 
underlying paperwork, which was performed in the ordinary course of 
business according to generally accepted auditing standards by an 
independent Qualified Auditor, shall serve as an acceptable 
verification procedure for all parties with respect to the information 
that is within the scope of the audit.
    (f) Consultation. Before rendering a written report to a Copyright 
Owner or Performer, except where the auditor has a reasonable basis to 
suspect fraud and disclosure would, in the reasonable opinion of the 
auditor, prejudice the investigation of such suspected fraud, the 
auditor shall review the tentative written findings of the audit with 
the appropriate agent or employee of the Collective in order to remedy 
any factual errors and clarify any issues relating to the audit; 
Provided that the appropriate agent or employee of the Collective 
reasonably cooperates with the auditor to remedy promptly any factual 
errors or clarify any issues raised by the audit.
    (g) Costs of the verification procedure. The Copyright Owner or 
Performer requesting the verification procedure shall pay the cost of 
the procedure, unless it is finally determined that there was an 
underpayment of 10% or more, in which case the Collective shall, in 
addition to paying the amount of any underpayment, bear the reasonable 
costs of the verification procedure.


Sec.  380.27  Unclaimed funds.

    If the Collective is unable to identify or locate a Copyright Owner 
or Performer who is entitled to receive a royalty distribution under 
this subpart, the Collective shall retain the required payment in a 
segregated trust account for a period of 3 years from the date of 
distribution. No claim to such distribution shall be valid after the 
expiration of the 3-year period. After expiration of this period, the 
Collective may apply the unclaimed funds to offset any costs deductible 
under 17 U.S.C. 114(g)(3). The foregoing shall apply notwithstanding 
the common law or statutes of any State.

Dated: January 5, 2011.

James Scott Sledge,
Chief U.S. Copyright Royalty Judge.

Approved by:
James H. Billington,
Librarian of Congress.

[FR Doc. 2011-4995 Filed 3-8-11; 8:45 am]
BILLING CODE 1410-72-P