FR 2024-29384

Overview of the Proposed Regulations

The document in question is a proposed rule from the Copyright Royalty Judges that aims to set the rates and terms for digital performances of sound recordings by new subscription services from 2026 to 2030. Broadly, this rule will govern how royalties are calculated for digital music services that are bundled with television packages, such as those offered by cable or satellite providers. An important change outlined in this proposal is the adjustment of fees based on annual changes in the Consumer Price Index (CPI), rather than pre-negotiated increases.

Key Concerns and Considerations

Legal Complexity

The document contains complex legal jargon that may be challenging for individuals without a background in law. This complexity can limit public understanding and engagement, making it difficult for stakeholders or interested parties to fully grasp the implications of the proposed regulations.

Reliance on Future Determinations

The proposal includes terms yet to be established in a separate proceeding referred to as "Web VI," which could introduce uncertainty for those affected by these rules. Such reliance on future determinations may disadvantage stakeholders who need current and concrete terms to plan effectively.

CPI as a Rate Adjustment Mechanism

Using the Consumer Price Index as a basis for adjusting annual fees may not adequately capture the specific cost dynamics of digital audio transmission services. The CPI reflects general economic inflation but may not account for industry-specific factors, potentially leading to misaligned cost adjustments.

Impact on Smaller Entities

While auditing processes are outlined to ensure transparency and accuracy in payments, these procedures could be burdensome—both in terms of effort and financial cost—especially for smaller entities that may lack the resources of larger companies like SoundExchange, Sirius XM, and Stingray.

Potential Impacts on Stakeholders

General Public

For the general public, these regulations might affect the cost and availability of digital music services. As royalties adjust based on the CPI, subscribers could see changes in their service fees, depending on how service providers integrate these costs into their pricing models.

Specific Stakeholders

For companies like SoundExchange, Sirius XM, and Stingray, which are active participants in these proceedings, the proposed regulations are designed to create a more predictable royalty framework. They stand to benefit from a well-defined system for rate adjustments and clearly outlined auditing practices.

However, the focus on these specific entities could mean that other existing or potential competitors are overlooked, potentially stifling competition and innovation within the market.

Concerns Over Proxy Data Use

Additionally, the provision allowing SoundExchange to use proxy data for royalty distribution when licensees fail to report use data could lead to inaccuracies. This might result in incorrect payment distributions, affecting the income of rights holders and performers, particularly when comprehensive usage data is unavailable.

Lack of Recourse for Future Changes

The document does not provide a straightforward way for stakeholders to challenge terms based on yet-to-be-determined criteria. This could result in entities being bound by unforeseen changes without a clear mechanism for dispute or objection, potentially leaving them in a vulnerable position.

Conclusion

Overall, while the proposed regulations aim to streamline and codify the processes surrounding digital performance royalties, several significant issues need to be addressed to ensure clarity, fairness, and accessibility for all stakeholders involved. Stakeholders are encouraged to review the proposals closely and raise any concerns by the specified deadline to ensure that their interests are adequately represented and considered.

In examining the financial references within the document, several key elements highlight the approach to determining royalty payments and associated fees for digital performances of sound recordings by new subscription services. The proposed regulations involve specific adjustments to current financial arrangements, relying heavily on existing frameworks and market indices to guide future charges.

Financial Allocations and Royalty Rates

The document proposes that for the year 2026, each licensee will be required to pay specific royalty rates for digital transmissions. For Stand-Alone Contracts, the fees are to be determined based on the 2025 royalty rate of $0.0234 per subscriber, subject to adjustments according to changes in the Consumer Price Index for All Urban Consumers (CPI-U). Similarly, for Bundled Contracts, the initial rate is pegged to $0.0390 per subscriber with the same adjustment mechanism.

This reliance on the CPI-U reflects an attempt to tie future royalty increases to broader inflation measures. However, using such a general economic index might not fully capture the unique cost dynamics and challenges specific to digital audio transmissions. This could introduce variability that the parties involved might have been unprepared for, particularly if the broader economic situation does not align with the specific cost pressures facing digital audio services.

Non-Refundable Minimum Fee

In addition to per-subscriber fees, each licensee must pay an annual non-refundable minimum fee of $100,000. This fee is due by January 31 of each calendar year, covering statutory licenses required under sections 112(e) and 114. This substantial fixed cost could pose a barrier to entry for smaller entities seeking to enter the market or for current market participants operating with tighter financial margins.

Implications of Financial Provisions

With regards to the identified issues, the reliance on financial measures such as the CPI-U for rate adjustments could amplify concerns about uncertainty. The rates planned for future years, based on economic conditions not yet materialized, might disincentivize participation or negotiation due to potential volatility. Moreover, these financial arrangements are predicated on assumptions that current key players like SoundExchange, Sirius XM, and Stingray are the only or primary stakeholders, possibly excluding other existing or emerging entities from competitive engagement.

Furthermore, the proposed audit procedures, while detailed, imply additional costs for smaller entities which must bear the brunt of any audit process expenses unless a significant discrepancy is determined. This requirement might strain their financial resources, given the proposed substantial base fees and fluctuating royalty costs.

Overall, the financial framework aligns royalties and fees with broader economic indicators while attempting to maintain consistent statutory rates. However, careful consideration needs to be given to ensure that financial structures do not disproportionately impact smaller players and allow for clear understanding and recourse in the face of undefined future variables.