[Federal Register Volume 82, Number 240 (Friday, December 15, 2017)]
[Notices]
[Pages 59652-59660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27088]


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LIBRARY OF CONGRESS

U.S. Copyright Office

[Docket No. 2017-20]


Scope of Preexisting Subscription Services

AGENCY: U.S. Copyright Office, Library of Congress.

ACTION: Final order.

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SUMMARY: The Copyright Royalty Judges referred novel material questions 
of

[[Page 59653]]

substantive law to the Register of Copyrights for resolution in 
connection with the SDARS III proceeding. The Register responded with a 
written opinion that is reproduced below.

DATES: Opinion dated November 20, 2017.

FOR FURTHER INFORMATION CONTACT: Sarang V. Damle, General Counsel and 
Associate Register of Copyrights, by email at [email protected], or Jason E. 
Sloan, Attorney-Advisor, by email at [email protected]. Each can be 
contacted by telephone by calling (202) 707-8350.

SUPPLEMENTARY INFORMATION: The Copyright Royalty Judges (``CRJs'') are 
tasked with determining and adjusting rates and terms of royalty 
payments for statutory licenses under the Copyright Act. See 17 U.S.C. 
801. If, in the course of proceedings before the CRJs, novel material 
questions of substantive law concerning the interpretation of 
provisions of title 17 arise, the CRJs are required by statute to refer 
those questions to the Register of Copyrights for resolution. 17 U.S.C. 
802(f)(1)(B).
    On October 23, 2017, the CRJs, acting pursuant to 17 U.S.C. 
802(f)(1)(B), referred to the Register novel material questions of 
substantive law in connection with the SDARS III proceeding, Docket No. 
16-CRB-0001 SR/PSSR (2018-2022). The referred questions asked whether a 
preexisting subscription service's transmissions of multiple, unique 
channels of music that are accessible through that entity's website and 
through a mobile application are ``subscription transmissions by 
preexisting subscription services'' for which the CRJs are required to 
determine rates and terms of royalty payments under 17 U.S.C. 
114(f)(1)(A), and, if so, whether there are any conditions a service 
must satisfy to qualify for a license under section 114(f)(1)(A). On 
November 20, 2017, the Register resolved these questions in a 
Memorandum Opinion that she transmitted to the CRJs. To provide the 
public with notice of the decision rendered by the Register, the 
Memorandum Opinion is reproduced in its entirety below.

    Dated: December 6, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director of the U.S. Copyright 
Office.

Before the U.S. Copyright Office, Library of Congress, Washington, DC 
20559

    In the Matter of: DETERMINATION OF ROYALTY RATES AND TERMS FOR 
TRANSMISSION OF SOUND RECORDINGS BY SATELLITE RADIO AND 
``PREEXISTING'' SUBSCRIPTION SERVICES (SDARS III)

Docket No. 16-CRB-0001 SR/PSSR (2018-2022)

MEMORANDUM OPINION ON NOVEL MATERIAL QUESTIONS OF LAW

    The Copyright Royalty Judges (``CRJs'' or ``Judges'') concluded the 
hearing in the above-captioned proceeding with closing arguments of 
counsel on July 18, 2017. In the course of their deliberations, the 
CRJs determined that novel material questions of substantive law arose 
regarding the interpretation of provisions of the Copyright Act and, as 
required under 17 U.S.C. 802(f)(1)(B), referred them to the Register of 
Copyrights for resolution. The questions were referred to the Register 
by the CRJs on October 23, 2017. The Register's determination follows.

I. Background

A. Statutory Background

    In 1995, Congress enacted the Digital Performance Right in Sound 
Recordings Act of 1995 (``DPRSRA''),\1\ recognizing the exclusive right 
of copyright owners to perform sound recordings ``publicly by means of 
a digital audio transmission.'' \2\ The DPRSRA also established a 
statutory license to allow certain noninteractive digital audio 
services to make such performances of sound recordings, provided the 
services pay a royalty fee and comply with the terms of the license. 
Under the DPRSRA, nonexempt subscription transmissions were subject to 
statutory licensing if they satisfied certain requirements, and the 
royalty rates and terms for the statutory license were to be set in 
accordance with the objectives set forth in 17 U.S.C. 801(b)(1).\3\
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    \1\ Public Law 104-39, 109 Stat. 336 (1995).
    \2\ 17 U.S.C. 106(6).
    \3\ Section 801(b)(1) provides that the rates ``shall be 
calculated to achieve the following objectives: (A) To maximize the 
availability of creative works to the public. (B) To afford the 
copyright owner a fair return for his or her creative work and the 
copyright user a fair income under existing economic conditions. (C) 
To reflect the relative roles of the copyright owner and the 
copyright user in the product made available to the public with 
respect to relative creative contribution, technological 
contribution, capital investment, cost, risk, and contribution to 
the opening of new markets for creative expression and media for 
their communication. (D) To minimize any disruptive impact on the 
structure of the industries involved and on generally prevailing 
industry practices.'' 17 U.S.C. 801(b)(1).
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    In 1998, the statutory license was amended by the Digital 
Millennium Copyright Act (``DMCA''),\4\ a major goal of which was to 
establish a market-based standard for setting royalty rates paid to 
copyright owners for use of their works under the statutory license.\5\ 
In doing so, Congress drew a distinction between preexisting 
subscription services (``PSSs'') on the one hand and nonsubscription 
services and new subscription services on the other. A ``preexisting 
subscription service'' is defined in 17 U.S.C. 114(j)(11) as:
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    \4\ Public Law 105-304, 112 Stat. 2860 (1998).
    \5\ 71 FR 64639, 64641 (Nov. 3, 2006).

    [A] service that performs sound recordings by means of 
noninteractive audio-only subscription digital audio transmissions, 
which was in existence and was making such transmissions to the 
public for a fee on or before July 31, 1998, and may include a 
limited number of sample channels representative of the subscription 
service that are made available on a nonsubscription basis in order 
to promote the subscription service.\6\
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    \6\ 17 U.S.C. 114(j)(11).

    Section 114 contains two grandfathering provisions that apply to 
PSSs and provide benefits to those services not available to new 
subscription services or nonsubscription services. The first, section 
114(d)(2)(B), preserves the DPRSRA's limited qualifications for 
entitlement to the statutory license, but only for transmissions made 
in the same transmission medium used by the PSS on July 31, 1998. The 
second, to which the referred questions most directly pertain, is the 
grandfathered method of setting royalty rates under section 114(f)(1), 
which applies to a PSS regardless of the transmission medium.
    Under this scheme, PSS transmissions in the same transmission 
medium used on July 31, 1998, are still subject to the DPRSRA's 
requirements under section 114(d)(2)(B) and are to still have royalty 
rates and terms set in accordance with the objectives of section 
801(b)(1).\7\ Nonsubscription services and new subscription services, 
however, are subject to a more expansive set of qualifications under 
section 114(d)(2)(C), and are to have their royalty rates and terms set 
to reflect those that ``would have been negotiated in the marketplace 
between a willing buyer and a willing seller.'' \8\ PSS transmissions 
made in a new transmission medium are subject to the more expansive set 
of qualifications under section 114(d)(2)(C) imposed on nonsubscription 
and new subscription services.\9\
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    \7\ See id. at 114(d)(2)(B), (f)(1).
    \8\ See id. at 114(d)(2)(C), (f)(2).
    \9\ Id. at 114(d)(2)(C).
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    The Register has explained that ``the rationale for [section 114's] 
grandfathering provisions is to `prevent disruption of the existing 
operations by

[[Page 59654]]

[preexisting subscription] services.' '' \10\ In discussing the 
legislative history explaining the objectives of the grandfathering 
provisions, the Register elaborated:
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    \10\ 71 FR at 64641 (quoting H.R. Rep. No. 105-796, at 81 (1998) 
(Conf. Rep.)); accord SoundExchange, Inc. v. Muzak LLC, 854 F.3d 
713, 719 (D.C. Cir. 2017) (``The grandfather provisions were 
intended to protect prior investments the three [PSS] business 
entities had made during a more favorable pre-1998 rate-setting 
regulatory climate.'').

    While it would appear . . . that Congress's purpose in 
grandfathering these services was to preserve a particular program 
offering, it was not its only purpose or even necessarily its major 
goal. The Conference Report also makes clear that Congress 
distinguished between preexisting subscription services and new 
subscription services as a way to prevent disruption of the existing 
operations of the services that were in existence and operating 
before July 31, 1998. It understood that the entities so designated 
as preexisting had invested a great deal of resources into 
developing their services under the terms established in 1995 as 
part of the Digital Performance Right in Sound Recording Act of 
1995, and that those services deserved to develop their businesses 
accordingly.\11\
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    \11\ 71 FR at 64645 (internal citation omitted).

B. Procedural History

    The instant proceeding will establish royalty rates and terms for 
PSSs' (as well as preexisting satellite digital audio radio services') 
digital performance of sound recordings and the making of ephemeral 
recordings under the statutory licenses set forth in sections 112(e) 
and 114(f)(1) of the Copyright Act. Music Choice is the only PSS that 
participated in the current rate-setting proceedings. The CRJs explain 
that the referred questions arose in this proceeding because 
SoundExchange, Inc.,\12\ for the first time, is seeking two separate 
royalty payments from PSSs: (1) For all licensed transmissions and 
related ephemeral recordings through a television-based service 
qualifying as a PSS, SoundExchange requests a per-subscriber, per-month 
royalty; and (2) for all licensed transmissions and related ephemeral 
recordings through an internet streaming service qualifying as a PSS 
(or any similar service capable of tracking the individual sound 
recordings received by any particular consumer and qualifying as a 
PSS), SoundExchange seeks a per-performance royalty fee that is the 
same as commercial webcasters are currently required to pay under 37 
CFR 380.10 (or, in the alternative, a royalty based on aggregate tuning 
hours for a PSS that does not have the technological capability to 
track individual performances).\13\ The parties dispute whether it is 
necessary for the CRJs to decide whether Music Choice's internet and 
mobile transmissions qualify as part of its PSS.\14\
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    \12\ SoundExchange appears in this proceeding on behalf of the 
American Association of Independent Music; the American Federation 
of Musicians of the United States and Canada; the Recording Industry 
Association of America; the Screen Actors Guild and American 
Federation of Television and Radio Artists; Sony Music 
Entertainment; Universal Music Group; and Warner Music Group. 
Referral Order at 2 n.4.
    \13\ Id. at 2-3.
    \14\ Id. at 3.
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    In response to this dispute, the CRJs found that ``consideration of 
the appropriate royalty rates and terms for a PSS's digital audio 
transmissions through a website or mobile application in which the PSS 
streams a variable number of unique channels of music presents a novel 
material question of substantive law,'' and referred the following 
questions to the Register pursuant to 17 U.S.C. 802(f)(1)(B):

    1. Are a preexisting subscription service's transmissions of 
multiple, unique channels of music that are accessible through that 
entity's website and through a mobile application ``subscription 
transmissions by preexisting subscription services'' for which the 
Judges are required to determine rates and terms of royalty payments 
under Section 114(f)(1)(A) of the Copyright Act?
    2. If yes, what conditions, if any, must the PSS meet with 
regard to streaming channels to qualify for a license under Section 
114(f)(1)(A)? For example, must the streamed stations be identical 
to counterpart stations made available through cable television? Is 
there a limitation on the number of channels that the PSS may 
stream? Is there a limitation on the number or type of customers 
that may access the website or the mobile application? \15\
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    \15\ Id. at 3-4. Section 802(f)(1)(B) provides that ``[i]n any 
case in which a novel material question of substantive law 
concerning an interpretation of those provisions of [title 17] that 
are the subject of the proceeding is presented, the Copyright 
Royalty Judges shall request a decision of the Register of 
Copyrights, in writing, to resolve such novel question.'' 17 U.S.C. 
802(f)(1)(B).
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II. Summary of the Parties' Arguments

A. Music Choice's Position

    Music Choice argues that the statutory language, legislative 
history, and factual record all support its position that its internet 
transmissions are part of its PSS and subject to section 114(f)(1). 
Music Choice begins by disputing, as a factual matter, the claim that 
its internet transmissions are an ``expansion'' of its service into a 
new medium--which it perceives as the premise for the CRJs' referred 
questions--on the grounds that its ``internet transmissions are merely 
an ancillary part of its residential audio service,'' the value of its 
internet transmissions ``has always been included in the bundled per-
subscriber fee,'' and ``the undisputed evidence establishes that Music 
Choice has been providing its subscribers with internet-based access to 
its audio channels since 1996, long before the PSS license was created 
in the DMCA, and has always included these internet transmissions as a 
part of its PSS since that time.'' \16\ Music Choice also disputes 
SoundExchange's claim that webcasting was becoming an ``increasingly 
important part'' of its business, claiming that record evidence shows 
that ``usage of Music Choice's internet transmissions has consistently 
remained at de minimis levels, and today comprises less than one 
hundredth of one percent of Music Choice's overall audio channel 
usage.'' \17\ Music Choice contends that, in any event, because it was 
making internet transmissions prior to the codification of the PSS 
definition in section 114(j)(11), ``[u]nder any reasonable 
interpretation of [the] statutory language, Music Choice's internet 
transmissions fall squarely within the definition of a PSS.'' \18\
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    \16\ Music Choice Brief at 1-2, 4-5.
    \17\ Id. at 6.
    \18\ Id. at 18-19, 30.
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    Music Choice also argues that even if its internet transmissions 
did constitute an expansion of its services to a new medium, such 
expansion is permitted and ``would not require any new, additional 
license fee or rate.'' \19\ Music Choice contends that in 
grandfathering the existing three PSSs, Congress sought to protect 
their ``need for access to the works at a price that would not hamper 
their growth'' and did not ``intend[] to limit PSS status to the PSS 
offerings as they existed in 1998 or otherwise freeze the PSS in 
time.'' \20\ Music Choice claims that ``Congress's intent to provide 
the PSS with long-term protection is further evinced by the absence of 
any sunset provision anywhere in the statutory language or discussion 
of such a provision in the legislative history'' \21\ and argues that 
in enacting the DMCA, ``the overarching intent of Congress was 
decidedly not to move the entire market to marketplace rates,'' but 
rather ``to protect the PSS' unique business expectancies.'' \22\
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    \19\ Id. at 2, 30.
    \20\ Id. at 14, 19-23.
    \21\ Id. at 15.
    \22\ Id. at 16-17.
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    Citing to Congress's discussion in the DMCA Conference Report, 
Music Choice asserts that Congress created a ``unique feature of the 
PSS license that allows a PSS to expand into new services in new 
transmission media while retaining PSS status for those new services, 
so long as the new service is similar in character to the original PSS

[[Page 59655]]

offering, i.e., does not take advantage of unique features of the new 
medium to provide a different listening experience or interactivity 
while listening to the audio channel.'' \23\ Music Choice further 
explains that ``[a]lthough Congress did not intend to allow the PSS to 
create fundamentally different types of services, with fundamentally 
different types of content or interactive audio functionality . . . , 
it did intend to allow the PSS to continue their development, 
evolution, and growth of their non-interactive, subscription audio 
services.'' \24\ Thus, Music Choice argues that ``there is no statutory 
requirement that a PSS offer the exact same channels to all of its 
subscribers or through each of its different transmission media,'' \25\ 
and ``there is no hint in the statute or the legislative history of any 
intent to impose restrictions on the number of channels that may be 
provided . . . or the number or type of subscribers that Music Choice 
may serve.'' \26\ Music Choice specifically argues that section 114 
cannot be read to require the same exact channels in a new transmission 
medium as it offers in its original medium because the statute 
``expressly acknowledges that the programming of a PSS's transmissions 
in a new medium may be different than those in the original medium, and 
in some instances requires that they be programmed differently.'' \27\ 
More generally, Music Choice asserts that its internet transmissions 
are permissible because they ``do not take advantage of the internet's 
technological capabilities,'' providing several fact-based arguments 
for why its internet service is comparable to its television 
service.\28\
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    \23\ Id. at 15, 17, 23-25.
    \24\ Id. at 24-25, 30.
    \25\ Id. at 19, 27. Music Choice specifically notes that, ``of 
the 75 channels available through the internet, 50 of those are 
identical to the channels broadcast over the television'' and the 
``additional 25 are identical to the television channels in every 
way except the genre or sub-genre in which they are programmed.'' 
Id. at 19.
    \26\ Id. at 2.
    \27\ Id. at 27.
    \28\ Id. at 25-26.
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    Music Choice rests its argument in part on the U.S. Court of 
Appeals for the District of Columbia Circuit's recent opinion in 
SoundExchange, Inc. v. Muzak LLC, which held that a music service 
acquired by Muzak was not entitled to the grandfathered rate that 
applied to its preexisting subscription service.\29\ Music Choice 
claims that this decision ``demonstrate[s] that the PSS definition was 
not intended to freeze the PSS in time, nor limit PSS status to 
channels (or customers) that are exactly the same as the channels that 
were transmitted in 1998 (or the customers who received them at that 
time)'' and that ``any rule limiting PSS status to internet-based 
channels that are exactly the same as those transmitted through cable 
or satellite, or limiting the number of channels that may be provided 
by a PSS, would be inconsistent with [the court's] interpretation of 
the PSS definition.'' \30\ Music Choice concludes that it would be 
contrary to the court's interpretation of the PSS definition to limit 
``the expansion of a PSS's service under the same brand'' beyond the 
limitation ``that the service must remain within the general category 
of transmissions identified in the . . . definition: noninteractive 
audio-only subscription digital audio transmissions made by an entity 
that was in existence and making that category of transmissions on or 
before July 31, 1998.'' \31\
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    \29\ 854 F.3d at 719.
    \30\ Music Choice Brief at 21.
    \31\ Id. 29-30 (internal quotation marks omitted).
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B. SoundExchange's Position

    SoundExchange argues that the CRJs should set ``distinct statutory 
royalty rates for delivery of a PSS to television sets and for any 
webcasting that is provided as part of a PSS,'' with the rate for 
webcasting that is part of a PSS set ``at the same level as the 
statutory rate for other subscription webcasters, because Music 
Choice's webcasting is equivalent to that provided by other webcasting 
services, and competes with other webcasting services.'' \32\ 
SoundExchange argues that this position responds to the ``rapid growth 
in Music Choice's webcasting,'' which it asserts is demonstrated by 
record evidence it describes regarding Music Choice's mobile 
application and website and how Music Choice's internet transmissions 
differ from its television-based service.\33\
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    \32\ SoundExchange Brief at 5.
    \33\ Id. at 2-5.
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    Pointing to the same discussion in the DMCA Conference Report 
referenced by Music Choice, SoundExchange argues that ``Congressional 
intent was to limit the grandfathering of the PSS to transmissions 
similar to the cable or satellite service offerings their providers 
offered on July 31, 1998,'' meaning that PSS status ``extends to a 
qualifying entity's cable and satellite offerings as they existed at 
July 31, 1998 . . . and also may extend to a qualifying entity's 
transmissions in a new medium such as the internet, if the 
transmissions are sufficiently similar to the 1998 offerings.'' \34\ 
SoundExchange contends that assessing similarity ``is a fact-intensive 
inquiry that requires comparison of a PSS provider's new offering with 
the provider's 1998 offerings,'' and that ``[i]t is not enough to 
consider only whether a qualifying entity's new offerings makes 
noninteractive audio-only subscription digital audio transmissions,'' 
but rather, ``it is necessary to consider the medium used, and the 
functionality and content provided, in the new offerings.'' \35\ 
SoundExchange claims that ``Congress gave no indication that . . . a 
PSS provider should enjoy PSS rates if it provided an offering 
different from its 1998 offering in a new medium.'' \36\ SoundExchange 
interprets the legislative history to suggest that Congress 
``grandfathered the PSS to protect investments that qualifying entities 
had already made at the time the DMCA was under consideration in 
1998.'' \37\ SoundExchange understands the D.C. Circuit's decision in 
SoundExchange to be consistent with its interpretation of the 
legislative history.\38\
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    \34\ Id. at 9-10.
    \35\ Id. at 10.
    \36\ Id. at 11.
    \37\ Id.
    \38\ Id. 11-12.
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    SoundExchange argues that the PSS definition must be construed 
narrowly, particularly in the case of webcasting given that 
``[i]nternet-based streaming services are a rapidly-growing means of 
music consumption,'' and ``webcasting by a PSS provider competes with 
webcasting by services that are currently paying for their use of sound 
recordings at much higher royalty rates.'' \39\ Such an interpretation, 
SoundExchange claims, would ``ensure that webcasters compete on level 
terms, eliminating distortions in the market and effectuating the 
Congressional intent to shift rates towards those that reflect arms-
length market transactions.'' \40\
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    \39\ Id. at 12.
    \40\ Id. at 12-13.
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    SoundExchange further argues that, ``[a]s a matter of law,'' 
``webcast transmissions made through a mobile app, or through a version 
of a provider's website that has been optimized for display using the 
browser on a mobile device, are not transmissions by a PSS for which 
the Judges are to set rates and terms under Section 114(f)(1).'' \41\ 
SoundExchange contends that the PSSs' ``1998 offerings were residential 
offerings delivered by means of cable or satellite to fixed points in 
subscribers' homes,'' while ``[t]he Internet and the wireless networks 
that are used to deliver service to mobile devices are a different 
medium than the PSS used in

[[Page 59656]]

1998.'' \42\ Furthermore, SoundExchange contends that mobile services 
``take[ ] advantage of the capability of wireless networks to provide 
portability, allowing listeners to access music anytime and virtually 
anywhere'' as well as offering ``different opportunities for user 
interaction and navigation'' that ``provide a very different user 
experience than the stereo receivers and television sets that could 
receive the PSS' 1998 offerings.'' \43\
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    \41\ Id. at 13.
    \42\ Id.
    \43\ Id. at 13-14.
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    While SoundExchange claims that internet streaming channels could 
qualify as part of a PSS, so long as it is ``sufficiently similar to 
the provider's 1998 offerings,'' SoundExchange asserts that this 
standard requires that the ``PSS provider's webcast channels [to] be 
identical to counterpart stations made available through cable 
television'' in order to qualify for a rate set under section 
114(f)(1), as a service offering internet-only channels would lack 
sufficient similarity to the PSS' 1998 offerings which did not include 
any internet-only offerings.\44\ SoundExchange argues that a PSS's 
internet transmissions are similarly disqualified if the ``number of 
webcasting channels is [not] sufficiently similar to the provider's 
pre-1998 offerings.'' \45\ SoundExchange further contends that the 
number and type of subscribers to the transmission must also be 
substantially similar, and that a PSS cannot include video programming 
``other than video related to the service or recording being 
performed'' in order for its webcasting service to qualify as a 
PSS.\46\ SoundExchange also asserts that ``[a] trier of fact may also 
consider other factors that bear on similarity of the service 
offerings, including any differences between Internet-based platforms 
and cable- and satellite-based platforms.'' \47\
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    \44\ Id. at 15-16.
    \45\ Id. 16-17.
    \46\ Id. 17-18.
    \47\ Id. at 17.
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III. Register's Determination

    Although the parties' briefs discuss at length the factual nature 
of Music Choice's particular internet transmissions, questions of fact 
are beyond the scope of the Register's inquiry under section 
802(f)(1)(B). Thus, without judging the facts as they may pertain to 
Music Choice (or any other PSS), and having considered the relevant 
statutory language, legislative history, and the input from the 
parties, the Register determines that transmissions by a PSS entity 
that are accessible to a cable or satellite television subscriber 
through that entity's website and through a mobile application can be 
``subscription transmissions by preexisting subscription services'' for 
which the CRJs must determine rates and terms of royalty payments under 
section 114(f)(1)(A), but only if such transmissions are sufficiently 
similar to the transmissions made to those subscribers via the entity's 
preexisting residential cable or satellite music service.

A. Legal Standard

    Before addressing the appropriate legal standard for determining 
whether a particular subscription transmission by a preexisting 
subscription service is subject to the grandfathered method of setting 
royalty rates for such service offerings under section 114(f)(1), the 
Register makes a few threshold points about the statute.
    First, in analyzing the grandfathering provisions, the Register 
interprets them narrowly.\48\
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    \48\ See 71 FR at 64646; accord SoundExchange, 854 F.3d at 719.
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    Second, as the Register has previously held, the definition of 
``preexisting subscription service'' in section 114(j)(11) can pertain 
to both the business entity operating a service offering and the 
service offering itself.\49\ The D.C. Circuit recently agreed with the 
Register that ``the word `service,' as used both in the statute as well 
as the legislative history, sometimes referred to the business entity 
and sometimes the program offerings.'' \50\ For clarity's sake, the 
Register generally refers below to a ``PSS entity'' or a ``PSS 
offering'' to distinguish between a preexisting business itself and a 
specific preexisting program offering by such business.
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    \49\ 71 FR at 64646, 64647 (``In construing the statutory 
language together with the legislative history, the logical 
conclusion is that Congress did use the term `service' to mean both 
the program offerings made on a subscription basis to the public and 
the business entity that secures the license to make the 
subscription transmissions.'').
    \50\ SoundExchange, 854 F.3d at 718.
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    Third, as a corollary to the second point, the Register concurs 
with the D.C. Circuit's holding that, under the grandfathering 
provisions, ``the term `service' contemplates a double limitation; both 
the business and the program offering must qualify before the 
transmissions are eligible for the favorable rate.'' \51\ Indeed, 
Congress was clear that not every subscription transmission made by a 
PSS entity is subject to section 114(f)(1).\52\ Thus, as used in 
section 114(f)(1)(A), ``subscription transmissions by preexisting 
subscription services'' must refer only to the PSS offerings made by a 
PSS entity, rather than referring to all subscription transmissions 
made by a PSS entity.
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    \51\ See id. at 719.
    \52\ See H.R. Rep. No. 105-796, at 84-85 (explaining that 
section 114(f)(2) applies to ``subscription transmissions made by a 
preexisting subscription service other than those that qualify under 
subsection (f)(1)'' in addition to new subscription services and 
eligible nonsubscription transmissions). Similarly, previous 
statements made by the Register that preexisting subscription 
``services deserved to develop their businesses accordingly'' 
pertained to the businesses of the pre-July 31, 1998 PSS offerings--
not all businesses engaged in by the PSS entities. See 71 FR at 
64645. For example, later in the same opinion, the Register 
elaborated that while ``Muzak was the pioneer music service that 
incurred both the benefits and risks that came with its investment, 
and one such benefit was its status as a preexisting subscription 
service,'' that benefit only exists ``so long as [Muzak] provided 
its music offerings over [DiSHCD],'' as it did as of July 31, 1998. 
Id. at 64646.
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    Fourth, the Register has previously determined ``that the 
preexisting services must be limited to the three named entities in the 
[DMCA] Conference Report, i.e., DMX (operated by TCI Music), Music 
Choice (operated by Digital Cable Radio Associates), and [DiSHCD] \53\ 
(operated by Muzak).'' \54\ Thus, it is long-settled that these three 
entities are the only PSS entities. What offerings by these entities 
may constitute PSS offerings, however, has continued to be unsettled, 
but is now resolved by this memorandum opinion.\55\
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    \53\ The Register believes that the DMCA Conference Report's 
reference to ``DiSH Network'' was a typo, and that Congress intended 
to refer to Muzak's ``DiSHCD'' service, which was transmitted over 
Echostar's DiSH Network. See Report of the Copyright Arbitration 
Royalty Panel, In re: Determination of Statutory License Terms and 
Rates for Certain Digital Subscription Transmissions of Sound 
Recordings, No. 96-5 CARP DSTRA ] 27 (Nov. 28, 1997) (``CARP 
Report'') (``Muzak . . . began providing . . . digital music under 
the name DiSH CD, as part of Echostar's satellite-based DiSH 
Network.''); 63 FR 25394, 25395 (May 8, 1998) (same); see also Muzak 
Limited Partnership, Initial Notice of Digital Transmission of Sound 
Recordings under Statutory License (July 2, 1998) (listing the 
service name as ``dishCD'').
    \54\ 71 FR at 64646; see H.R. Rep. No. 105-796, at 81, 85, 89.
    \55\ The D.C. Circuit correctly recognized that the Register's 
previous ``opinion did not address whether those three business 
entities' grandfather status was further limited to the programs 
they were offering at the time the statute was passed.'' See 
SoundExchange, 854 F.3d at 718.
---------------------------------------------------------------------------

    Fifth, the Register observes that PSS offerings are not limited 
solely to the offerings made by PSS entities prior to July 31, 1998. 
Rather, the statute and legislative history both confirm that Congress 
intended for PSS entities to be able to expand their service offerings 
to some limited extent and still have those service offerings be 
considered PSS offerings. Two provisions of the statute

[[Page 59657]]

in particular reflect this congressional intent. Section 114(d)(2)(C) 
sets out more expansive qualifications for the statutory license for 
transmissions made by a PSS ``other than in the same transmission 
medium used by such service on July 31, 1998.'' In other words, 
Congress suggested that a PSS could deliver its offering in a new 
transmission medium without affecting its status as a PSS offering. 
Section 114(f)(1)(C), in turn, provides for an out-of-cycle rate 
proceeding to be held where ``a new type of subscription digital audio 
transmission service on which sound recordings are performed is or is 
about to become operational.'' The statute further makes clear that 
this rate proceeding is to be conducted with reference to the 
grandfathered rate standard. Such a provision would be unnecessary if 
PSS offerings were limited to the exact offerings made in 1998; there 
would never be a ``new type of . . . service.''
    Thus, the ultimate question is whether a particular program 
offering by a PSS entity qualifies as a PSS offering within the meaning 
of section 114(j)(11), and is therefore subject to the grandfathered 
rate standard under section 114(f)(1). The DMCA Conference Report 
provides particularly helpful guidance in answering this question 
concerning section 114(f)(1):

    In grandfathering these services, the conferee's objective was 
to limit the grandfather to their existing services in the same 
transmission medium and to any new services in a new transmission 
medium where only transmissions similar to their existing service 
are provided. Thus, if a cable subscription music service making 
transmissions on July 31, 1998, were to offer the same music service 
through the Internet, then such Internet service would be considered 
part of a preexisting subscription service. If, however, a 
subscription service making transmissions on July 31, 1998, were to 
offer a new service either in the same or new transmission medium by 
taking advantages of the capabilities of that medium, such new 
service would not qualify as a preexisting subscription service.\56\
---------------------------------------------------------------------------

    \56\ H.R. Rep. No. 105-796, at 89.

    This passage, consistent with the statutory language in sections 
114(d)(2) and 114(f), demonstrates Congress's intent to distinguish 
among three different possibilities:
    1. A service offering identified by Congress as being a PSS 
offering as of July 31, 1998, that is still offered today in the same 
transmission medium identified by Congress in 1998 (referred to here as 
an ``existing service offering'').\57\ Such a service offering would be 
entitled to both a rate established under the grandfathered rate 
standard under section 114(f)(1) and the grandfathered license 
requirements in section 114(d)(2)(B).
---------------------------------------------------------------------------

    \57\ See id. (grandfathered services can be ``existing services 
in the same transmission medium'').
---------------------------------------------------------------------------

    2. A service offering identified by Congress as being a PSS 
offering as of July 31, 1998, that is still offered today, but in a 
different transmission medium than the one identified by Congress in 
1998, where only transmissions similar to the existing service offering 
are provided (referred to here as an ``expanded service 
offering'').\58\ Such a service offering would be entitled to a rate 
established under the grandfathered rate standard under section 
114(f)(1), but would not be able to take advantage of the grandfathered 
license requirements in section 114(d)(2)(B). Instead, it would be 
required to comply with more detailed license requirements in section 
114(d)(2)(C).
---------------------------------------------------------------------------

    \58\ See id. (grandfathered services can be ``new services in a 
new transmission medium where only transmissions similar to their 
existing service are provided''). While the Conference Report refers 
to ``new services,'' in the next sentence, it provides an example of 
a ``cable . . . service'' expanding into an ``Internet service'' by 
``offer[ing] the same music service through the Internet.'' See id. 
Thus, in context, such services are what the Register has here 
called ``expanded services,'' and are not meant to encompass wholly 
new services that are unrelated to an existing service offering. By 
the same logic, other references in the statute and legislative 
history to ``new'' service offerings should be similarly interpreted 
as being what is referred to here as expanded service offerings. 
See, e.g., 17 U.S.C. 114(f)(1)(C) (permitting out-of-cycle rate-
setting proceedings for a ``new type of . . . service'').
---------------------------------------------------------------------------

    3. A service offering that is not an existing service offering or 
an expanded service offering (referred to here as a ``different service 
offering'').\59\ This would include any offering that is insufficiently 
similar to an existing service offering to be considered an expanded 
service offering. A different service offering would not be entitled to 
either a rate established under the grandfathered rate standard under 
section 114(f)(1) or the grandfathered license requirements in section 
114(d)(2)(B). Instead, the rate would be set under the willing buyer/
willing seller standard in section 114(f)(2), and would be required to 
comply with the license requirements in section 114(d)(2)(C).
---------------------------------------------------------------------------

    \59\ See H.R. Rep. No. 105-796, at 89 (grandfathering 
``limit[ed]'' to ``existing services in the same transmission medium 
and to any new services in a new transmission medium where only 
transmissions similar to their existing service are provided'') 
(emphasis added).
---------------------------------------------------------------------------

    These categorizations presume that a service is eligible for the 
section 114 license. The purpose of separating them into these groups 
is to determine whether the rate for a service is determined pursuant 
to section 114(f)(1) or section 114(f)(2). Thus, if a PSS entity began 
offering, for example, an interactive service, it would not fall into 
one of these categories, as it is ineligible for the statutory license. 
The following sections describe the types of service offerings that 
fall within these three categories.
1. Existing Service Offerings
    Implicit in the Register's previous determination that the only PSS 
entities are the three entities Congress named in the DMCA Conference 
Report,\60\ is that, as a matter of law, the service offerings that 
Congress sought to identify as PSS offerings as of July 31, 1998, were 
the ones offered by those entities prior to that date. The legislative 
history makes clear that Congress further intended to limit what it 
identified as a PSS offering at that time to the PSS entities' 
offerings in the specific transmission media affirmatively identified 
in the DMCA Conference Report: ``cable'' or ``satellite'' for DMX and 
Music Choice, and ``satellite'' for DiSHCD.\61\ Thus, to qualify as an 
``existing service offering,'' the service must not only have existed 
as of July 31, 1998, but it must have also been providing its offering 
in the specific transmission media identified by Congress.
---------------------------------------------------------------------------

    \60\ See 71 FR at 64646.
    \61\ See H.R. Rep. No. 105-796, at 89 (``As of July 31, 1998, 
DMX and Music Choice made transmissions via both cable and satellite 
media; the [DiSHCD service] was available only via satellite.'').
---------------------------------------------------------------------------

    Music Choice urges that it was already making internet 
transmissions of its subscription music service as of July 31, 
1998.\62\ In so doing, it is effectively asking for its current 
internet transmissions to be treated as an ``existing service 
offering'' under the rubric set forth above. But even assuming Music 
Choice, or another service, were making such pre-1998 internet 
transmissions,\63\ it was clearly to an inconsequential degree: Any 
such transmissions were entirely unacknowledged by the Copyright 
Arbitration Royalty Panel (``CARP''), in setting royalty rates for the 
statutory license under the DPRSRA; the Librarian of Congress and the 
Register of Copyrights, in reviewing that CARP decision; and Congress, 
in enacting the DMCA in 1998. The CARP report describes the three PSSs 
at length and, notably, makes an explicit finding of fact that the 
services are the ``only three digital audio music subscription

[[Page 59658]]

services available to residential subscribers in the United States'' 
and that they ``offer their digital music via satellite, or cable, or 
both,'' making no mention of any internet retransmissions.\64\ In 
comprehensively reviewing the CARP report and adopting rates and terms 
for PSSs, the Register of Copyrights and the Librarian of Congress made 
no mention of any internet transmissions by those PSS entities.\65\ To 
the contrary, that decision concluded that the PSSs ``face new 
competition from the internet.'' \66\ These factual findings are 
further reflected in the DMCA Conference Report, where Congress clearly 
identified the three qualifying services and only described them as 
making transmissions via cable and/or satellite media.\67\ Given this 
background, it is highly improbable that Congress would have intended, 
sub silentio, to treat internet transmissions as subject to the 
grandfathering provision under section 114(d)(2)(B).
---------------------------------------------------------------------------

    \62\ Music Choice Brief at 1-2, 4-6, 18-19, 30.
    \63\ The Register notes that the only apparent evidence offered 
by Music Choice of such pre-1998 internet transmissions is the 
testimony of Music Choice CEO David Del Beccaro. See id. at 5.
    \64\ CARP Report ] 43.
    \65\ See 63 FR 25394.
    \66\ Id. at 25407 (emphasis added).
    \67\ See H.R. Rep. No. 105-796, at 81, 89.
---------------------------------------------------------------------------

    This understanding is strongly reinforced by the new requirements 
Congress added in section 114(d)(2)(C) that webcasting services and new 
subscription services, as well as preexisting subscription services 
other than in the same transmission medium used by such service on July 
31, 1998, had to comply with to qualify for the statutory license. The 
rationale behind the DMCA's amendments to the DPRSRA, including the new 
requirements in section 114(d)(2)(C), was to ``address[] unique 
programming and other issues raised by Internet transmissions.'' \68\ 
If a PSS were permitted to make internet transmissions under the less 
stringent requirements of section 114(d)(2)(B), it would undermine the 
design of this statutory scheme and blur the distinction that Congress 
intended to draw when dividing PSS transmissions between paragraphs (B) 
and (C) based on the transmission medium used on July 31, 1998.\69\
---------------------------------------------------------------------------

    \68\ See Staff of H. Comm. on the Judiciary, 105th Cong., 
Section-By-Section Analysis of H.R. 2281 as Passed by the United 
States House of Representatives on August 4th, 1998, at 50 (Comm. 
Print 1998) (emphasis added); id. at 51 (``At the time the DPRSRA 
was crafted, Internet transmissions were not the focus of Congress' 
efforts.''); see also H.R. Rep. No. 105-796, at 83 (explaining 
explicitly that the reason for one of the new requirements was 
because of ``a disturbing trend on the Internet'' pertaining to the 
``unauthorized performance of sound recordings not yet released for 
broadcast or sale to the public'').
    \69\ See 17 U.S.C. 114(d)(2)(B)-(C); see also H.R. Rep. No. 105-
796, at 89 (indicating that a ``cable subscription music service'' 
that offers ``the same music service through the Internet'' is 
engaged in the delivery of its service ``in a new transmission 
medium'').
---------------------------------------------------------------------------

    Thus, in accordance with the principles of narrow construction 
afforded to grandfathering provisions, the Register finds that, as a 
matter of law, it is irrelevant whether or not Music Choice or another 
PSS entity, to some limited degree, was making transmissions via a 
different medium than those specified in the legislative history on 
July 31, 1998, such as the internet. If such a service was in fact 
doing so, it would not be as part of an existing service offering--any 
such transmissions today would be considered either an expanded service 
offering or a different service offering, depending on the analysis 
described below.
    At the same time, the Register emphasizes that an existing service 
offering can grow and expand significantly within the same transmission 
medium while remaining a PSS offering. The Register has found no 
indication that Congress meant to freeze existing service offerings 
exactly as they were on July 31, 1998, in order for them to continue to 
qualify for the grandfathering provisions. The user interface can be 
updated, certain functionality can be changed, the number of 
subscribers can grow, and channels can be added, subtracted, or 
otherwise changed.\70\ The only restriction is that the existing 
service offering as it is today must be fundamentally the same type of 
offering that it was on July 31, 1998--i.e., it must be a 
noninteractive, residential, cable or satellite digital audio 
transmission subscription service.\71\
---------------------------------------------------------------------------

    \70\ See, e.g., 78 FR 23054, 23085 (Apr. 17, 2013) (increasing 
the royalty rate due to Music Choice's announced intention to 
increase its number of channels from 46 to 300).
    \71\ See 17 U.S.C. 114(j)(11); H.R. Rep. No. 105-796, at 81, 89; 
63 FR at 25414; CARP Report ]] 43-44, 51-78, 109.
---------------------------------------------------------------------------

2. Expanded Service Offerings
    In addition to expanding within its congressionally-recognized 
transmission medium, an existing service offering can also expand to a 
different transmission medium, provided that the subscription 
transmissions are similar.\72\
---------------------------------------------------------------------------

    \72\ See H.R. Rep. No. 105-796, at 89 (the grandfathering covers 
``a new transmission medium [but] where only transmissions similar 
to their existing service are provided''); 71 FR at 64641 (``[A] 
preexisting service does not lose its designation as such in the 
event the service decides to utilize a new transmission medium, 
provided that the subscription transmissions are similar.'') 
(emphasis added).
---------------------------------------------------------------------------

    This expansion, however, is subject to an important threshold 
limitation. For a service offering to qualify as an expanded service 
offering, the PSS entity must continue to operate its existing service 
offering. The basis for the grandfathering provisions is to protect 
existing service offerings and limited direct outgrowths of them. If 
such a limited outgrowth--i.e., an expanded service offering--were to 
exist alone, divorced from the existing service offering, the rationale 
for including them within the existing service offering's grandfather 
protection becomes less tenable. Furthermore, the legislative history 
is explicit that a service offering that is not an existing service 
offering can only be subject to the grandfathering provision if it 
provides ``transmissions similar to their existing service.'' \73\ 
Ascertaining similarity requires comparison, and if a PSS entity 
discontinues its existing service offering, there would be nothing to 
compare against.\74\
---------------------------------------------------------------------------

    \73\ See H.R. Rep. No. 105-796, at 89.
    \74\ In the event that technology evolves such that a PSS 
decides to completely discontinue its cable or satellite service and 
limit its offerings solely to another transmission medium, such as 
the internet, this limitation would act as a type of ``sunset 
provision,'' which, contrary to Music Choice's argument with respect 
to such provisions, demonstrates that Congress did not in fact 
intend for the grandfather status to apply to a service indefinitely 
regardless of the offerings it provides and the way it is 
transmitted.
---------------------------------------------------------------------------

    As Music Choice and SoundExchange agree, in assessing whether a 
service offering is an expanded service offering, and thus qualifies as 
a PSS offering, a comparison must be made between the service offering 
in question and the existing service offering to see if it is 
sufficiently similar. Because, as discussed above, an existing service 
offering can expand over time while remaining a PSS offering, the 
comparison should be made to the existing service offering as it exists 
at the time of the comparison, not, as SoundExchange argues, as it 
existed on July 31, 1998.
    To determine whether or not such a service offering is sufficiently 
similar to the existing service offering, the fact-finder should 
compare the offerings by analyzing certain factors, including but not 
limited to:
    (1) Whether the service offering has a similar effect on displacing 
or promoting sales of phonorecords.\75\
---------------------------------------------------------------------------

    \75\ See 17 U.S.C. 114(f)(2)(B) (providing this as one of the 
examples of criteria to be used in distinguishing among different 
types of non-PSSs).
---------------------------------------------------------------------------

    (2) Whether the quantity and nature of the use of sound recordings 
by the service offering is similar.\76\
---------------------------------------------------------------------------

    \76\ See id. (providing this as one of the examples of criteria 
to be used in distinguishing among different types of non-PSSs).

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

[[Page 59659]]

    (3) Whether the service offering provides similar content to 
similar groups of users.
    (4) Whether the service offering is consumed in a similar manner, 
provides a similar user experience, and has similar form, feel, and 
functionality.
    (5) Whether and to what degree the service offering relates to the 
same pre-July 31, 1998 investments Congress sought to protect.\77\
---------------------------------------------------------------------------

    \77\ See 71 FR at 64641 (``[T]he rationale for [the] 
grandfathering provisions is to `prevent disruption of the existing 
operations by such services.''') (quoting H.R. Rep. No. 105-796, at 
81); SoundExchange, 854 F.3d at 719 (``The grandfather provisions 
were intended to protect prior investments the three [PSS] business 
entities had made during a more favorable pre-1998 rate-setting 
regulatory climate.'').
---------------------------------------------------------------------------

    (6) Whether and to what degree the service offering takes advantage 
of the capabilities of the medium through which it is transmitted 
(i.e., whether and the extent to which differences between the service 
offerings are due to limitations in the existing service offering's 
transmission medium that are not present in the other service 
offering's transmission medium).\78\
---------------------------------------------------------------------------

    \78\ See H.R. Rep. No. 105-796, at 89 (``If . . . a subscription 
service making transmissions on July 31, 1998, were to offer a new 
service either in the same or new transmission medium by taking 
advantages of the capabilities of that medium, such new service 
would not qualify as a preexisting subscription service.'').
---------------------------------------------------------------------------

    Note that even if a service offering is found to be an expanded 
service offering qualifying for the section 114(f)(1) grandfathering 
provision, it would still not be eligible for the section 114(d)(2)(B) 
grandfathering provision by virtue of its being transmitted via a 
different transmission medium. Such an offering would be subject to the 
requirements in section 114(d)(2)(C).
3. Different Service Offerings
    As a matter of law, a wholly different service offering can never 
qualify as a PSS offering because it would not be one of the 
specifically identified pre-July 31, 1998, business operations (i.e., 
the three PSS offerings) Congress sought to protect when it enacted the 
DMCA.\79\ This is true regardless of whether the service offering is 
developed internally or acquired. As the D.C. Circuit recently held, 
the DMCA's amendments to section 114 were ``designed to move the 
industry to market rates,'' and if a PSS entity ``were permitted to pay 
the grandfather rate for transmissions made to customers who subscribed 
to a `service' that was previously provided by [a different, non-PSS 
entity], what would prevent * * * the complete elimination of the 
market-rate regime by [such PSS entity's] acquisitions strategy.'' \80\ 
The Register agrees that ``when [such entity] expands its operations 
and provides additional transmissions to subscribers to a different 
`service,' * * * this is an entirely new investment'' and is not a PSS 
offering.\81\
---------------------------------------------------------------------------

    \79\ See id. at 81, 89; 71 FR at 64641, 64645-46; SoundExchange, 
854 F.3d at 719.
    \80\ SoundExchange, 854 F.3d at 719.
    \81\ See id. (emphasis added). The Register thus agrees with the 
D.C. Circuit's holding that a service offering that is acquired by a 
PSS entity does not qualify as a PSS offering.
---------------------------------------------------------------------------

B. Transmission Medium

    As noted above, the statute and legislative history focus 
extensively on whether a PSS offering is being provided through the 
same or a different ``transmission medium'' than the one identified by 
Congress in 1998, and the analysis above follows Congress's lead in 
that regard. At first blush, one might conclude that Congress intended 
to draw a distinction among the kinds of physical wires or 
radiofrequency channels used to deliver signals from a service to a 
listener--e.g., coaxial cable, optical fiber, radio spectrum. But this 
would not be a proper understanding of the statutory scheme. The 
legislative history makes repeated references to ``cable,'' 
``satellite,'' and the ``internet'' as different ``transmission[] * * * 
media.'' \82\ Congress surely understood that the internet is a layer 
of services that can be reached through a variety of delivery 
mechanisms, for example, through phone lines, satellite signals, and 
optical fiber. Similarly, a ``cable'' service can be transmitted over 
different media, such as coaxial cable, optical fiber, or microwaves--a 
fact Congress explicitly understands.\83\
---------------------------------------------------------------------------

    \82\ See H.R. Rep. No. 105-796, at 81, 89 (referring to 
``transmissions via both cable and satellite media'' and explaining 
that under appropriate circumstances, a ``cable . . . service'' may 
be transmitted ``through the Internet'').
    \83\ Cf. 17 U.S.C. 111(f)(3) (defining a ``cable system'' as, 
among other things, making transmission by ``wires, cables, 
microwave, or other communications channels'').
---------------------------------------------------------------------------

    Thus, for section 114 purposes, the better understanding is that, 
in referring to the ``transmission medium'' in the context of a PSS 
offering, Congress was referring to the basic telecommunications 
service through which that offering is being delivered to the user. For 
example, an existing service offering that on July 31, 1998, was 
delivered to residential cable television subscribers through coaxial 
cable, may today be delivered to such cable television subscribers 
through optical fiber without constituting an expansion to a new 
``transmission medium'' within the meaning of section 114. In other 
words, this service offering would still be an existing service 
offering, rather than an expanded service offering or different service 
offering, because it would still be part of what is traditionally 
considered to be a residential cable television service; this is true 
even though optical fiber may provide certain advantages over coaxial 
cable. By the same token, however, when an existing cable music service 
is made available to cable television subscribers over the internet, it 
is being transmitted through a different transmission medium regardless 
of how the internet is being reached; for section 114 purposes, 
internet service is a different telecommunications service from a 
residential cable service, even if delivered by the same operator 
through the same infrastructure.\84\
---------------------------------------------------------------------------

    \84\ To be clear, this discussion relates to the meaning of 
section 114and should not be construed as having broader application 
to other areas of copyright law, such as the section 111 cable 
retransmission license.
---------------------------------------------------------------------------

C. Application to the Referred Questions

    The CRJs' referral to the Register of Copyrights specifically asked 
how the legal analysis would apply specifically to ``transmissions of 
multiple, unique channels of music that are accessible through that 
entity's website and through a mobile application,'' and the degree to 
which differences between a PSS entity's internet service and its 
existing service in terms of the numbers or types of channels or 
subscribers would result in the exclusion of the internet service from 
a grandfathered rate.\85\ Although ultimately it is not for the 
Register to apply the above-described inquiry to Music Choice's current 
program offerings, the Register offers the following observations about 
transmissions made via the internet and made available on portable 
devices, and general guidance about application of the analysis to the 
scenarios identified in the referral order.
---------------------------------------------------------------------------

    \85\ Referral Order at 3-4.
---------------------------------------------------------------------------

    Under the standard articulated above, the mere fact that a service 
offering is transmitted to cable or satellite television subscribers 
over the internet does not automatically disqualify the service 
offering from being an expanded service offering subject to the 
grandfathered rate standard, so long as the service offering, as a 
factual matter, after considering the factors described above, is 
sufficiently similar to the PSS entity's existing cable or satellite 
service offering.
    In evaluating whether a service offering is ``sufficiently 
similar'' to the PSS entity's existing cable or satellite service 
offering so as to qualify as an

[[Page 59660]]

``expanded service offering,'' the CRJs should consider the degree to 
which making the existing service offering accessible outside the home 
of the subscriber constitutes a fundamental change to the offering. One 
notable fact about PSS offerings in 1998 is that they were all limited 
to listening to music within the subscriber's home. Indeed, in the 
first ratesetting proceeding under the DPRSRA, portable listening does 
not appear to have been considered and the final rate was based on a 
percentage of gross revenues ``resulting from residential services in 
the United States'' \86\--which is how the rate is currently 
calculated.\87\ To be sure, technological developments since that time 
have made it easier to deliver digital audio transmissions outside the 
home (including over mobile networks). But, at least in the cable 
television market, there appears to be a distinction drawn between 
accessing content within the home and accessing that same content 
outside of it.\88\ To be clear, this distinction is one based on the 
location where the PSS offering is consumed, not the type of device on 
which the service is accessed. If the service offering is available 
through an internet-connected smartphone or tablet, but is designed so 
that the service offering will only work when accessed within the 
confines of the subscriber's residence, then it would be within the 
home and more similar to the PSS entity's existing cable or satellite 
service offering.
---------------------------------------------------------------------------

    \86\ See 63 FR at 25414 (to be codified at 37 CFR 260.2(a)) 
(emphasis added); see also CARP Report ] 109 (``The Panel finds that 
the Services are primarily responsible for creating a new media and 
market for digital music subscription services for residential 
consumers.'') (emphasis added). It also bears noting that in the 
last rate proceeding, the CRJs deleted the word ``Residential'' and 
its definition from the rate provision for preexisting satellite 
digital audio radio services because it was argued that ``the 
concept is a confusing artifact of a comparable term used in the PSS 
regulations'' because ``the SDARS service is not primarily 
residential in terms of being delivered to homes and the term 
residential subscriber simply means a subscriber,'' yet the term 
remained for purposes of the PSS rate. 78 FR at 23074-75, 23096, 
23098 (internal quotation marks omitted).
    \87\ 37 CFR 382.3(a).
    \88\ See, e.g., Out of Home--XFINITY Stream App Error Message, 
XFINITY, https://www.xfinity.com/support/xfinity-apps/xfinity-tv-app-unable-to-connect/ (last visited Nov. 17, 2017) (``In order to 
watch live TV or XFINITY On Demand content using the XFINITY Stream 
app, you'll need to be connected to your in-home XFINITY WiFi 
network.'').
---------------------------------------------------------------------------

    As the second referred question specifically asks about differences 
in channel offerings and customers, the Register offers the following 
guidance. In comparing the number and type of channels offered by a 
service offering to an existing service offering, examples of factors 
to consider could include how many additional or fewer channels there 
are, how many channels offer different programming, and how different 
that programming is. One should also consider the reasons why any such 
differences exist. For example, if the service offering in question has 
more channels because of some benefit the internet affords, such as 
greater bandwidth or different contractual arrangements with cable 
operators, then it would be taking advantage of the capabilities of the 
internet as a transmission medium. Depending on the evaluation of the 
other factors discussed above and how much weight is ultimately given 
to the difference in channels in an overall comparison between the 
service offerings, it may or may not be enough to disqualify the 
offering from the grandfathered royalty calculation method. The number 
and type of customers should be similarly compared.
    At the same time, the Register agrees with Music Choice that 
differences in a service offering that directly and solely result from 
the imposition of the section 114(d)(2)(C) requirements that do not 
apply to the existing service offering (which is subject to section 
114(d)(2)(B)), should not alone disqualify it from the grandfathered 
rate. Similarly, minor differences in the user interface necessitated 
by the change in medium also should not alone disqualify the service 
offering, even if they are perceived as an advantage offered by the 
medium. For example, a service offering should not be disqualified from 
being an expanded service offering merely because instead of needing to 
press a button on a remote control, the user can click a mouse or 
navigate using a touch screen. Additionally, minor differences in 
visual presentation, such as having a different aspect ratio or 
displaying less content due to differences in screen size, would not be 
so significant as to disqualify a service offering from being an 
expanded service offering.

D. CRJs' Ability to Set Different Rates

    In closing, the Register briefly notes that, even if a service 
offering qualifies for the grandfathered method of setting rates, the 
CRJs still have the authority under section 114(f)(1)(A) to 
``distinguish among the different types of digital audio transmission 
services . . . in operation.'' Thus, if there are material differences 
between an existing service offering and an expanded service offering, 
the CRJs can set separate rates and terms based on those differences, 
albeit using the section 801(b)(1) standard, and not under the willing 
buyer/willing seller standard under section 114(f)(2).


    November 20, 2017.
Karyn Temple Claggett,
Acting Register of Copyrights and Director of the U.S. Copyright 
Office.
[FR Doc. 2017-27088 Filed 12-14-17; 8:45 am]
 BILLING CODE 1410-30-P