Ex-SoundExchange Lawyer on why Direct Licensing won't work

Gary R. Greenstein, former general counsel for SoundExchange, explains via the Pho list why direct licensing won't work for most net radio stations:

The Section 114 statutory license grants licensees the right to make digital audio transmissions of any sound recording released to the public with the consent of the copyright owner. A separately negotiated agreement with SoundExchange, on the other hand, would likely only grant the licensee the right to make transmissions of the sound recordings over which SoundExchange had the authority to license. From a practical standpoint this likely means that if a webcaster enters into an agreement with SoundExchange for a rate structure that differs from that adopted by the Copyright Royalty Board, then the webcaster would be entitled to pay the privately negotiated rates for those recordings licensed under the license entered into with SoundExchange while those sound recordings not covered by the license with SoundExchange would still need to be paid for at the rate adopted by the CRB. This could also mean that webcasters streaming non-SoundExchange covered recordings might have to continue to file for the statutory license, pay the CRB-established minimum fees for the non-SoundExchange covered recordings as those minimums are currently required whether you stream one song during a year or 1 million, and comply with the final interim recordkeeping regulations for those recordings that are not covered by a direct license.

Because SoundExchange represents the four majors and a large number of independent labels, the amount of repertoire covered by a private agreement with SoundExchange would likely be substantial but for those copyright owners who have not authorized SoundExchange to license on their behalf, they would likely have a claim to the CRB-established royalty rates for the transmission of their recordings. An open question is whether those copyright owners would look to SoundExchange to pay them the full statutory rate (thus leaving SoundExchange's own copyright owners and artists with even less money) or might seek to go after the individual webcasters for payment of the full CRB-established amount.

Each webcaster may need to evaluate their exposure to infringement liability if they stream recordings not covered by a direct license and fail to pay royalties under the CRB rates and the likelihood that any copyright owner(s) might file suit for such non-compliance.

This is why politicians need to understand that a legislative solution is required, and that it can't be worked out between the parties privately. Private deals will not cover everything. Private deals would force broadcasters to play music from the major and largest independent labels only and would not allow them to play tracks that weren't covered by the agreement.