SoundExchange Files Its Second Lawsuit Over Improper Royalties

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D.C. District Court

SoundExchange has filed its second suit over improper royalty filings since its founding 12 years ago.

The suit, filed in D.C. District Court on April 1, centers around the Austin, Tx.-based Mood Media Corporation, owner of Muzak since 2011, which was an early entrant into the digital streaming market. Because Muzak began offering its streaming service to Dish Network satellite television subscribers before the establishment of the Digital Millennium Copyright Act in 1998 -- which set higher statutory rates on digital streams -- it was allowed to have its pre-existing, lower royalty rate of 8.5 percent of revenue grandfathered in. By comparison, the 2015 rate for new subscription services is 15% of revenue or 1.4 cents per subscriber a month -- whichever is greater.

SoundExchange contends in its suit that Muzak's status as a "pre-existing subscription service" (or PSS, a Congressional term for the three services which weren't made to adhere to the post-DMCA rates) does not extend to the company's expansion from Dish onto other platforms, such as DirecTV's SonicTap offering. SoundExchange alleges that Muzak began improperly filing payments under the 8.5% rate in May of 2014.

Also at issue in the complaint is Mood Media's purchase of the business-focused DMX subscription streaming service, which Mood purchased in 2012. Mood consolidated DMX's existing business under the Muzak brand, ostensibly bringing it under the protection of Muzak's PSS status. SoundExchange argues that this is a violation of the grandfather agreement struck in 1998 since the language in that provision was specific to Muzak's offering on Dish.

“Muzak’s attempt at gaming the system highlights the ineffectiveness of having different rules and rate standards for music service companies," says SoundExchange CEO Michael Huppe in a statement. "It gives older companies an unjustified competitive advantage, and leaves the door wide open for attempts at abuse."

A SoundExchange representative tells Billboard that an estimate on the value of the royalties at issue is an extremely complex proposition, but pointed to the fact that their organization does not launch legal complaints such as this often. SoundExchange's 2013 suit against SiriusXM sought damages of  $50-100 million.

Mood Media did not respond to a request for comment at press time.