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WHAT THE HECK IS A CARP?
AND WHAT THE HECK IS THE WEBCASTING CARP ABOUT?

The following incredible layout of a CARP was sent to me, and permission to share it given by BRIAN ZISK and KRISTEN THOMSON from the http://www.futureofmusic.org/CARPfactsheet.cfm at their site. Future of Music views and my views often do not agree on the right to earn from royalties (they do not believe in a royalty for songs in a traditional sense) -- but Kristen and Brian did a GREAT job on this, and I wanted to share it.

The Webcasting/CARP Fact Sheet
April 24, 2002

Contents:

CARP and Webcasting Royalty Rates

What is a CARP?
Why was a CARP created to deal with webcasting?
What organizations participated in the 2001 CARP proceedings?
What did the CARP decide about webcasting royalties?
When do these royalty rates take effect?
How will the royalties be collected?
How will the royalties be distributed?
How can citizens, artists and webcasters comment on the webcasting rates?

Reporting Requirements

Why did the CARP also propose reporting requirements for webcasters?
What information will webcasters be required to submit?
Who was part of the decision-making process?
What will the information be used for?
Who will see this information?
How can citizens, artists and webcasters comment on the reporting requirements?

Webcasting and Licenses

Do you need a license to webcast?
How do you get licenses from the performing rights organizations, and
how much do they cost?
How do you obtain a statutory webcasting license, and how much does it cost?


What is a CARP?

CARP stands for Copyright Arbitration Royalty Panel. A CARP is a
panel of three arbitrators from the private sector, appointed and
administered by the US Copyright Office and the Library of Congress,
which meet for limited times for the purpose of adjusting rates and
distributing royalties. The CARP system was established in 1993,
following the abolition of the Copyright Royalty Tribunal. CARPs are
typically installed when opposing interests can't negotiate a
workable agreement between themselves.

The panel's job is to hear evidence from witnesses, consider legal
argument from all parties, and then make recommendations to the
Librarian of Congress, based only upon this information, regarding
the appropriate rates that a licensee who chooses to operate under
the statutory licenses should pay. The same panel also recommends
terms concerning how and when royalty payments are made.

Source: http://www.loc.gov/copyright/carp/webcast_process.html


Why was a CARP created to deal with webcasting?

In 1998, the US Congress passed the Digital Millennium Copyright Act
(DMCA). Among other things, the Act established a new principle that
the owners of sound recording copyrights (i.e., record companies) are
entitled to compensation when their works are performed via digital
transmissions (i.e., webcasts).

The DMCA required the US Copyright Office to determine the
appropriate performance royalty, with the amounts due to be
retroactive to October 1998 (the date of the passing of the DMCA).

As required by the DMCA, the Copyright Office gave sound recording
copyright owners (represented by the RIAA) and webcasters
(represented by, among others, DiMA) the opportunity to negotiate a
royalty. When those negotiations failed, the office authorized a
Copyright Arbitration Royalty Panel (CARP) to determine an
appropriate rate. From July 31- September 14th, 2001, dozens of
witness representing both sides testified before the CARP panel of
three arbitrators.

Source: http://www.saveinternetradio.org


What organizations participated in the 2001 CARP proceedings?

>From July-September 2001, the three-person arbitration panel
representing the US Copyright Office heard testimony from a number of
interested parties regarding the webcasting rates.

Witnesses representing copyright owners and performers included:

Recording Industry Association of America (RIAA)
American Federation of Television and Radio Artists (AFTRA)
American Federation of Musicians (AFM)
Association for Independent Music (AFIM)

Witnesses for broadcasters and webcasters included:

Digital Media Association (DiMA)
Clear Channel Communications, Inc.
National Religious Broadcasters Music License Committee
Salem Communications Corp.
Bet.com
Comedy Central
DMX Music, Inc.
Infinity Broadcasting Corp.
Launch Media, Inc.
Listen.com
Live365.com
National Public Radio (NPR)
MTVi Group LLC
MusicMatch, Inc.
Myplay, Inc.
Netradio Corp
RadioActive Media Partners, Inc.
Radiowave.com, Inc.
Spinner Networks, Inc.
Susquehanna Radio Corp.
Univision Online
Westwind
XACT Radio Network, LLC.

Musicians:

David Fagin, singer, songwriter, recording and performing artist
Alanis Morissette, singer, songwriter, recording and performing artist

Expert witnesses:

William W. Fisher III, Harvard Law School
Jonathan Zittrain, Harvard Law School
Adam B. Jaffe
Michael Fine
Paul William Kempton
Michael Mazis

This list of participants is posted in the following Copyright Office document:
http://www.loc.gov/copyright/fedreg/2001/66fr38324.html


What did the CARP decide about webcasting royalties?

The CARP carefully considered all the information gathered throughout
the process, including the evidence offered by webcasters,
broadcasters, and copyright owners for what the appropriate rate and
terms should be for the public performance of a sound recording over
the Internet. The record for this proceeding includes a written
transcript approaching 15,000 pages, many thousands of pages of
exhibits, and over 1,000 pages of post-hearing submissions.

On February 20, 2002 the CARP delivered its report, recommending
rates and terms for the statutory license for eligible
non-subscription webcasting services:
Type of Service
Performance Fee
Ephemeral License Fee
Webcasters
(a) Simultaneous internet retransmissions of over-the-air AM or FM
radio broadcasts. .07 cents 9% of Performance
Fees Due
(b) All other internet transmissions .14 cents 9% of Performance
Fees Due
Commercial Broadcasters
(a) Simultaneous internet retransmissions of over-the-air AM or FM
radio broadcasts. .07 cents 9% of Performance
Fees Due
(b) All other internet transmissions ,14 cents 9% of Performance
Fees Due
Non-Commercial Broadcasters
(a) Simultaneous internet retransmissions of over-the-air AM or FM
broadcasts. .02 cents 9% of Performance
Fees Due
(b) Other internet transmissions, including up to two side channels
of programming consistent with the public broadcasting mission of the
station. .05 cents 9% of Performance
Fees Due
(c) Transmissions on any other side channels .14 cents 9% of Performance
Fees Due
Business Establishment Service
For digital broadcast transmissions of sound recordings pursuant to
17 U.S.C. 114(d)(1)(C)(iv) Statutorily Exempt 10% of Gross Proceeds
Minimum Fee
$500 per year for each licensee


When do these royalty rates take effect?

The proposed rates and terms are currently under review by the
Copyright Office, but the statute requires the Librarian of Congress
to accept the proposed rates and terms no later than May 21, 2002.

The Librarian, however, may adopt some recommendations and reject
others. If this occurs, the Librarian has an additional 30 days to
issue a final determination setting the rates and terms for the
licenses.

Once the rates are adopted, they will be effective retroactively to
October 28, 1998.

Source: http://www.loc.gov/copyright/carp/webcast_process.html


How will the royalties be collected?

Once rates and terms are set, the webcasting royalties due from
statutory licensees will be collected, administered and disbursed to
artists. The CARP recommended that two entities - SoundExchange and
Royalty Logic - be designated to handle this process. Note that the
Librarian doesn't necessarily have to accept these designations so,
strictly speaking, we don't know who will be performing these
functions.

SoundExchange is an entity created by the Recording Industry
Association of America (RIAA) to collect and distribute the digital
performance royalty. Initially, SoundExchange was governed and
controlled by a board that largely represented label interests but,
in 2001, negotiations led to its structural reform. According to the
new agreement, the Sound Exchange board is now comprised of both
artist and label interests. Future of Music Coalition currently holds
a seat on the SoundExchange board.

Once the royalty rate has been adopted, the payments due from the
webcasters to the "receiving agent" (SoundExchange and/or Royalty
Logic) are retroactive to the date that the webcaster commenced
webcasting under the statutory license. The retroactive nature of
these royalties means that those webcasters who submitted a Notice of
Intent to the Copyright Office in order to be legally licensed
webcasters will hypothetically be expected to back pay for the music
they have played since the date they began webcasting.


How will the royalties be distributed?

Once the royalty rate is set, SoundExchange and/or Royalty Logic will
collect, administer and distribute the royalties to the sound
recording copyright owners, featured and non-featured artists
directly to the appropriate parties. This means SoundExchange and/or
Royalty Logic will pay:
50% to the copyright holder (usually the record label);
45% to the featured artist, which will be paid directly to a
designated payee (artist, management company, etc.)
2.5% to AFM for non-featured musicians; and
2.5% to AFTRA for non-featured vocalists.

Source: http://www.soundexchange.com/royalty.cfm

Note that the direct payment of 45% of the performance royalty to the
featured artist is another victory for musicians. When the payment
structure was first announced, SoundExchange and the labels proposed
that all the webcasting royalties be paid to the copyright holder
(usually the record label), which would then distribute the 45% to
its artists. Many artist groups, including the FMC, criticized this
decision and urged SoundExchange and the Copyright Office to pay
artists directly. This amendment was adopted in fall 2001 and now
artists will be paid directly by SoundExchange.


How can citizens, artists and webcasters comment on the webcasting rates?

According to Copyright Office documents, there is no provision in the
rules for the Copyright Office or Librarian of Congress to consider
comments from the general public. The rules governing CARP
proceedings permit the Copyright Office and the Librarian to consider
only the arguments made by parties to the proceeding. The Copyright
Office has stated that "webcasters, broadcasters, and copyright
owners [were] well represented in this proceeding and have had
multiple opportunities and every incentive to provide the Office with
all the reasons why the CARP report should either be accepted,
rejected, or modified."

Source: http://www.loc.gov/copyright/carp/webcast_process.html

So the short answer is, there is no more opportunity for public
comment. If you weren't a party to earlier proceedings, you can't
comment on the rates now.

Some smaller webcasters and artists have disagreed with these
statements about participation, noting that they didn't have the
resources or the clout to join the initial debate.

Reporting Requirements

Why did the CARP also propose reporting requirements for webcasters?

The CARP did not propose reporting requirements. In a separate but
related proceeding, the US Copyright Office was required to draw up
reporting requirements because of the requirements outlined in the
Digital Millennium Copyright Act: "The DMCA directs the Librarian of
Congress to establish regulations to require eligible Services to
give copyright owners reasonable notice that their sound recordings
are being used under one or both of the licenses and create and
maintain records of use and make them available to copyright owners."

Source: http://www.loc.gov/copyright/fedreg/2002/67fr5761.html

The Copyright Office drafted interim reporting requirements in 1997
and 1998. In May 2001, the RIAA submitted a petition to the US
Copyright Office requesting that the Office conduct rulemaking
proceedings to develop notice and recordkeeping requirements that
substantively address the 1998 DMCA amendments.


What information would webcasters be required to submit under the
proposed rules?

Under the proposed rules radio stations, internet stations, and
satellite companies would have to report the following information
about every streamed program:

1. The name of the service
2. The channel of the program (AM/FM stations use station ID)
3. The type of program (Archived/Looped/Live)
4. Date of transmission
5. Time of transmission
6. Time zone of origination of transmission
7. Numeric designation of the place of the sound recording within the program
8. Duration of transmission (to nearest second)
9. Sound recording title
10. The ISRC code of the recording
11. The release year of the album per copyright notice and, in the
case of compilation albums, the release year of the album and
copyright date of the track
12. Featured recording artist
13. Retail album title
14. Record label
15. UPC code of the retail album
16. Catalog number
17. Copyright owner information
18. Musical genre of the channel or program (station format)

And a listener's log listing:
1. The name of the service or entity
2. The channel or program
3. The date and time that the user logged in (the user's timezone)
4. The date and time that the user logged out (the user's timezone)
5. The time zone where the signal was received (user)
6. Unique user identifier
7. The country in which the user received the transmissions

All of this information and more would be required to be in a
specific data file format and reported.


Who was part of the decision-making process?

The RIAA filed a petition with the Copyright Office in May 2001 that
became the basis for this list of proposed reporting requirements.
The Office has received comments from a number of interested parties
and will be conducting a public roundtable for further discussion of
the proposed rules. As a result of this process, the final rules may
change substantially from the initial proposal.


What will the information be used for?

According to Copyright Office documents, "Adoption of such rules will
enable copyright owners to receive their royalty payments as
expeditiously as possible."

Source: http://www.loc.gov/copyright/fedreg/2002/67fr5761.html

In other words, these structures will determine which categories of
information about songs that are webcast will be necessary to
collect. Theoretically this information must be collected in order
for organizations like SoundExchange to be able to accurately collect
and distribute webcasting royalties. However, there is some concern
among smaller webcasters that the CARP's reporting requirements
recommend the collection of far more data than is actually necessary
for accurate distribution of webcast royalties.


Who will see this information?

According to Copyright Office documents, only the copyright holders
will see this information: "Confidentiality. Copyright owners, their
agents and Collectives shall not disseminate information in the
Reports of Use to any persons not entitled to it, nor utilize the
information for purposes other than royalty collection and
distribution, and determining compliance with statutory license
requirements, without express consent of the Service providing the
Report of Use."

Source: http://www.loc.gov/copyright/fedreg/2002/67fr5761.html

There is some concern that the labels for which SoundExchange acts as
an agent will have access to this collected data and use it for
purposes beyond the intended purpose of distributing royalties. Some
have argued that, instead of allowing access to just a select group
of copyright owners, it would be better for the collected information
to be reported into a publicly held and transparent database.


How can citizens, artists and webcasters comment on the reporting requirements?

On February 7, 2002 the US Copyright Office issued a Notice of
Proposed Rulemaking (NPRM), which allowed for copyright owners,
webcasters and other interested parties to submit comments on the
reporting requirements. The comments were due on April 8, 2002, and
are posted on the Copyright Office's website here:

http://www.loc.gov/copyright/carp/114/comments.html

Reply comments may be filed up to April 26, 2002. The Copyright
Office has reviewed the comments received to this point and is aware
that the proposed notice and recordkeeping provisions are
contentious. It is the Office's desire to adopt regulations that
provide sufficient notification and information to copyright owners
of the use of their sound recordings yet are not unduly burdensome on
those making use of the statutory licenses.

Webcasting and Licensing


Do you need a license to webcast?

Yes, in fact you need two. The first licenses the underlying musical
composition, comprised of the written notes and lyrics (for purposes
of copyright law, the musical composition is referred to as a
"musical work").

These licenses are issued by the performing rights organizations,
namely BMI, ASCAP and SESAC.

The second part of the license covers the actual recording itself -
the sounds, including the recording artist's interpretation of the
musical composition, and the creative efforts of the producer, sound
engineers and background musicians. (This is referred to in copyright
law as a "sound recording.") The copyrighted recording brings to life
the written notes and lyrics of the musical work.

These second kind of licenses for webcasting are issued either by the
copyright owner or, for certain webcasters and other non-interactive
digital audio services, through a license created by the Digital
Millennium Copyright Act called a "statutory license." This statutory
license is an efficient way for webcasters to obtain a license
because it permits a webcaster to perform all of the sound recordings
it wishes to perform without obtaining separate licenses from each
copyright owner.

The webcasting statutory license applies to webcasters that:

1. offer non-interactive programming (i.e., not on-demand or
personalized programming);
2. primarily offer audio or other entertainment programming as
opposed to primarily selling or promoting particular products or
services; and
3. abide by certain conditions spelled out in the statute.

To see this fairly lengthy list of "certain conditions", go to the
RIAA's fact sheet on webcasting here:
http://www.riaa.com/Licensing-Licen-3a.cfm


How do you get licenses from the performing rights organizations, and
how much do they cost?

Each of the PROs has a place on their website where you can download
a form to obtain a blanket license that covers their repertoire. How
much they cost usually depends on your internet station's estimated
gross revenue. Each PRO provides worksheets for you to generate the
license estimate.

ASCAP: http://www.ascap.com/weblicense/webfaq.html
Downloadable form: http://www.ascap.com/weblicense/ascap.pdf
BMI: http://www.bmi.com/licensing/webcaster/webans1.asp
BMI has two downloadable forms, based on your webcasting needs
SESAC: http://www.sesac.com/licensing/Get_Music_Performance_License.htm


How do you obtain a statutory webcasting license, and how much does it cost?

Webcasters wishing to operate under the statutory license must first
notify sound recording copyright owners by filing an "Initial Notice"
with the US Copyright Office. The Copyright Office has published a
simple, one-page suggested form of the Initial Notice at
http://www.loc.gov/copyright/licensing/format.html that you can
download as a PDF.

This Initial Notice should be sent by certified mail (return receipt
requested) with a $20 filing fee to:
Library of Congress, Copyright Office
Licensing Division
101 Independence Avenue, S.E.
Washington, D.C. 20557-6400.

All webcasters must file an Initial Notice prior to making
transmissions of sound recordings.

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