The Copyright Royalty Board has released an exhibit to its final decision that makes an important clarification regarding the 2016 to 2020 webcasting rate increase schedule first released in December. The additional guidance means the change in the annual statutory royalty rate paid by webcasters will reflect cost of living increases over the next five years. That’s important for all rights holders and creators.
With this clarification, record labels and artists know they won’t suffer in the event the CPI-U has small annual changes. It’s also good news for the other side of copyright. Pandora’s direct deals with publishers and performing rights organizations tie the performance royalties of musical works to the statutory rate paid to record labels and performing artists via SoundExchange.
In its December decision, the CRB said each year’s royalty rate would be adjusted using the annual change in the CPI Index, a measure of the cost of living in the United States. Each adjustment would be applied to the previous year’s royalty rate and rounded to the fourth decimal point. The foundational rate would be the starting point for the next year’s adjustment calculation.
Here is a possible scenario had the CRB not provided clarification. Say the adjustment for 2017 rates is 2.941 percent, based, on the change in CPI-U from November 2015 to November 2016. After rounding, the 2017 rate remains at 0.17 cents, the starting point for what will be 2018’s adjustment. Say that, again, the change in CPI-U is 2.941 percent — the post-rounding rate would remain 0.17 cents. The rate would remain at 0.17 cents if the annual change in the CPI-U is 2.941 percent or less.
In the above scenario, the rate remains the same year after year. The previous year’s rate — the rounded rate — was to be the starting point for the next year’s adjustment, a calculation method that seems antithetical to the spirit of cost of living increases.
Things could have gotten messy. With the November release of the cost of living estimate that will be used for 2017’s webcasting rate adjustment, opposing sides could have brought forth their own interpretations of the CRB’s instructions. Webcasters like Pandora would probably argue that the adjustments were cumulative because the CRB intended rates to reflect increases in the cost of living over the entire five-year period of the rate schedule. SoundExchange would correctly point out the CRB’s instructions did not specifically say the adjustments would be cumulative over the term of the rate schedule.
A literal interpretation would likely favor webcasters. From 1913 to 2014, the annual change in the CPI rose above 2.941 percent about half the time. The cost of living has barely risen in recent years. From 2010 through 2014, the average annual change was 1.99 percent.
The CRB’s recently released clarification removes the doubt surrounding these annual adjustments. The annual adjustments will take into account the cumulative change in the CPI-U from 2016 through 2020. The math is simple. The CRB’s equation uses the CPI-U from November 2015 as the starting point for the following years’ adjustments and the latest CPI-U as the ending point. For example, the CPI-U in November 2005 was 197.6 and 212.425 in November 2008. Let’s say the rate was 0.17 cents in 2006. The 2009 rate would be 0.19 cents and would reflect the change in the CPI-U of 9.48 percent from November 2005 to November 2008, ignoring the annual changes in 2006 and 2007.