[Federal Register Volume 63, Number 181 (Friday, September 18, 1998)]
[Rules and Regulations]
[Pages 49823-49837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-24986]
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LIBRARY OF CONGRESS
Copyright Office
37 CFR Part 253
[Docket No. 96-6 CARP NCBRA]
Noncommercial Educational Broadcasting Compulsory License
AGENCY: Copyright Office, Library of Congress.
ACTION: Final rule and order.
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SUMMARY: The Librarian of Congress, upon the recommendation of the
Register of Copyrights, is announcing the rates and terms of the
noncommercial educational broadcasting compulsory license for the use
of music in the repertoires of the American Society of Composers,
Authors and Publishers and Broadcast Music, Inc. by the Public
Broadcasting Service, National Public Radio and other public
broadcasting entities as defined in 37 CFR 253.2, for the period 1998-
2002. The Librarian is adopting
[[Page 49824]]
the determination of the Copyright Arbitration Royalty Panel (CARP).
EFFECTIVE DATE: January 1, 1998.
ADDRESSES: The full text of the CARP's report to the Librarian of
Congress is available for inspection and copying during normal business
hours in the Office of the General Counsel, James Madison Memorial
Building, Room LM-403, First and Independence Avenue, S.E., Washington,
D.C. 20559-6000. It is also available on the Copyright Office's
website: (http://lcweb.loc.gov/ copyright/carp).
FOR FURTHER INFORMATION CONTACT: David O. Carson, General Counsel, or
William J. Roberts, Jr., Senior Attorney for Compulsory Licenses, P.O.
Box 70977, Southwest Station, Washington, D.C. 20024. Telephone (202)
707-8380.
SUPPLEMENTARY INFORMATION:
I. Background
Section 118 of the Copyright Act, title 17 of the United States
Code, creates a compulsory license for the public performance of
published nondramatic musical works and published pictorial, graphic
and sculptural works in connection with noncommercial broadcasting.
Terms and rates for this compulsory license, applicable to parties who
are not subject to privately negotiated licenses, are published in 37
CFR part 253 and are subject to adjustment at five-year intervals. 17
U.S.C. 118(c). As stipulated by the parties, the terms and rates
adopted in today's order are effective for the period beginning January
1, 1998. They will be effective through December 31, 2002.
The noncommercial educational broadcasting compulsory license
provides that copyright owners and public broadcasting entities may
voluntarily negotiate licensing agreements at any time, and that such
agreements will be given effect in lieu of any determination by the
Librarian of Congress provided that copies of such agreements are filed
with the Register of Copyrights within 30 days of their execution.
Those parties not subject to a negotiated license must follow the terms
and rates adopted through arbitration proceedings conducted under
chapter 8 of the Copyright Act.
The Library published a notice in the Federal Register requesting
comments from interested parties as to the need of a CARP proceeding to
adjust the section 118 terms and rates. 61 FR 54458 (October 18, 1996).
After a protracted negotiation period, several parties submitted
proposals for royalty fees and terms with respect to certain uses by
public broadcasting entities of published musical works and published
pictorial, graphic and sculptural works. The Library published these
proposals in the Federal Register, in accordance with 37 CFR 251.63,
and adopted them as final regulations effective January 1, 1998. See 63
FR 2142 (January 14, 1998).
Certain parties notified the Library that agreement could not be
reached for the use of musical works and that a CARP would be required.
The Library initiated a CARP proceeding on January 30, 1998, and the
CARP delivered its report to the Librarian on July 22, 1998. Today's
final rule and order adopts that report.
II. Parties to This Proceeding
As noted above, certain parties could not reach agreement as to the
proper adjustment of the royalty rates and terms for the use of musical
works. The musical works at issue are those belonging to composers and
publishers affiliated with the American Society of Composers, Authors
and Publishers (ASCAP) and to composers and publishers affiliated with
Broadcast Music, Inc. (BMI). The public broadcasting entities wishing
to make use of these musical works are the Public Broadcasting Service
(PBS), National Public Radio (NPR), and other public broadcasting
entities as defined in 37 CFR 253.2.
ASCAP and BMI are both performing rights societies which, among
other things, license the nonexclusive right to perform publicly the
copyrighted musical compositions of their respective members. ASCAP and
BMI filed separate written direct cases in this proceeding, and each
sought a separate royalty fee for the use of musical works within their
respective catalogues.
PBS is a non-profit membership corporation which, among other
things, represents the interests of its member noncommercial
educational broadcasting stations in rate setting and royalty
distribution proceedings in the United States, Canada, and in Europe.
NPR is a non-profit membership organization dedicated to the
development of a diverse noncommercial educational radio programming
service. PBS and NPR submitted a joint written direct case in this
proceeding and are referred to in this final rule and order as ``Public
Broadcasters.'' The Corporation for Public Broadcasting (CPB), which
provides funding for both PBS and NPR, is also represented in this
proceeding, though it is not a user of music.
III. Prior History of Section 118 Rate Adjustments
Congress intended that the parties affected by the section 118
compulsory license negotiate reasonable license rates and terms. If the
parties could not agree, the Copyright Royalty Tribunal (CRT) was to
establish rates and terms in 1978 and at five-year periods thereafter
if necessary. In section 118, Congress gave the CRT no statutory
criteria beyond ``reasonable'' but did say that the CRT could consider
``the rates for comparable circumstances under voluntary license
agreements negotiated as provided in paragraph (2).'' 17 U.S.C.
118(b)(3).
When Congress replaced the CRT with the current CARP system in
1993, it did not make any substantive modifications to section 118 or
to the ``reasonable terms and rates'' standard prescribed by section
801. See Copyright Royalty Tribunal Reform Act of 1993, Public Law 103-
198, 107 Stat. 2304.
For the initial license term of 1978-1982, the Public Broadcasters
successfully negotiated a voluntary license with BMI that provided for
a payment of $250,000 for the first year with certain possible
adjustments for each of the succeeding four years. No agreement was
reached for the use of ASCAP music by Public Broadcasters, and the CRT
held a proceeding to establish rates and terms.
To determine what constituted a ``reasonable'' rate for ASCAP, the
CRT examined the section 118 legislative history and found directives
that the rate should reflect the fair value of the copyrighted
material, that copyright owners were not expected to subsidize public
broadcasting, and that Congress felt that the growth of public
broadcasting was in the public interest. See 43 FR 25068 (June 8, 1978)
(citing S. Rep. No. 94-473, at 101 (1975); H.R. Rep. No. 94-1476, at
118 (1976)). From its review of the legislative history, the CRT
concluded that it had broad discretion based on the interests Congress
had defined. 43 FR 25068 (June 8, 1978).
The CRT then looked at a number of different formulas submitted by
ASCAP and Public Broadcasters for calculating royalties and concluded
that there was no one ideal solution within the framework of a
statutory compulsory license. 43 FR 25069 (June 8, 1978). Based on what
it had before it, the CRT then concluded that an annual payment of
$1.25 million was a reasonable royalty fee. It also provided for an
inflationary adjustment during the 1978-1982 period and explained that
[[Page 49825]]
the annual fee was not determined by application of a particular
formula, but was ``approximately what would have been produced by the
application of several formulas explored by this agency during its
deliberations.'' Id.
In adopting the annual fee, the CRT stated that its determination
was made on the basis of the record before it, and stressed that
``[w]hen this matter again comes before the CRT, the CRT will have the
benefit of several years experience with this schedule. The CRT does
not intend that the adoption of this schedule should preclude active
consideration of alternative approaches in a future proceeding.'' Id.
The CRT, however, never conducted another section 118 proceeding before
its abolition in 1993, because voluntary licenses were negotiated for
all subsequent periods. Today's decision is the first section 118 rate
adjustment that has required a formal proceeding.
IV. Report of the Panel
After six months of hearings and written submissions of ASCAP, BMI,
and Public Broadcasters, the CARP delivered its report to the
Librarian. The Panel determined that Public Broadcasters should pay an
annual fee of $3,320,000 to ASCAP, and $2,123,000 to BMI, for the
public performance of works containing ASCAP and BMI music,
respectively. The Panel also stated that these annual fees should be
paid in accordance with the terms attached as an appendix to its
report.1 Costs of the proceeding (i.e. the arbitrators'
fees) were assessed at one-third each to ASCAP, BMI, and Public
Broadcasters.
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\1\ The parties to this proceeding stipulated to the terms of
payment. Consequently, only the rates are in issue in this
proceeding.
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In attempting to determine what constituted a ``reasonable'' fee
for ASCAP and BMI, the Panel consulted the CRT decision described above
and examined the same legislative history reviewed by the CRT. The
Panel observed that while section 118 did not define the term
``reasonable,'' the legislative history indicated that ``reasonable''
meant ``fair value,'' and that ``fair value'' was the functional
equivalent of ``fair market value.'' Report at 9. The Panel noted that
the parties also generally agreed that fair market value was the proper
standard for determining rates, and that fair market value meant ``the
price at which goods and services would change hands between a willing
buyer and a willing seller neither being under a compulsion to buy or
sell and both having reasonable knowledge of all material facts.'' Id.
In the Panel's view, although the CRT called it ``fair value'' rather
than ``fair market value,'' the rate determined for ASCAP in the 1978
proceeding was a fair market value determination. Thus, with respect to
ASCAP, the Panel was adjusting the fair market value of ASCAP music in
1978 to its present fair market value and, for the first time,
establishing the current fair market value of BMI music. Id. at 10-11.
To fix the fair market value of ASCAP and BMI music, respectively,
the Panel searched for some type of method or formula that would
establish a benchmark to assist in establishing fair market value.
ASCAP and BMI, while employing somewhat differing adjustment
parameters, advocated using music licensing fees recently paid by
commercial television and radio broadcasters as a benchmark for valuing
the license fees that Public Broadcasters should pay under section 118.
Public Broadcasters urged the Panel to set license fees based upon
prior voluntary licensing agreements between Public Broadcasters and
ASCAP and BMI.2 The Panel ultimately rejected each of the
parties' approaches and adopted instead its own benchmark.
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\2\ As the Panel observed, these were the primary approaches
advocated by the parties. They also advocated alternative approaches
and variants of the primary approach. The Panel noted, however,
citing examples, that the parties equivocated with respect to these
alternatives and sometimes disavowed them entirely. Id. at 11-12.
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A. The ASCAP Approach
According to the Panel, ASCAP's proposed use of commercial
television and radio license fees was premised on several assumptions:
(1) that commercial license fees represented fair market value of ASCAP
music, whereas past agreements between ASCAP and Public Broadcasters
did not; (2) that in recent years, Public Broadcasters have more
closely resembled commercial broadcasters due to the rise in
commercialization of public television and radio, fiscal success,
sophistication, and size; (3) that after adjusting for music usage, the
Public Broadcasters should pay the same proportion of their revenues as
license fees as do commercial broadcasters; and (4) that ASCAP's
proposed methodology takes into account any perceived differences
between Public Broadcasters and commercial broadcasters by excluding
from Public Broadcasters' revenues any revenues derived from government
sources. Only ``private revenues,'' such as corporate underwriting and
viewer/listener contributions, were considered under ASCAP's
methodology because they, like commercial broadcasters' revenues, are
audience sensitive. Id. at 13.
ASCAP's witnesses testified that its methodology yielded an annual
fee of $4,612,000 for television plus $3,370,000 for radio--a total of
$7,982,000. Id. at 14. ASCAP also performed a confirmatory analysis of
this fee by projecting forward the ASCAP fee adopted by the CRT. ASCAP
first calculated the ratio of 1995 Public Broadcasters' private
revenues 3 to the Public Broadcasters' 1978 private revenues
and multiplied this figure by the 1978 fair market value fee set by the
CRT. That result was then multiplied by the ratio of 1995 ASCAP music
use by Public Broadcasters to the 1978 ASCAP music use by Public
Broadcasters. This methodology generated total license fees for 1995
for television and radio of $8,225,000, a figure that ASCAP asserted
confirmed its primary methodology. Id. at 14-15.
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\3\ Public Broadcasters' 1995 revenues were the most recently
available annual revenues to ASCAP at the time it filed its written
direct case.
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B. The BMI Approach
According to the Panel, the BMI approach was quite similar to
ASCAP's. However, in addition to examining Public Broadcasters'
revenues and music use, BMI also examined Public Broadcasters'
programming expenditures and audience size. BMI compared total
revenues, programming expenditures, and audience size and determined
that public television was 4% to 7% the size of commercial television,
and that Public Broadcasters should therefore pay a music licensing fee
between 4% and 7% of the fee that BMI anticipates commercial television
will pay in 1997. BMI similarly concluded that public radio was 3% to
4% the size of commercial radio in recent years. Id. at 15. However,
BMI acknowledged that a one-third downward adjustment for music use by
public radio stations as compared to commercial radio stations was
necessary, yielding a total fee between 1% to 2% of the fees BMI
anticipates will be paid by commercial radio in 1997. This methodology
yielded a license fee for BMI for 1997 for public television between $4
and $7 million and between $1 to $2 million for public radio. BMI
recommended adopting the midpoint between these ranges, yielding $5.5
million for public television and $1.395 million for public radio--a
total of $6,895,000. Id. at 15-16.
BMI also submitted that, regardless of its proposed fee, the Panel
should not set a fee for BMI less than 42.5% of the
[[Page 49826]]
combined ASCAP and BMI fees. This argument was based on BMI's assertion
that 42.5% of the total share of music on public television belonged to
BMI. BMI had no data on its relative share of its music on public
radio, but submitted that using BMI's music share on public television
was a good proxy for music on public radio in the absence of any
evidence on the relative shares of ASCAP and BMI music on public radio.
Id. at 16-17.
C. Public Broadcasters
Public Broadcasters argued that the best method for determining
fair market value of ASCAP and BMI music was to use the 1992 negotiated
licenses between Public Broadcasters and ASCAP and BMI as a benchmark,
and then to adjust for any changed circumstances. Public Broadcasters
asserted that this was the only method explicitly encouraged by the
framers of section 118. Id. at 17.
While conceding that there is no precise definition of ``changed
circumstances'' since the 1992 voluntary agreements with ASCAP and BMI,
Public Broadcasters asserted that changes in their programming
expenditures and music use offered the best indicators of ``changed
circumstances.'' Public Broadcasters performed an economic regression
analysis with respect to programming expenditures and found a growth
rate of 7.15% from 1992 through 1996. By mathematically increasing the
combined ASCAP and BMI license fees payable under the 1992 agreements
and determining that music use did not change during that time period,
Public Broadcasters advocated a combined ASCAP/BMI license fee for both
public television and radio of $4,040,000 per year. Id. at 18. Public
Broadcasters then apportioned this fee between ASCAP and BMI based upon
music usage and determined that BMI's share of music on public
television was 38-40% of the total music usage. As did BMI, Public
Broadcasters assumed that it was reasonable to use public television
music usage as a proxy for public radio music usage. Id. at 19.
D. The Panel's Analysis
After examining the parties' approaches, the Panel concluded that
``[b]oth general approaches * * * suffer significant infirmities.'' Id.
at 19. The Panel agreed with Public Broadcasters that previously
negotiated licenses with ASCAP and BMI were logical starting points to
determine fair market value, but concluded that the agreements from
1982 through 1997 understate the fair market value of ASCAP and BMI
music. The Panel also determined that, while licenses negotiated with
similarly situated parties should be considered, ASCAP's and BMI's
licenses with commercial broadcasters overstate the fair market value
of music on public television and radio. Id. at 19-24. Instead, the
Panel adopted its own methodology based upon the CRT's 1978
determination, yielding an annual fee of $3,320,000 for ASCAP, and
$2,123,000 for BMI.
Because the Panel considered the voluntary license agreements that
Public Broadcasters negotiated with ASCAP and BMI for the 1992-1997
license period to be a logical starting point to determining fair
market value, the Panel first considered Public Broadcasters' approach.
The Panel was particularly impressed with the fact that the ASCAP
license agreements contained ``no-precedent clauses'' which, in
essence, are statements that the rates and terms prescribed in the
agreement have no precedential value in any future negotiation or
proceeding before a CARP. These no-precedent clauses were included in
the voluntary agreements at the insistence of ASCAP. The Panel
concluded that ``[t]his clause clearly evinces an attempt by ASCAP to
protect itself from future tribunals which might be tempted to use the
prior agreement as a benchmark for establishing fair market value. And
such an attempt to protect itself is corroborative of ASCAP's genuine
belief that the agreed rates were below fair market value.'' Id. at 22.
The Panel made a similar finding with respect to ``nondisclosure''
clauses included in BMI's license agreements which forbade disclosure
of the terms of the agreements to the public, including a CARP. Id. at
22-23. The Panel also concluded that the ``huge disparity'' between
recent ASCAP/BMI commercial license rates and the rates for Public
Broadcasters under private agreements underscored that the prior
agreements were not indicative of fair market value. Id. at 23.
Therefore, the Panel rejected Public Broadcasters' approach.
The Panel then focused on ASCAP and BMI's approach using commercial
broadcaster license rates. The Panel rejected this approach because,
while Public Broadcasters have become more ``commercial'' in recent
years, ``significant differences remain which render the commercial
benchmark suspect.'' Id. at 24. Commercial broadcasters raise revenues
through advertising and audience share, whereas Public Broadcasters
have no such mechanism:
In the commercial context, audience share and advertising
revenues are directly proportional and also tend to rise as
programming costs rise--increased costs are passed through to the
advertiser. No comparable mechanism exists for Public Broadcasters.
Increased programming costs are not automatically accommodated
through market forces. Contributions from government, business, and
viewers remain voluntary. For these reasons, commercial rates almost
certainly overstate fair market value to Public Broadcasters and,
even restricting the revenue analysis to ``private revenues,'' as
did ASCAP, does not fully reconcile the disparate economic models.
Id. at 24 (citations omitted).
Having rejected both sides' approaches, the Panel fashioned its own
benchmark for determining fair market value of ASCAP and BMI music. The
Panel's methodology was based upon the fundamental assumption that the
fee set by the CRT in 1978 was the fair market value of ASCAP music
under the section 118 license as of that time. According to the Panel,
that assumption was ``an eminently reasonable, and essentially
uncontroverted, assumption. Indeed, this Panel is arguably bound by the
1978 CRT determination of fair market value of the ASCAP license.'' Id.
at 25. The Panel took the 1978 rate and ``trended [it] forward'' to
1996 by adjusting for the change in Public Broadcasters' total revenues
and the change in ASCAP's music share. This methodology yielded the
fair market value of an ASCAP license to Public Broadcasters. The Panel
then determined the fair market value of a BMI license to Public
Broadcasters by applying its current music use share to the license fee
generated for ASCAP for 1996. The Panel noted that its methodology was
``similar to alternate analyses employed by both ASCAP and Public
Broadcasters to demonstrate the reasonableness of their approaches.''
Id.
To ``trend forward'' the CRT's 1978 ASCAP license fee to the
present, the CARP divided that fee ($1,250,000) by Public Broadcasters'
total 1978 revenues ($552,325,000) and multiplied the result by Public
Broadcasters' total 1996 revenues ($1,955,726), resulting in a ``1996
trended ASCAP license fee'' of $4,426,000, before adjusting the fee to
take account of a decline in ASCAP's share of music usage. Id. at 26.
The Panel determined that the change in Public Broadcasters'
revenues from 1978 to 1996,4 along with changes in music
share, were the best indicator of relevant changed circumstances which
required an adjustment to the chosen benchmark. That is, Public
Broadcasters would likely pay license fees that constitute the same
proportion of their
[[Page 49827]]
total revenues as did the license fees that they paid in 1978, the last
occasion in which they paid fair market rates. Id. at 27. The Panel did
acknowledge there was ``no commonly accepted indicator that would allow
a finder-of-fact to precisely adjust a fair market value benchmark to
reflect relevant changed circumstances,'' noting that other factors,
such as revenues, audience share, programming expenditures, and the
Consumer Price Index have been used. Id. at 27-28.
\4\ The most recent year for which data was available to the
Panel. See footnote 7 infra.
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Of these, the Panel concludes that revenues is [sic] the best
indicator of relevant changed circumstances because it incorporates
the forementioned factors and others. Changes in audience share and
programming expenditures are reflected in revenues. Changes in
revenues over time also serve as a proxy for an inflation
adjustment. While the CPI gauges inflation at the consumer level,
revenues gauge inflation at the industry-specific level.
Accordingly, in our analysis, an inflation adjustment from 1978 to
1996 is obviated.
Id. at 28 (citation omitted).
The Panel also determined that it was more appropriate to use
Public Broadcasters' total revenues, rather than examine only
``private'' revenues, as advocated by ASCAP. There was no need to
confine the analysis to private revenues, because the Panel did not
accept ASCAP's use of commercial broadcasters' rates as the appropriate
benchmark and because the Panel was concerned with Public Broadcasters'
revenue trends (i.e., increases) over the relevant period, not with how
the revenues were raised. Id. at 29.
Finally, with respect to revenues, the Panel explained why it used
Public Broadcasters' 1996 revenues and 1978 revenues in its formula.
Using the 1996 revenue data was important because it was the most
recent data available to the parties and yielded the most accurate fee
for the 1998-2002 period. Id. at 30. The Panel also rejected Public
Broadcasters' assertion that the Panel should use Public Broadcasters'
1976 revenues, which were the most recent revenues available to the CRT
when it set its fair market value fee in 1978. The Panel stated that
the record did not necessarily support Public Broadcasters' assertion
and noted that use of 1976 revenues would have actually yielded higher
license fees. Id. at 31.
The Panel then adjusted the figure produced by its revenue growth
trending formula to account for changes in the relative share of ASCAP
music used by Public Broadcasters in 1996 as compared to 1978. The
Panel determined that ``the ASCAP share of total ASCAP/BMI music used
by Public Broadcasters has declined from about 80%-83% in 1978 to about
60%-61% in 1996, representing about a 25% decline in its music share.''
Id. at 32. Accordingly, the Panel made a 25% downward adjustment to the
``1996 trended ASCAP license fee'' of $4,426,000, resulting in an ASCAP
license fee of $3,320,000. Id. at 26. In order to determine this
decline, the Panel was required to infer the proportion of music shares
between ASCAP and BMI in 1978 because evidence of such music shares
does not exist.5 The Panel made this inference based upon
two significant pieces of record evidence.
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\5\ Evidence does exist, however, for the proportion of music
shares for 1996.
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First, since 1982, both ASCAP's and BMI's negotiated fees with
Public Broadcasters reflect relative shares of about 80%/20% of the
music use of Public Broadcasters. While acknowledging that the
voluntarily negotiated licenses were not indicative of fair market
value, the Panel was ``persuaded that the consistent division of fees
reflects the parties' perception of respective music use shares, as
confirmed by data available to each party.'' Id. at 33. Absent more
reliable information, the Panel presumed that the 80%/20% split that
had prevailed since 1982 also existed in 1978. The Panel felt
buttressed in this assumption because ``in its trending formula, ASCAP
did not hesitate to use its music use data from 1990 as a proxy for
1978.'' Id.
Second, the Panel determined that the 80%/20% split in music share
was corroborated by the fact that in 1978 the CRT adopted a $1,250,000
annual fee while being aware that BMI had negotiated a $250,000 annual
fee. The Panel concluded, ``presuming the CRT did not arbitrarily
determine fees without regard to relative music share, we infer music
use shares for ASCAP and BMI of 83% and 17%, respectively, for 1978.''
Id. at 33-34. The Panel then concluded that ASCAP's 1996 music share
was 60%-61%, based upon an analysis presented by Public Broadcasters
that it found ``more comprehensive and more reliable'' than BMI's
analysis. ASCAP did not present a music share analysis. Id. at 32 n.42.
The Panel then took the $3,320,000 ASCAP fee and used it to
determine BMI's fee. The Panel concluded that BMI's music share
increased from about 17%-20% in 1978 to about 38%-40% in 1996.
Selecting 39% as the appropriate figure, the Panel concluded that BMI's
share of the combined ASCAP/BMI fees must also be 39%. The Panel
calculated BMI's license fee of $2,123,000 by ``[m]ultiplying the ASCAP
license fee by .63934,'' which ``yields the mathematical equivalent of
39% of the combined license fees of both ASCAP and BMI (39% x
[3,320,000 + 2,123,000] = $2,123,000).'' Id. at 27 n. 40.
The Panel offered several reasons why it was appropriate to derive
BMI's fair market value share solely on the basis of music share. The
Panel rejected ASCAP's assertion that the music contained in ASCAP's
repertory is intrinsically more valuable than the music in BMI's
inventory, finding no credible evidence for such a distinction. Id. at
35.
The Panel also rejected ASCAP and BMI's argument that the type of
methodology adopted by the Panel is impermissible as a matter of law
because section 118 requires that separate fees be set for ASCAP and
BMI that are based upon separate evaluations of their respective
licenses. The Panel found no proscription in the statute, the
legislative history, or the 1978 CRT decision for a methodology which
yields a combined fee, after which the combined fee is divided between
ASCAP and BMI. While the Panel must set separate rates for ASCAP and
BMI, the obligation to do so was ``wholly distinct from the methodology
we employ to determine those fees.'' Id. at 36.
The Panel undertook a separate approach to confirm its results for
BMI by using the rate prescribed by the 1978 BMI negotiated license as
a fair market value benchmark for 1978. The 1978 agreement is the only
BMI or ASCAP agreement that did not contain a ``no-precedent clause''
or ``nondisclosure clause.'' However, the Panel did not accept this
figure as representative of fair market value because the circumstances
surrounding the 1978 negotiation were not sufficiently explored.
Instead, the Panel used the figure solely for corroborative purposes.
Id. at 36-37.
The Panel used the same methodology for BMI as it did for ASCAP,
dividing the 1978 BMI license fee by the Public Broadcasters' total
1978 revenues and multiplying the result by the Public Broadcasters'
total 1996 revenues. After adjusting for the increase in BMI's music
share between 1978 and 1996, the formula yielded a figure of
$2,082,000, within 2% of the fee adopted by the Panel under its primary
approach. The Panel noted that it could also ``generate the ASCAP fee
from the BMI fee just as we previously generated the BMI fee from the
ASCAP fee--with similarly confirming results.'' Id.
[[Page 49828]]
In conclusion, the Panel stated that its methodology yielded what
it believed to be the best result:
In adopting this methodology, we are fully cognizant of the
several assumptions and inferences required. While we defend these
assumptions and inferences as eminently reasonable, we must
recognize the potential for imprecision. Such is the hazard of rate-
setting based upon theoretical market replication. The methodologies
advanced by the parties involve, we believe, less reasonable
assumptions and inferences. We do not here advance a perfect
methodology (none exists), merely the most reasonable and least
assailable based upon the record before us.
Id. at 38 (citation omitted).
V. The Librarian's Scope of Review
The Librarian of Congress has, in previous proceedings, discussed
his scope of review of CARP reports. See, e.g., 63 FR 25394 (May 8,
1998); 62 FR 55742 (October 28, 1997); 62 FR 6558 (February 12, 1997);
61 FR 55653 (October 26, 1996). The scope of review adopted by the
Librarian in these proceedings has been narrow: the Librarian will not
reject the determination of a CARP unless its decision falls outside
the ``zone of reasonableness'' that had been used by the courts to
review decisions of the CRT. Recently, the U.S. Court of Appeals for
the District of Columbia Circuit issued its first decision reviewing a
decision of the Librarian under the CARP process, and articulated its
standard of judicial review for the Librarian's CARP decisions.
National Ass'n of Broadcasters v. Librarian of Congress, 146 F.3d 907
(D.C. Cir. 1998) (NAB). The court's determination is the pronouncement
on the judicial standard of review in CARP proceedings, and warrants a
consideration by the Register and the Librarian as to what effect, if
any, the decision has on their review of a CARP decision.
NAB involved distribution of cable royalties for the 1990-1992
period. In that proceeding, the Librarian adopted the determination of
the CARP, with some modifications, and explained why the CARP did not
act in an arbitrary manner, or contrary to the provisions of the
Copyright Act, that would have required a rejection of its report. The
court reviewed the Librarian's decision in accordance with 17 U.S.C.
802(g), which provides that the court may only modify or vacate the
Librarian's decision if it finds that he ``acted in an arbitrary
manner.'' The court undertook a discussion of how its review of the
Librarian's decision under the section 802(g) arbitrary standard was
different from its review of CRT determinations under the arbitrary
standard set forth in chapter 7 of title 5 of the United States Code
(i.e., the Administrative Procedure Act).
After a lengthy discussion of its prior review of CRT
determinations, and the amendments made to title 17 by the Copyright
Royalty Tribunal Reform Act of 1993 which eliminated the CRT and
replaced it with the CARP system, the court determined that Congress
did intend to change the scope of judicial review of the Librarian's
CARP decisions:
We conclude that our review of the Librarian's distribution
decision under subsection 802(g) is significantly more circumscribed
than the review we made of the Tribunal decisions under section 810.
As a result, in applying the ``arbitrary manner'' standard set forth
in subsection 802(g), we will set aside a royalty award only if we
determine that the evidence before the Librarian compels a
substantially different award. We will uphold a royalty award if the
Librarian has offered a facially plausible explanation for it in
terms of the record evidence. While the standard is an exceptionally
deferential one, we think it is most consistent with the intent of
the Congress as reflected in the language, structure and history of
the 1993 Act.
146 F.3d at 918.
Quite naturally, the principal focus of the NAB decision is on the
court's review of the Librarian's decision, not the Librarian's review
of the CARP determination. The court did state, however, that the word
``arbitrary'' that appears in section 802(f) of the Copyright Act
(which gives the court its review authority), and the word
``arbitrary'' that appears in section 802(g) (which gives the Librarian
his review authority) are ``not coextensive.'' Id. at 923. The court
further noted that the difference ``is not a surprising administrative
arrangement given the bifurcated review of royalty awards (first by the
Librarian and then by this Court) and the deference to be accorded the
Register's and the Librarian's expertise in royalty distribution.'' Id.
But the court did not say how exacting the review of the CARP report by
the Librarian and the Register should be.
Although the NAB court does not elucidate the standard of review to
be applied by the Librarian and the Register, it does imply a
difference between that review and the court's. If the Librarian's CARP
decisions are entitled to an unusually wide level of deference, then
his level of scrutiny of a CARP's decision must be higher than that
which the court will apply to his decision.
The Register and the Librarian do not interpret the court's
statements to mean that they must engage in a highly exacting review.
The court did acknowledge that the CARP, not the Register or the
Librarian, is the fact-finder in CARP proceedings and ``is in the best
position to weigh evidence and gauge credibility.'' Id. at 923, n.13.
Moreover, the court stated that the Librarian would act arbitrarily if
``without explanation or adjustment, he adopted an award proposed by
the Panel that was not supported by any evidence or that was based on
evidence which could not reasonably be interpreted to support the
award.'' Id. at 923. It must be remembered that section 802(f) provides
that the Librarian shall adopt a CARP's determination unless he finds
that it acted arbitrarily or contrary to the Copyright Act.
The Register and the Librarian conclude that their scope of review
as announced in prior decisions remains an appropriate standard. That
is, the Register and the Librarian will review the decision of a CARP
under the same ``arbitrary'' standard used by the courts to review
decisions of the CRT. If the CARP determination falls within the ``zone
of reasonableness,'' the Librarian will not disturb it. See National
Cable Television Ass'n v. Copyright Royalty Tribunal, 724 F.2d 176, 182
(D.C. Cir. 1983) (NCTA v. CRT). It necessarily follows that even when
the Register and the Librarian would have reached conclusions different
from the conclusions reached by the CARP, nevertheless they will not
disturb the CARP's determination unless they conclude that it was
arbitrary or contrary to law. This standard is higher than the court's
review announced in NAB, yet is consistent with the provisions of
section 802(f).
VI. Review of the CARP Report
Section 251.55(a) of the Library's rules provides that ``[a]ny
party to the proceeding may file with the Librarian of Congress a
petition to modify or set aside the determination of a Copyright
Arbitration Royalty Panel within 14 days of the Librarian's receipt of
the panel's report of its determination.'' 37 CFR 251.55(a). Replies to
petitions to modify are due 14 days after the filing of the petitions.
37 CFR 251.55(b).
The following parties filed petitions to modify: ASCAP, BMI, Public
Broadcasters, and SESAC, Inc. (``SESAC''). Replies were filed by ASCAP,
BMI, Public Broadcasters, and SESAC.
ASCAP, BMI, and Public Broadcasters all attack the Panel's adopted
methodology as arbitrary and contrary to law, and each urges the
Librarian to substitute his determination based upon that party's
respective rate proposals.
[[Page 49829]]
SESAC filed a petition to modify for the limited purpose of
challenging a certain statement made by the Panel in a footnote of its
report regarding music use by Public Broadcasters.6
---------------------------------------------------------------------------
\6\ SESAC objects to footnote 10 on page 6 of the Panel's report
wherein the Panel states that ``[t]he repertory of the third
performing rights organization, SESAC, not a party to this
proceeding, comprises only about one-half of one percent of PBS's
music use.'' The task of the Register and the Librarian in CARP
proceedings is to review CARP decisions, not to make corrections or
modifications to statements made by the Panel at the behest of
nonparties. However, the Register and the Librarian note that the
Panel's statement regarding the music share of SESAC, a nonparty, is
patently obiter dicta, and has no precedential value in this
proceeding or future section 118 proceedings. The better practice in
future proceedings would be for the CARP to avoid making statements
that might be interpreted as affecting the rights or status of a
nonparty. The Register notes that the parties to this proceeding
expressly did not object to SESAC's petition to modify.
---------------------------------------------------------------------------
VII. Review and Recommendation of the Register of Copyrights
As discussed above, the parties to this proceeding submitted
petitions to the Librarian to modify the Panel's determination based on
their assertions that the Panel acted arbitrarily or contrary to the
applicable provisions of the Copyright Act. These petitions have
assisted the Register in identifying what evidence and issues in this
proceeding require scrutiny. The law gives the Register the
responsibility to make recommendations to the Librarian regarding the
Panel's determination, 17 U.S.C. 802(f); and in doing so, she must
conduct a thorough review.
Prior to reviewing the Panel's report and the parties' objections,
the Register makes two important observations. First, the Register's
review is confined to what the Panel did, not what it could have done.
As described above, ASCAP, BMI, and the Public Broadcasters each
proposed their own methodology-- their own mathematical formula--for
calculating the appropriate annual royalty fees for the 1998-2002
period. The Panel, however, adopted its own methodology. It is this
methodology that the Register will review to determine whether it is
arbitrary or contrary to law as provided by section 802(f) of the
Copyright Act. The Register will not consider what the Panel could have
done or what a party asserts it should have done, even if, had she
heard this proceeding in the first instance, she would have chosen
another methodology. Only if the Register determines that the Panel's
methodology is, in whole or in part, arbitrary or contrary to the
Copyright Act will she recommend another methodology. If one or more
aspects of the Panel's methodology is flawed, yet the methodology as a
whole withstands scrutiny, then the Register will recommend changes so
that the Panel's approach conforms with section 802(f). If, and only
if, the Panel's methodology is fundamentally flawed will the Register
recommend that the Librarian reject the Panel's approach in its
entirety and adopt a different methodology for fixing the section 118
royalty fees. See 63 FR 25398-99 (May 8, 1998).
Second, the Register embraces the proposition that rate adjustment
proceedings are not precise applications of mathematical formulas which
yield the ``right'' answer. The Panel acknowledged this by observing
that its methodology is not perfect, but is ``merely the most
reasonable and least assailable based upon the record.'' Report at 38.
The courts have also acknowledged that rate adjustments in the
compulsory license setting involve estimates and approximations. See
NCTA v. CRT, 724 F.2d at 182 (``The Tribunal's work * * * necessarily
involves estimates and approximations. There has never been any
pretense that the CRT's rulings rest on precise mathematical
calculations; it suffices that they lie within the `zone of
reasonableness.' ''). Therefore, in reviewing the various aspects of
the Panel's selected methodology in this proceeding, and as a whole,
the Register will not recommend rejecting the Panel's conclusions
unless they draw no support from the record and are based upon
irrational estimates or approximations.
A. Objections of ASCAP and BMI
ASCAP and BMI raise numerous objections to the Panel's
methodologies and recommend that the Librarian adopt their respective
approaches as the means of assessing fees in this proceeding. Because
several of ASCAP's and BMI's objections overlap, they are addressed
here in a single section.
1. The 1978 CRT fee was not a fair market value fee. The Panel
accepted the CRT's $1.25 million fee as representing the fair market
value of ASCAP music in 1978. BMI disputes this and offers several
reasons why it considers the 1978 fee not representative of fair market
value. First, BMI notes that the approach advocated by ASCAP to the CRT
in 1978 took the rates paid by commercial broadcasters and discounted
them by a range of 20% to 50%. This, in BMI's opinion, demonstrates
that ASCAP was offering Public Broadcasters a subsidy. BMI Petition to
Modify at 22. Second, BMI notes that representatives of ASCAP stated in
an article appearing after the 1978 decision that they wanted to give
Public Broadcasters a discount for the first 1978-1982 licensing
period. Id.
Third, BMI notes that the CRT stated that it did ``not intend that
the adoption of [the $1.25 million fee] should preclude active
consideration of alternative approaches in a future proceeding.'' Id.
at 23 (quoting 43 FR 25069). BMI suggests that this statement is
evidence that the CRT considered its fee to be ``experimental,'' and,
therefore, not fair market value. Id. at 23-24.
BMI submits that the Panel should have engaged in its own
independent analysis of whether the 1978 fee represented fair market
value before accepting the CRT figure. Failure to do so is, in BMI's
view, arbitrary action. BMI asserts that it would have submitted
information to the Panel on the inappropriateness of using the 1978 fee
as a benchmark, if it had known that the Panel would reject BMI's
methodology in favor of using the 1978 fee. BMI, therefore, charges
that it was denied the opportunity to rebut use of the 1978 fee,
particularly since it was not a party to the 1978 proceeding.
Recommendation of the Register
The Panel did not act arbitrarily in accepting the 1978 CRT fee as
the fair market value of ASCAP music for that period. The CRT plainly
acknowledged in 1978 that it was required to adopt a royalty fee that
represented the ``fair value'' of ASCAP music, and stated that the
$1.25 million fee was a ``reasonable'' fee that accomplished that task.
43 FR 25068 (June 8, 1978). The anecdotal evidence offered by BMI as to
ASCAP's intentions in 1978 is far from conclusive proof that the 1978
fee was not fair market value, and was in fact a subsidy for Public
Broadcasters. Furthermore, the Register is not persuaded that the CRT's
statement that its fee did not ``preclude active consideration of
alternative approaches in a future proceeding'' is evidence that the
CRT was adopting a fee less than fair market value. Rather, the CRT
seemed to be stating that there may, in the future, be better ways to
calculate fair market value, but the fee adopted by the CRT was
nevertheless the most representative of fair market value for that
proceeding.
Concluding that the CRT's fee was not the fair market value of
ASCAP music in 1978, or insisting that the Panel should have conducted
its own study as to what was the fair market value of ASCAP music in
1978, would be dangerous precedent. Such an approach would encourage
collateral attack on all previous decisions of the CRT and the CARPs.
No future CARP could rely on
[[Page 49830]]
the determination of this Panel or any other in attempting to reach its
fair market value assessment under section 118. This is not to say that
a prior decision of the CRT or CARP cannot be questioned by future
parties and, if clearly demonstrated to be in error, rejected by a
CARP. Nor should a future CARP ever be required to base its evaluation
of ``fair market value'' on a previous determination of fair market
value by the CRT or a previous CARP. But the Register does not
recommend declaring, based on unconvincing evidence, that this Panel
acted arbitrarily in accepting the CRT's 1978 fee.
The Register is also not persuaded that BMI has been denied an
opportunity to challenge the validity of the 1978 CRT fee. It is true
that BMI did not know, until the Panel released its decision, that the
Panel would use the 1978 fee as a basis for adopting its current fee.
However, that will virtually always be the case in a rate adjustment
proceeding or distribution proceeding when a CARP utilizes its own
methodology as opposed to one offered by the parties. The Register will
not reject the methodology of a Panel simply because the parties were
not presented with the opportunity, during the hearing phase, to
criticize and attack the Panel's chosen methodology. To do otherwise
would effectively preclude a Panel from adopting a methodology other
than one proposed by the parties.
Furthermore, the 1978 fee was very much a part of the record in
this proceeding. The existence of the fee and the CRT decision adopting
it were recognized and acknowledged by all parties to this proceeding,
including BMI. ASCAP used the 1978 fee in its alternative methodology
to verify the accuracy of its primary methodology. That BMI did not
mount a serious evidentiary challenge to the accuracy of the fee is not
due to lack of opportunity.
2. The Panel incorrectly used Public Broadcasters' 1978 revenues,
rather than their 1976 revenues. Both ASCAP and BMI make this
accusation. In order to ``trend forward'' from the $1.25 million 1978
ASCAP award, the Panel began with Public Broadcasters' 1978 annual
revenues (the Panel's equation is fair market value in 1978 divided by
1978 Public Broadcaster revenues, or $1.25 million/$552.325 million).
Report at 26. ASCAP and BMI assert that use of Public Broadcasters'
1978 revenues is flawed because the CRT did not have these revenue
figures when it calculated the $1.25 million fee. Rather, the most
recent figure available to the CRT was Public Broadcasters' 1976
revenues, which were $412.2 million. ASCAP notes that because the Panel
used 1978 revenues instead of 1976 revenues, the effective rate of the
1978 rate is reduced, thereby devaluing the CRT's 1978 determination.
The effective rate of the 1978 CRT decision is, according to ASCAP,
expressed as a percentage relative to Public Broadcasters' revenues.
ASCAP Petition to Modify at 6. The $1.25 million fee divided by $412.2
million (the 1976 revenues) yields an effective rate of .303% of
revenues. According to ASCAP, this means that the CRT in 1978 intended
to give ASCAP a fee that represented .303% of Public Broadcasters' most
recently known revenues (i.e., the 1976 revenues). By using the 1978
revenues, the Panel reduced the effective rate to .22% ($1.25 million
divided by $552.325 million), which is not what the CRT intended to
award. Both ASCAP and BMI assert that the Panel should have used the
1976 revenues and ``trended forward'' from there in order to maintain
the effective rate of the CRT decision.
BMI asserts that there is another reason for using the 1976 data.
As was the case for the CRT, the Panel used data to set a royalty fee
beginning in 1998 that was only as recent as 1996.7 The
Panel's methodology takes account of only an 18-year period, 1978-1996.
BMI submits that the Panel should have taken account of a 20-year
period, 1976-1996, in order to obtain a more accurate trend and to make
up for the lack of data for 1997 and 1998. BMI Petition to Modify at
28.
---------------------------------------------------------------------------
\7\ At the time of filing of written direct cases in this
proceeding, ASCAP and BMI had data of Public Broadcasters' revenues
only up to 1995. However, Public Broadcasters introduced their 1996
revenues as part of their case. See Public Broadcasters Direct
Exhibit 4.
---------------------------------------------------------------------------
Recommendation of the Register
The Register determines that the Panel did not err in using Public
Broadcasters' 1978 revenues, as opposed to 1976 revenues, as the basis
of its trending methodology. If it could be conclusively demonstrated
that the CRT used Public Broadcasters' revenues as the means of
fashioning the $1.25 million 1976 fee, ASCAP and BMI's argument would
be more persuasive. That is not, however, the case. Although the CRT
``examined a number of formulas,'' it concluded ``there is no one
formula that provides the ideal solution, especially when the
determination must be made within the framework of a statutory
compulsory license.'' 43 FR 25069 (June 8, 1978). Although the CRT had
Public Broadcasters' 1976 revenues before it, it is unclear what, if
any, use it made of the data. The CRT said nothing about the $1.25
million fee representing a .303% effective rate of Public Broadcasters'
revenues, nor is there any indication in the 1978 decision that the CRT
was attempting to establish a fixed effective rate. ASCAP's argument
presumes that the CRT did use a mathematical formula in adopting a fee,
even though the decision suggests the contrary.
What is clear is that the CRT determined that the $1.25 million fee
was the fair market value of ASCAP music in 1978, even if it did use
data from 1976. Id. The Panel reached the same conclusion by stating
that ``the blanket license fee set by the CRT in 1978, for use of the
ASCAP repertory by Public Broadcasters, reflects the fair market value
of that license as of 1978.'' Report at 25 (emphasis added). If $1.25
million represented fair market value in 1978, then it was reasonable
for the Panel to begin its analysis using Public Broadcasters' revenues
from that same year, whether or not the CRT had access to such data.
The Panel stated that it felt ``comfortable'' doing this because Dr.
Adam Jaffe, Public Broadcasters' economic expert, had taken a similar
approach in a different context. Report at 31 (Dr. Jaffe's formula used
the 1992-1997 voluntary agreements with ASCAP and adjusted for changed
circumstances from 1992, even though the parties presumably negotiated
the 1992 agreement using only 1991 data). The Register sees nothing in
the record that indicates it was arbitrary to take this approach.
BMI's argument that the Panel should have considered changes in
revenues over a 20-year period, rather than 18 years, to account for
the lack of information for 1998 Public Broadcasters' revenues, also
has no merit. It will probably always be the case in a section 118
proceeding that data regarding revenues will not be completely current.
Use of the Public Broadcasters' 1998 revenues, or 1997 revenues for
that matter, would yield a fair market value fee that might be even
more accurate than the Panel's. However, that data was simply
unavailable. The Panel could have considered a 20-year period as a
rough means of adjusting for lack of 1998 data. The fact that it did
not do so was not arbitrary.8
---------------------------------------------------------------------------
\8\ Furthermore, the Register questions the perceived accuracy
of starting with 1976 data as a means of compensating for lack of
1998 data. The only thing this approach guarantees is a larger fee
since it is known that Public Broadcasters' revenues were less in
1976 than they were in 1978.
---------------------------------------------------------------------------
3. The Panel did not provide for fee adjustments during the 1998-
2002 period. ASCAP argues that it was
[[Page 49831]]
arbitrary for the Panel not to provide for interim adjustments to the
ASCAP fee for each year of the 1998-2002 license period. ASCAP notes
that the CRT provided for annual adjustments for inflation through use
of the Consumer Price Index (``CPI'') in its 1978 decision, and that
the Panel should have, at a minimum, provided for similar adjustments.
As an alternative to using the CPI, ASCAP recommends that the effective
rate of the CRT's 1978 decision (.303% of Public Broadcasters' 1976
revenues) be applied to Public Broadcasters' revenues for each year of
the 1998-2002 period to determine an annual fee.
Recommendation of the Register
The Panel considered whether to provide cost-of-living adjustments
and expressly decided not to do so, concluding that ``[g]iven the
inherent vagaries and imprecision of estimating fair market value in an
imaginary marketplace, we are comfortable concluding that the rate
yielded for 1996 reasonably approximates a fair market rate for the
entire statutory period.'' Report at 31.
The Register cannot say that the Panel's conclusion was arbitrary.
The Panel recognized that the methodology it used to set the fees was
based on ``several assumptions and inferences'' which, although
``eminently reasonable'' created a ``potential for imprecision. Such is
the hazard of rate-setting based upon theoretical market replication.''
Report at 38 (citing NAB, 146 F.3d at 932). The Panel admitted that it
was not ``advanc[ing] a perfect methodology (none exists), merely the
most reasonable and least assailable based upon the record before us.''
Id.
The Panel also observed that the 1996 Public Broadcasters' revenue
figures that it used in determining the fee may have been somewhat
overstated due to changes in accounting procedures. Id. at 30. Based on
this finding and the CARP's determination that use of revenues account
for inflationary changes (id. at 28), the Register cannot say that the
Panel was arbitrary or unreasonable in deciding not to provide for
annual adjustments. In fact, the Panel's assessment that the 1996
revenue figures may have been an overstatement only supports its
conclusion that no annual adjustment was necessary.
Certainly, the Panel could have required annual adjustments of
ASCAP's fee based on annual changes in Public Broadcasters' revenues,
as ASCAP now requests. But it was not required to do so, given the
absence of record evidence compelling such a result.
4. The Panel arbitrarily excluded Public Broadcasters' ancillary
revenues from their calculation. ASCAP asserts that the Panel excluded
without explanation $122 million in ``ancillary'' revenues earned by
the Public Broadcasters in 1996. ``Ancillary'' revenues, according to
ASCAP, are comprised largely of the sale of public broadcasting
merchandise such as videos, audiotapes, toys and books. ASCAP submits
that ancillary revenues must be included in the Panel's calculation
because the Panel acknowledged that gross revenues of Public
Broadcasters were the best indication of their ability to pay.
According to ASCAP, Public Broadcasters' 1996 revenues should be
$2,077,776,000, instead of the $1,955,726,000 figure used by the Panel.
ASCAP Petition to Modify at 9.
Recommendation of the Register
In discussing what comprised the Panel's determination of Public
Broadcasters' 1996 revenues, the Panel stated that they were excluding
``all `off balance sheet income' such as revenues derived from
merchandising, licensing, and studio leasing.'' Report at 30 (citing
ASCAP Direct Exhibit 301 and ASCAP's Proposed Findings of Fact and
Conclusions of Law (PFFCL)). While a specific explanation for exclusion
of such income would be desirable, the Register does not find the Panel
acted arbitrarily. First, the Register does not agree with ASCAP's
conclusion that the Panel was setting Public Broadcasters' 1996
revenues as gross revenues from all sources. The Panel stated that it
was using Public Broadcasters' total revenues, and cited CPB's fiscal
year 1996 report for that figure. Report at 26. As ASCAP acknowledges,
CPB does not include ancillary income in its calculation of annual
revenues. ASCAP PFFCL at 39, para. 94. The total revenues figure,
therefore, expressly did not include ancillary income.
Second, the Register concludes that it was reasonable for the Panel
to exclude ancillary income. Merchandising of toys, tapes and books,
and leasing studio facilities to others, are not part of the business
of broadcasting music on public broadcasting stations. CPB apparently
acknowledges this point as well, excluding ancillary income from its
report of Public Broadcasters' revenues because ancillary income does
not form a basis for awarding grants to Public Broadcasters. Id. ASCAP
has failed to demonstrate that Public Broadcasters' activities such as
selling books and toys are so closely tied to broadcasting activities
that their revenues must be included in broadcast revenues. See
Transcript (Tr.) at 1722 (Boyle)(stating that off balance sheet items
``may or may not be relevant'' in calculating Public Broadcasters'
revenues).
5. The Panel arbitrarily concluded that overall music use remained
static since 1978. Both ASCAP and BMI argue that it was arbitrary for
the Panel to conclude that overall music use remained relatively
constant from 1978 to 1996, given the fact that there was no reliable
music use data available until 1992. ASCAP asserts that ``[i]f there is
no evidence to support an adjustment, the adjustment cannot be made, no
matter how relevant it might be.'' ASCAP Petition to Modify at 14. Both
ASCAP and BMI submit that the record, in fact, belies static music use,
noting that there are many more public broadcasting stations, and
consequently more programs broadcast, since 1976 and that the total
volume of music use must therefore have increased substantially. BMI
goes on to state that the record supports that, since 1992, use of BMI
music has increased an average of 10% on public broadcasting stations,
and that the Panel should have factored this into its analysis and
awarded BMI a greater fee.
Recommendation of the Register
As described above, the Panel's methodology ``trends forward'' the
CRT's 1978 fee and adjusts for changes in the relative shares of ASCAP
and BMI music used by Public Broadcasters since 1978. The Panel did,
however, consider whether any change to the methodology was required to
account for changes in overall music usage since 1978. Evaluating the
scant evidence on the subject, the Panel concluded:
We find the music analyses presented by Public Broadcasters to
be the most comprehensive and reliable. No credible data is
available with respect to any trend in overall music usage by Public
Broadcasters since 1978. However, we accept Public Broadcasters'
conclusion that overall music usage has remained constant in recent
years. Given the dearth of empirical, or even anecdotal, evidence to
the contrary, it is reasonable to presume that overall music usage
by Public Broadcasters has remained substantially constant since
1978. See ASCAP PFFCL 152 (``[T]here is no evidence in the record
that total music use on the [Public Television and Public Radio]
Stations has changed significantly since 1978.'')
Report at 31-32 (citations omitted).
BMI and ASCAP attack the Panel's conclusion regarding music use,
arguing, in essence, that the Panel is forbidden from fact-finding in
the absence of thoroughly comprehensive
[[Page 49832]]
record evidence. The Register cannot accept ASCAP and BMI's argument in
this instance. There is no question that record evidence of music use
prior to 1992 would place the Panel's conclusion on firmer ground.
Complete and comprehensive evidence will always increase the accuracy
of CARP decisions, but it is often such evidence does not exist, or is
not presented in a CARP proceeding. See, e.g., 62 FR 55757 (October 28,
1997) (rejecting satellite carriers' argument that Panel decision must
be rejected because satellite carriers had no access to evidence to
rebut copyright owners' contentions). The Register believes that it is
acceptable, given the inherent lack of precision of these proceedings,
for a Panel to make reasonable inferences based on an examination of
the best evidence available. The Panel's inference regarding music use
satisfies this requirement.
In drawing its inference, the Panel examined the best evidence it
had available to it: the music use analyses of the parties from 1992-
1996. The Panel adopted Public Broadcasters' analysis as the ``most
comprehensive and reliable.'' Report at 31. The Panel concluded that
Public Broadcasters' analysis demonstrated that overall music use in
recent years has remained relatively constant. The Register has no
grounds to question this finding. See, 61 FR 55663 (October 28, 1996)
(``the Librarian will not second guess a CARP's balance and
consideration of the evidence, unless its decision runs completely
counter to the evidence presented to it.'') Given that music use was
static for a period of five years, the Panel reasonably inferred that
this trend was predictive of music use from 1978 to 1991. The inference
was backed by ASCAP's statement in its proposed findings that ``there
is no evidence in the record that total music use on the Stations has
changed significantly since 1978. Nor is there any evidence in the
record that the Stations' broadcasts of ASCAP music over the same
period have changed significantly either in quality or quantity.''
ASCAP PFFCL at 152, para.32. The five-year period, coupled with ASCAP's
statement, provide sufficient support for the Panel's presumption
regarding music use.
Moreover, the Register does not find that ASCAP's and BMI's
assertions regarding the increase in the number of public broadcasting
stations and programs broadcast require rejection of the Panel's
inference. Both ASCAP and BMI presume that there is a direct
correlation between number of stations and broadcast hours and the
amount of music used. This certainly is a reasonable conclusion, but it
is not a necessary one. It could, for example, be the case that public
broadcasting stations prior to 1992 used far greater amounts of music
than do public broadcasting stations today. Public Broadcasters'
evidence tends to support that conclusion. See Public Broadcasters
PFFCL at 50-51, Paras. 112-113. In sum, the Register will not, in the
absence of concrete evidence to the contrary, allow an inference drawn
by a party to trump an inference drawn by a Panel.9
---------------------------------------------------------------------------
\9\ Given that the Register accepts the Panel's determination
that music use has not increased, the Register rejects BMI's request
for an adjustment to account for a ten percent increase in its music
use.
---------------------------------------------------------------------------
6. The Panel's dependence on music share is irrelevant and
unsupported by section 118. ASCAP submits that section 118
uncontrovertedly provides that copyright owners of music are entitled
to compensation for use of their music by Public Broadcasters. The
Panel's reliance on music share as opposed to music use, ASCAP insists,
is irrelevant because music share does not necessarily have any
correlation to music use. Further, ASCAP submits that reliance on music
share is contrary to section 118 because music share presumes that
ASCAP and BMI music is interchangeable, whereas section 118 requires
establishing separate royalty fees for both catalogues of music.
Recommendation of the Register
The Register determines that the Panel's use of music shares to
adjust for the amount of ASCAP and BMI music used on public
broadcasting stations since 1978 is not contrary to section 118. The
Panel addressed ASCAP's contention that its methodology was contrary to
section 118 when it stated:
[B]oth ASCAP and BMI argue that the type of methodology we
advance here is impermissible, as a matter of law, because Section
118 requires that separate fees be set for ASCAP and BMI that are
based upon separate evaluations of their respective licenses. The
legislative history behind Section 118, they argue, proscribes any
methodology that yields a combined fee, after which the combined fee
is divided between ASCAP and BMI. The Panel finds no support
whatever for this position in the legislative history of Section
118, the express language of the statute itself, or in the 1978 CRT
decision cited by ASCAP. It is undisputed that the statute requires
the Panel to set separate rates for ASCAP and BMI but that is an
obligation wholly distinct from the methodology we employ to
determine those fees.
Report at 35-36 (footnotes omitted) (citations omitted). The Register
agrees.
The Register also concludes that the Panel's use of music shares is
not arbitrary. The Panel used music shares to gauge changed
circumstances since 1978, determining that the amount of ASCAP music,
relative to BMI music, had declined from 1978. This is wholly
consistent with the Panel's adopted methodology, and is one of the
mechanisms necessary to that analysis to account for changed
circumstances.
7. There is insufficient record evidence to support the Panel's
inferential findings regarding music share. ASCAP and BMI argue that,
assuming music share is relevant to the Panel's methodology, the
absence of evidence for music shares prior to 1992 prevented the Panel
from inferring the shares of ASCAP and BMI music on public broadcasting
in 1978.
Recommendation of the Register
For the reasons stated in A5, supra, the Register will not question
a reasonable inference of the Panel provided that it draws support from
the existing record. The Panel determined that the ratio of ASCAP to
BMI music in 1978 was in the range of 80/20 to 83/17. Report at 32. The
Panel based this determination on the fact that, since 1981, both ASCAP
and BMI negotiated fees that consistently reflected that share of
music. The Panel stated that ``we are persuaded that the consistent
division of fees reflects the parties' perception of respective music
use shares, as confirmed by data available to each party.'' Id. at 33.
The Panel also presumed music shares from 1978 to 1981 were at the
same ratio, in the absence of evidence to the contrary. The Panel
reasoned that this presumption was corroborated by the fact that the
CRT, in awarding ASCAP a $1.25 million fee in 1978, was aware that BMI
had negotiated a $250,000 fee. The Panel also relied on the fact that
ASCAP itself used 1990 music use data as a proxy for 1978 data. See
ASCAP PFFCL at 116, para.266, n.6 (``Because reliable music use data
were not available for 1978, ASCAP relied on music use data starting
from 1990, the first ASCAP distribution survey year for which detailed
information was readily retrievable. Thus, the trended fee assumes that
music use on Stations did not change substantially from 1978 to 1990
(and there is no evidence in the record to contradict that
assumption.'')). The Register determines that these pieces of record
evidence support the reasonableness of the Panel's presumptions
regarding music share in 1978.
ASCAP also argues that the Panel's split of approximately 80/20 is
inaccurate because the Panel mistakenly assumed that ASCAP relied upon
its music share as a basis for negotiating its
[[Page 49833]]
fee in 1982, 1987 and 1992, when in fact it did not. The record appears
far from clear on this point, particularly since Public Broadcasters
submit that music share was important to them in negotiating the
licenses. See Tr. at 2619-21 (Jameson). It is clear that BMI used its
relative music share in negotiating its licenses with Public
Broadcasters. See, Tr. at 3389 (Berenson). In any event, the Register
agrees with the Panel that it was the parties' perceptions as to their
music shares during their negotiations that is relevant:
It is important to note that whether the music use shares we
have adopted are actually accurate is not critical to our analysis
so long as the parties perceived them to be accurate at the time
they negotiated the agreements. As we have repeatedly expressed
herein, our task is to attempt to replicate the results of
theoretical negotiations. If the parties were to use the 1978
license fee as a benchmark, we have no doubt that the resulting fees
from such negotiations would reflect the parties' perceived change
in ASCAP's music share since 1978, just as they would reflect the
parties' perceived change in Public Broadcasters' total revenues.
Report at 34.
8. It was arbitrary for the Panel to infer music share on public
radio when no evidence of music use on public radio was presented.
ASCAP faults the Panel's use of music share on public television as a
proxy for music share on public radio. ASCAP argues that the Panel's
citation to the negotiated licenses' historical use of television music
use data as a proxy for radio is inappropriate because the Panel
determined that those agreements are not representative of fair market
value. Further, ASCAP submits that there was no probative evidence
adduced that ASCAP ever acquiesced to the use of television data as a
proxy for radio data. ASCAP Petition to Modify at 19.
Recommendation of the Register
The Register determines that the Panel's use of television data as
a proxy for radio data is not arbitrary. The Panel's statement that
Public Broadcasters and ASCAP and BMI used television music data as a
proxy for radio data (since no party keeps track of music usage on
public radio) was based on the testimony of Paula Jameson, Public
Broadcasters' then general counsel, who participated in the fee
negotiations. Tr. at 2621-23 (Jameson). Although ASCAP asserts that
there is testimony to the contrary, the Register will not disturb the
Panel's evaluation of testimony in the absence of compelling grounds to
do so. See, NAB, 146 F.3d at 923, n.13 (``The Panel, as the initial
factfinder, is in the best position to weigh evidence and gauge
credibility'').
9. The Panel made an arbitrary assumption that Public Broadcasters
should pay the same rate of revenue now as they did in 1978 despite
their increased commercialization. BMI charges the Panel with failure
to include an adjustment in its methodology to account for Public
Broadcasters' increased commercialization. BMI notes that the Panel did
recognize the increased commercialization, and acknowledged that such
commercialization might justify the need to narrow the divergence
between fees paid by Public Broadcasters and commercial broadcasters,
but then did not do anything about it. BMI submits that using Public
Broadcasters' private revenues since 1978, as opposed to total
revenues, ``is a reasonable way to take into account the increased
commercialization of public broadcasting in setting a rate based on the
1978 CRT fee.'' BMI Petition to Modify at 37.
Recommendation of the Register
While the Panel did observe that Public Broadcasters have become
more commercialized in recent years, and that such a convergence
between public and commercial broadcasting ``may'' justify a narrowing
of the gap between the fees paid by Public Broadcasters and commercial
broadcasters, that observation does not compel an adjustment to the
Panel's methodology. The Panel also concluded that significant
differences between Public Broadcasters and commercial broadcasters
remain. See Report at 24 (``Though corporate underwriting may
superficially resemble advertising * * *, the relevant economics are
quite different''). Indeed, these differences specifically led the
Panel to reject commercial fees as the benchmark for setting Public
Broadcasters' fees. Id.
Moreover, the Panel expressly rejected the use of private revenues
in its methodology as the means of accounting for increased Public
Broadcasters' commercialization:
[W]hen performing a trending analysis based upon the 1978 Public
Broadcasters' rates, there is no need to restrict the analysis to
private revenues because the methodology does not employ any data
from the commercial context. In this instance, we need make no
attempt to account for differences in the manner the two industries
raise revenues. We need not massage the methodology to obtain an
`apples to apples' comparison. Accordingly, total revenues,
reflecting the true increase in Public Broadcasters' ability to pay
license fees, is the more appropriate parameter.
Report at 29-30.
There is ample testimony to support the Panel's determination that
the economics of public broadcasting and commercial broadcasting are
quite different. Written rebuttal testimony of Dr. Adam Jaffe at 14-17;
Public Broadcasters Direct Exhibit 4. The Panel was, therefore, not
compelled by the evidence to account for increased commercialization of
Public Broadcasters in adopting their methodology, and it was not
arbitrary to reject the use of private revenues as a means for
adjusting for commercialization.
10. The Librarian should announce that ASCAP and BMI may seek rate
parity with commercial broadcasters in future section 118 proceedings.
BMI submits that, assuming that the Librarian does not choose to adopt
a methodology that bases Public Broadcasters' fee on what commercial
broadcasters pay for music, the Librarian should declare that ``BMI is
free to argue in a future CARP proceeding that Section 118 license fees
should be set on the basis of a comparison to commercial broadcasting,
under the facts and circumstances as they may develop in the future.''
BMI Petition to Modify at 58.
Recommendation of the Register
The task of the Register, and the Librarian, in CARP proceedings is
to review the decision of a CARP panel, not to make pronouncements or
declarations as to the character or nature of future proceedings. The
Register recommends that the Librarian not accept BMI's invitation. The
Register notes, however, that parties to a future section 118
proceeding, or any CARP proceeding for that matter, are free to submit
any and all evidence they deem relevant to the rate adjustment or
royalty distribution, as the case may be.
11. The Panel erred in its allocation of costs among the parties.
ASCAP submits that the Panel erred because it did not follow prior
CARPs' allocation of costs 10 in rate adjustment
proceedings, and did not articulate a reason for its deviation. ASCAP
asserts that the Panel should not have treated PBS and NPR as a single
party for cost purposes, and instead should have equally split costs
between ASCAP and BMI on the one hand, and PBS and NPR on the other.
According to ASCAP, ``[f]airness dictates an equal division of costs,
which is consistent with prior
[[Page 49834]]
precedent and which imposes equal burdens of the proceeding on
copyright owners and users.'' ASCAP Petition to Modify at 30.
---------------------------------------------------------------------------
\10\ ``Allocation of costs'' in a CARP proceeding are the
monthly charges of the arbitrators. The costs of the Copyright
Office and the Librarian are part of their operating budgets, and
are not a part of a CARP's allocation of costs.
---------------------------------------------------------------------------
Recommendation of the Register
Section 802(c) of the Copyright Act provides that ``[i]n ratemaking
proceedings, the parties to the proceedings shall bear the entire cost
thereof in such manner and proportion as the arbitration panels shall
direct.'' 17 U.S.C. 802(c). ASCAP's request raises the question whether
a cost allocation decision of a CARP is reviewable by the Librarian
under section 802(f).
Section 802(f) of the Copyright Act is the source of the
Librarian's review authority of CARP decisions. It provides in
pertinent part that ``[w]ithin 60 days after receiving the report of a
copyright arbitration royalty panel under subsection (e), the Librarian
of Congress, upon the recommendation of the Register of Copyrights,
shall adopt or reject the determination of the arbitration panel.'' 17
U.S.C. 802(f). While the ``determination'' of the Panel is not defined
in subsection (f), subsection (e) describes a CARP delivering ``a
report'' of ``its determination concerning the royalty fee or
distribution of royalty fees, as the case may be.'' 17 U.S.C. 802(e).
It thus appears that the Library's review authority extends only to a
Panel's decision on the merits of a ratemaking or distribution
proceeding--i.e., the actual setting of rates or allocation of
royalties. Is this review authority broad enough to encompass a Panel's
allocation of costs under subsection 802(c)?
The Register concludes that it is not. A plain reading of the
statute limits the Librarian's review to the substance of the
proceeding--the setting of rates or distribution of royalties--
contained in the Panel's report, and does not include allocation of the
arbitrators' costs among the parties to the proceeding. The fact that
the Panel's decision on costs was also contained in its report on the
merits of the proceeding does not change the result. Allocation of
costs has no bearing on the Panel's resolution on the merits of the
proceeding. Furthermore, the Panel in this case could have just as
easily issued a separate order allocating costs, and was not required
to include such a decision in its report to the Librarian. The
Librarian's jurisdiction should not depend on where the CARP announces
its allocation of costs.
Even if the Librarian had authority to review the Panel's
allocation of costs, the Register would not recommend that the
Librarian reject the Panel's allocation of one-third paid by ASCAP,
one-third paid by BMI, and one-third paid by Public Broadcasters. The
statute plainly gives the arbitrators broad discretion in allocating
costs. 18 U.S.C. 802(c) (costs shall be allocated ``in such manner and
proportion as the arbitration panels shall direct''). The Register is
also not persuaded that the language of subsection (c) that requires a
CARP to act on the basis of ``prior copyright arbitration royalty panel
determinations'' applies to allocation of costs. This provision is
directed to ``determinations'' of CARPs--i.e. their decisions as to
rates and royalty distributions.
The Panel concluded, for purposes of cost allocation, that ``ASCAP,
BMI, and Public Broadcasters constitute three separate parties.''
Report at 39. It reached its conclusion based ``on the totality of
circumstances including the 1978 CRT decision, the history of
negotiations between the parties, and the manner in which the parties
proceeded herein.'' Id. The Register believes that the CARP--and not
the Register or the Librarian--is in the best position to evaluate
these factors and apportion the costs. The Register, therefore,
recommends that the Librarian not review or reject the Panel's
allocation of costs.
B. Objections of Public Broadcasters
Public Broadcasters fault the Panel for rejecting use of prior
negotiated agreements as the benchmark for setting ASCAP's and BMI's
fees. In support of this position, Public Broadcasters offer the
following three arguments.
1. The Panel violated section 118 by setting fair market value
rates in the context of hypothetical free marketplace negotiations, as
opposed to within the confines of section 118. Public Broadcasters do
not challenge the Panel's evaluation of the meaning of fair market
value--the price that a willing buyer and willing seller would
negotiate--but they do contest the setting in which the Panel
determined fair market value. The Panel stated:
In the present context, a determination of fair market value
requires the Panel to find the rate that Public Broadcasters would
pay to ASCAP and to BMI for the purchase of their blanket licenses,
for the current statutory period, in a hypothetical free market, in
the absence of the Section 118 compulsory license.
Report at 9-10 (second emphasis added). Public Broadcasters charge that
it was legal error for the Panel to determine fair market value outside
the context of section 118, and that the Panel was required to take
into account the purposes of section 118 in setting rates. Public
Broadcasters Petition to Modify at 9-10 (citing the Librarian's recent
section 114 rate proceeding for the proposition that reasonable rates
are not the same as marketplace rates and that a statutory rate need
not mirror a freely negotiated rate). This ``fundamental error,''
according to Public Broadcasters, incorrectly led the Panel to reject
prior negotiated agreements under section 118 as the benchmark for
setting rates in this proceeding.
Recommendation of the Register
The Register determines that the Panel did not act contrary to
section 118 by seeking to determine what rates the parties would
negotiate in free, open marketplace negotiations, as opposed to within
the context of section 118. Public Broadcasters attempt to create the
notion that there are two kinds of fair market values: one negotiated
in the context of the open marketplace, and another within the
``particularized context of section 118.'' Public Broadcasters Petition
to Modify at 9. The Copyright Act makes no such distinctions. The only
provision for adjusting section 118 rates is contained in section
801(b)(1), which provides that a CARP shall set ``reasonable'' rates
for section 118. Unlike other compulsory licenses, section 118 does not
contain any criteria or prescriptions to be considered in adjusting
rates, other than a direction that a Panel may consider negotiated
agreements. See, e.g., 17 U.S.C. 119(c)(3)(B) (fair market value rates
established with consideration of certain types of evidence); 17 U.S.C.
801(b)(1) (sections 114, 115 and 116 compulsory license rates adjusted
to achieve specified objectives). Moreover, it is difficult to
understand how a license negotiated under the constraints of a
compulsory license, where the licensor has no choice but to license,
could truly reflect ``fair market value.'' The Panel was, therefore,
not required to consider fair market value confined to the context of
section 118.15
---------------------------------------------------------------------------
\15\ If this were the requirement, the only evidence in a
section 118 rate adjustment proceeding presumably would be the
agreements previously negotiated by the parties for the section 118
license. This is, obviously, precisely what the Public Broadcasters
wanted the Panel to consider. However, if fair market value within
the section 118 license were the standard, Congress presumably would
not have provided that a CARP ``may'' consider negotiated
agreements, but rather would have mandated such a consideration. See
17 U.S.C. 118(b)(3).
---------------------------------------------------------------------------
Public Broadcasters' citation to the section 114 rate adjustment
proceeding is also inapposite. Section 801(b)(1) of the Copyright Act
prescribes that section 114 rates are to be adjusted to achieve four
specific objectives. Because
[[Page 49835]]
section 114 rates must be observant of those objectives, they need not
be market rates. See 63 FR 25409 (May 8, 1998). Such is not the case
with section 118.
2. The Panel's erroneous analysis of the no-precedent and
nondisclosure clauses of the voluntary agreements led the Panel
improperly to reject the agreements as the benchmark. Public
Broadcasters argue that the Panel improperly used the no-precedent
clause in the ASCAP agreement, and the nondisclosure clause in the BMI
agreement, as grounds for rejecting the previously negotiated
agreements between ASCAP/BMI and the Public Broadcasters as the
benchmark for adjusting rates in this proceeding. Because Public
Broadcasters assert that fair market value rates must be determined in
the context of section 118 (see supra), Public Broadcasters assert that
the ASCAP no-precedent clause and the BMI nondisclosure clause have no
relevance to the rates the parties would have negotiated; and it was,
therefore, illogical for the Panel to conclude that the existence of
these clauses was evidence that the voluntary agreements understated
fair market value.
Recommendation of the Register
The Register determines that the Panel's analysis of the no-
precedent and nondisclosure clauses of the ASCAP and BMI agreements was
not arbitrary or contrary to the provisions of the Copyright Act.
First, as discussed above, the Register rejects the position that the
Panel was required to set fair market value rates confined to the
context of section 118 negotiations. The Panel was, therefore, not
bound to accept the prior negotiated agreements as the only evidence of
fair market value.
Second, Public Broadcasters misperceive the significance of the no-
precedent and nondisclosure clauses as they affected the Panel's
decision to reject the negotiated agreements as the benchmark for fair
market value. The Panel did not use these clauses as the only evidence
that the negotiated agreements were not representative of fair market
value. Rather, the Panel stated:
The Panel does not here find that the mere existence of a no-
precedent clause renders prior agreements unacceptable as benchmarks
per se. Rather, after considering the totality of the circumstances,
we find the no-precedent clause effectively corroborates ASCAP's
assertion that it voluntarily subsidized Public Broadcasters in the
past and now declines to continue such subsidization.
Report at 22 (footnote omitted). The record contains other evidence to
support ASCAP's contention that the negotiated agreements were a
subsidization to Public Broadcasters. See ASCAP's PFFCL at 126-130,
Paras. 287-297. Because the Panel's rejection of prior agreements with
ASCAP is supported by the evidence, the Register cannot disturb it.
The same can be said for BMI's nondisclosure clause. The Panel
found that the presence of the clause in the negotiated agreements was
to prevent use of below-market rates as a benchmark for setting future
rates, and that ``[n]o other plausible explanation has been offered by
Public Broadcasters'' as to the existence of the clause. The record
also contains evidence, aside from the nondisclosure clause, that
supports the conclusion that BMI considered the negotiated license to
contain below market rates. See BMI PFFCL at 67-73, Paras. 183-194. The
Panel's determination is, therefore, neither arbitrary nor contrary to
the statute.
3. The Panel improperly relied upon the disparity between the rates
paid by public broadcasters and commercial broadcasters for ASCAP and
BMI music as evidence that the voluntary agreements represented a
subsidy to Public Broadcasters. As further evidence that ASCAP and BMI
had been voluntarily subsidizing Public Broadcasters in the negotiated
agreements, the Panel cited the magnitude of the fee disparity that
existed between public and commercial broadcasters. Public Broadcasters
assert that the fact that commercial broadcasters pay considerably
higher fees than public broadcasters is not evidence of a
subsidization. Rather, it is demonstrative evidence that different
users of the same goods and services can value such goods and services
differently. Public Broadcasters also argue that the Panel ``gave undue
weight'' to the testimony of one of BMI's witnesses in refuting Public
Broadcasters' contention regarding the lack of probity of the fee
disparity. Public Broadcasters Petition to Modify at 19.
Recommendation of the Register
The Panel expressly addressed Public Broadcasters' contention of
the lack of probity of the fee disparity:
Public Broadcasters have not, or can not, cite any factual bases
which might account for the huge disparity between recent ASCAP/BMI
commercial rates and the rates for Public Broadcasters under prior
agreements (even after adjusting commercial rates based upon various
parameters). Public Broadcasters merely offer the general, but
unhelpful, observation that ``[t]he differences in rates is
accounted for by the fact that commercial and non-commercial
broadcasters operate in separate and distinct markets.'' If, for
example, evidence had been adduced demonstrating that Public
Broadcasters pay less than commercial broadcasters for other music-
related programming expenses (such as radio disk jockeys, musicians,
producers, writers, directors, or other equipment operators), the
Panel might feel more comfortable accepting the heavily discounted
music license fees as fair market rates. Virtually no such evidence
was adduced. To the contrary, it appears that Public Broadcasters
pay rates competitive with commercial broadcasters for other music-
related programming costs such as composers' ``up front fees.'' Tr.
1636 [testimony of BMI witness Michael Bacon]. As discussed, infra,
the Panel is cognizant that commercial and non-commercial
broadcasters do, in fact, operate under different economic models
and one should not be surprised that these models yield somewhat
different results, including differences in fair market rates. It is
the magnitude of the disparity that causes the Panel to further
question whether the rates negotiated under prior agreements truly
constituted fair market rates. We have concluded they do not.
Report at 23 (citation omitted).
The Register concludes that the Panel's explanation of its
consideration of the fee disparity is well-articulated and reasonable,
and is not arbitrary or contrary to the Copyright Act. And, as the
Register has made clear on several occasions, absent compelling
evidence to the contrary, the Register will not disapprove the weight
accorded by a CARP to the testimony of a witness. See, e.g. 62 FR 55757
(October 28, 1997).
C. Conclusion
Having fully analyzed the record in this proceeding and considered
the contentions of the parties, the Register recommends that the
Librarian of Congress adopt the rates and terms for the use of ASCAP
and BMI music by Public Broadcasters as set forth in the CARP's report.
Order of the Librarian
Having duly considered the recommendation of the Register of
Copyrights regarding the report of the Copyright Arbitration Royalty
Panel in the matter of adjustment of the royalty rates and terms for
the noncommercial educational broadcasting compulsory license, 17
U.S.C. 118, the Librarian of Congress fully endorses and adopts her
recommendation to accept the Panel's decision. For the reasons stated
in the Register's recommendation, the Librarian is exercising his
authority under 17 U.S.C. 802(f) and is issuing this order, and
amending the rules of
[[Page 49836]]
the Library and the Copyright Office, announcing new royalty rates and
terms for the section 118 compulsory license.
List of Subjects in 37 CFR Part 253
Copyright, Music, Radio, Television.
Final Regulation
In consideration of the foregoing, the Library of Congress amends
part 253 of 37 CFR as follows:
PART 253--USE OF CERTAIN COPYRIGHTED WORKS IN CONNECTION WITH
NONCOMMERCIAL EDUCATIONAL BROADCASTING
1. The authority citation for part 253 continues to read as
follows:
Authority: 17 U.S.C. 118, 801(b)(1) and 803.
2. Section 253.3 is added to read as follows:
Sec. 253.3 Performance of musical compositions in the repertory of
ASCAP and BMI by PBS and NPR and other public broadcasting entities
engaged in the activities set forth in 17 U.S.C. 118(d).
(a) Scope. This section shall apply to the performance during a
period beginning January 1, 1998, and ending on December 31, 2002, by
the Public Broadcasting Service (PBS), National Public Radio (NPR) and
other public broadcasting entities (as defined in Sec. 253.2) engaged
in the activities set forth in 17 U.S.C. 118(d) of copyrighted
published nondramatic musical compositions in the repertory of the
American Society of Composers, Authors and Publishers (ASCAP) and
Broadcast Music, Inc. (BMI), except for public broadcasting entities
covered by Secs. 253.5 and 253.6.
(b) Royalty rates. The following annual royalty rates shall apply
to the performance of published nondramatic musical compositions within
the scope of this section: $3,320,000 to ASCAP, and $2,123,000 to BMI.
(c) Payment of royalties. The royalty payments specified in
paragraph (b) of this section shall be made in two equal payments on
July 31 and December 31 of each calendar year, except for 1998, in
which year the royalty payments shall also be made in two equal
installments, the first of which shall be made within thirty (30) days
from the date the Librarian of Congress renders his decision in In the
Matter of Adjustment of the Rates for Noncommercial Educational
Broadcasting Compulsory License, Docket No. 96-6 CARP NCBRA, and the
second of which shall be made on December 31, 1998, subject to 17
U.S.C. 802(g).
(d) Identification of stations. PBS, NPR and/or the Corporation for
Public Broadcasting (CPB) shall annually for the years 1999-2002, by
not later than January 31 of each such calendar year, and in 1998,
within thirty (30) days of the date the Librarian of Congress renders
the decision in In the Matter of Adjustment of the Rates for
Noncommercial Educational Broadcasting Compulsory License, Docket No.
96-6 CARP NCBRA, furnish to ASCAP and BMI a complete list of all public
broadcasting entities within the scope of this section, as of January 1
of that calendar year. Such lists shall include:
(1) A list of all public broadcasting entities operating as
television broadcast stations that are associated with PBS (``PBS
Stations''), and the PBS licensee with which each PBS Station is
associated (``PBS Licensees''), identifying which PBS Licensees are
Single Feed Licensees and which are Multiple Feed Licensees, and which
PBS Stations or groups of stations are Independently Programmed
Stations, as those terms are defined in paragraph (e)(2) of this
section;
(2) A list of all public broadcasting entities operating as
television broadcast stations that are not associated with PBS (``Non-
PBS Stations'');
(3) A list of all public broadcasting entities operating as radio
broadcast stations that are associated with NPR (``NPR Stations''),
which list shall designate which NPR Stations have six (6) or more
full-time employees and which NPR Stations repeat one hundred (100)
percent of the programming of another NPR Station; and
(4) A list of all public broadcasting entities operating as radio
broadcast stations that are not associated with NPR (``Non-NPR
Stations''), which list shall designate which Non-NPR Stations have six
(6) or more full-time employees.
(5) For purposes of this section, Non-PBS Stations and Non-NPR
Stations shall include, but not be limited to, public broadcasting
entities operating as television and radio broadcast stations which
receive or are eligible to receive general operational support from CPB
pursuant to the Public Broadcasting Act of 1967, as amended.
(e) Records of use. (1) PBS and NPR shall maintain and, within
thirty-one (31) days after the end of each calendar quarter, furnish to
ASCAP and BMI copies of their standard cue sheets listing the
nondramatic performances of musical compositions on PBS and NPR
programs during the preceding quarter (including to the extent such
information is reasonably obtainable by PBS and NPR the title, author,
publisher, type of use, and manner of performance thereof). PBS and NPR
will make a good faith effort to obtain the information to be listed on
such cue sheets. In addition, to the extent the information is
reasonably obtainable, PBS shall furnish to ASCAP and BMI the PBS
programming feed schedules including, but not limited to, the PBS
National Programming Service schedule. PBS and NPR shall make a good
faith expeditious effort to provide the data discussed in this
paragraph in electronic format where possible.
(2) PBS Licensees shall furnish to ASCAP and BMI, upon request and
designation of ASCAP and BMI, music use reports listing all musical
compositions broadcast by a particular PBS Station owned by such PBS
Licensee showing the title, author, and publisher of each composition,
to the extent such information is reasonably obtainable; provided,
however, that PBS Licensees shall not be responsible for providing cue
sheets for programs for which cue sheets have already been provided by
PBS to ASCAP and BMI. PBS Licensees will make a good faith effort to
obtain the information to be listed on such music use reports. In the
case where a PBS Licensee operates only one (1) or more PBS Stations
each of which broadcasts simultaneously or on a delayed basis all or at
least eighty-five (85) percent of the same programming (a ``Single Feed
Licensee''), that Single Feed Licensee will not be obligated to furnish
music use reports to either ASCAP or to BMI for more than one of its
PBS Stations in each calendar year. In the case where a PBS Licensee
operates two (2) or more PBS Stations which do not broadcast all or at
least eighty-five (85) percent of the same programming on a
simultaneous or delayed basis (a ``Multiple Feed Licensee''), that
Multiple Feed Licensee may be required to furnish a music use report
for each PBS Station or group of stations which broadcasts less than
eighty-five (85) percent of the same programming as that aired by any
other PBS Station or group of stations operated by that Multiple Feed
Licensee (such station or group of stations being referred to as an
``Independently Programmed Station'') in each calendar year. In each
calendar year, ASCAP and BMI shall each be limited to requesting music
use reports from PBS Licensees covering a total number of PBS Stations
equal to no more than fifty (50) percent of the total of the number of
PBS Single Feed Licensees plus the number of Independently Programmed
Stations operated by Multiple Feed Licensees;
[[Page 49837]]
provided, however, that ASCAP and BMI shall be entitled to receive
music use reports covering not less than ninety (90) PBS Stations in
any given calendar year. Subject to the limitations set forth above,
PBS Stations shall be obligated to furnish to ASCAP and BMI such music
use reports for each station for a period of no more than seven days in
each calendar year.
(3) Non-PBS Stations shall furnish to ASCAP and BMI, upon request
and designation of ASCAP and BMI, music use reports listing all musical
compositions broadcast by such Non-PBS Stations showing the title,
author and publisher of each composition, to the extent such
information is reasonably obtainable. Non-PBS Stations will make a good
faith effort to obtain the information to be listed on such music use
reports. In each calendar year, ASCAP and BMI shall each be limited to
requesting music use reports from no more than fifty (50) percent of
Non-PBS Stations. Subject to the limitations set forth above, Non-PBS
Stations shall be obligated to furnish to ASCAP and BMI such music use
reports for each station for a period of no more than seven days in
each calendar year.
(4) NPR Stations which have six (6) or more full-time employees
shall furnish to ASCAP and BMI, upon request and designation of ASCAP
and BMI, music use reports listing all musical compositions broadcast
by such NPR Station showing the title, author or and publisher of each
composition, to the extent such information is reasonably obtainable;
provided, however, that NPR Stations shall not be responsible for
providing cue sheets for programs for which cue sheets have already
been provided by NPR to ASCAP and BMI. NPR Stations will make a good
faith effort to obtain the information to be listed on such music use
reports. In each calendar year, ASCAP and BMI shall each be limited to
requesting music use reports from no more than fifty (50) percent of
NPR Stations which have six (6) or more full-time employees.
Notwithstanding the foregoing, if the number of NPR Stations with six
(6) or more employees (from which ASCAP and BMI shall initially
designate and request reports) falls below twenty-five (25) percent of
the total number of all NPR Stations, then ASCAP and BMI may each
request reports from additional NPR Stations, regardless of the number
of employees, so that ASCAP and BMI shall each be entitled to receive
music use reports from not less than twenty-five (25) percent of all
NPR Stations. NPR Stations shall be obligated to furnish music use
reports for each station for a period of up to one week in each
calendar year to ASCAP and BMI.
(5) Non-NPR Stations which have six (6) or more full-time employees
shall furnish to ASCAP and BMI, upon request and designation of ASCAP
and BMI, music use reports listing all musical compositions broadcast
by such Non-NPR Station showing the title, author and publisher of each
composition, to the extent such information is reasonably obtainable.
Non-NPR Stations will make a good faith effort to obtain the
information to be listed on such music use reports. In each calendar
year, ASCAP and BMI shall each be limited to requesting music use
reports from no more than fifty (50) percent of the Non-NPR Stations
which have six (6) or more full-time employees. Notwithstanding the
foregoing, if the number of Non-NPR Stations with six (6) or more
employees (from which ASCAP and BMI shall initially designate and
request reports) falls below twenty-five (25) percent of the total
number of all Non-NPR Stations, then ASCAP and BMI may each request
reports from additional Non-NPR Stations, regardless of the number of
employees, so that ASCAP and BMI shall each be entitled to receive
music use reports from not less than twenty-five (25) percent of all
Non-NPR Stations. Non-NPR Stations shall be obligated to furnish music
use reports for each station for a period of up to one week in each
calendar year to ASCAP and BMI.
So Ordered.
James H. Billington,
The Librarian of Congress.
Dated: September 17, 1998.
So Recommended.
Marybeth Peters,
Register of Copyrights.
[FR Doc. 98-24986 Filed 9-17-98; 8:45 am]
BILLING CODE 1410-33-P
