Royalty paid by Radio companies to Music Labels – Current Legal Position in India

By Monalisha Singh, Student, Chanakya National Law University, Patna

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A temporary order upholding the status quo of the royalty rate for radio transmissions under statutory license has been passed by the IPAB in a major development. This was accompanied by a public notice requesting suggestions from stakeholders about IPAB’s setting of royalty rates. Section 31D, read in accordance with Rule 31 of the 2013 Copyright Rules, allows IPAB to give a notice of its intention to set royalties separately for television and radio broadcasts and to solicit proposals for stakeholder royalties. The goal of setting a royalty rate and interfering with the mechanism of managing free market rates is to stop the anti-competitive consequence of unreasonably high royalties that might be paid to music publishers that own a significant volume of copyrighted content. Section 31D of the Copyright Act, 1957, requires the Appellate Board to determine royalty limits for literary and artistic work and sound recordings for performances or radio or television transmissions. 

In 2017, after several years of being almost extinct, the CB was combined with the IPAB by replacing the ‘Appellate Board’ reference to the former in Section 11 of the Copyright Act. The Delhi High Court ordered in Radio Next Webcastion v. Union of India[1] that IPAB had authority to conduct the duties of the Appellate Board under the Copyright Act, irrespective of the absence at that stage of a technical member for Copyright. It then instructed the IPAB to hear the appeal under Section 31D. Following the expiry of the CB order on 30 September 2020, applications have been filed with IPAB under Section 31D demanding an extension of the order until new royalty rates can be set. Under paragraph 14 of the Temporary Order, from 1 October onwards, a number of music publishers tried to launch talks on voluntary licensing schemes. In order to avoid the imminent termination of their services upon expiry, the extension was therefore required.  Initially, the respondents objected to the application on the basis that the claimant is still paying higher royalties on those recording labels which are not protected by the order of the CB and that the extension request was submitted very late. They also argued that, for that matter, IPAB did not have the right to pass a temporary order. Nevertheless, IPAB relied on the opinion of the Supreme Court in Super Cassettes v. Music Broadcast Ltd. [2], which ruled that the CB had incidental authority to uphold the status quo. The time of the filing claim was dismissed because CB had not been operating until 2017, and technical members had only been selected and entered in August 2020, even after the merger with IPAB that year. Lastly, IPAB directed the continuity of the status quo between the parties according to the order of the CB and all those parties whose membership of the respondent PPL had ceased after that order had been passed. In the meantime, on 18 September, IPAB released a public notice asking copyright owners, broadcasters, radio broadcasters and other interested parties to apply their plans in writing, offering sufficient proof as to the rate of royalty to be set.[3] Recommendations have to be received within 30 days, i.e. by October 18, 2020 at the latest. 

The 2 percent royalty rate was calculated by taking a number of variables into account. The radio companies argued that the no-subscription-fee model, along with increasing competition from other means of music consumption, such as the internet and Cable, left their industry in a state of steady decline. As music broadcasting is the key component of the radio sector, a high royalties rate of around 20 percent of net advertisement income or 2400 per needle hour seriously affected their viability, thus endangering their very existence. If an aspect of public interest is involved in radio broadcasting was one of the topics of concern in the 2010 CB order, making it appropriate to set a lower rate of royalties. The radio broadcasters argued that they carried news stories, government-required announcements, and geographic material. High license costs will make it impossible for them to fulfill this public interest function, since they currently work on a ‘free-to-air’ basis. In delivering its decision, the CB eventually took into account the weak financial health of the radio sector.[4] It will be fascinating to see how this aspect plays out in 2020, with the radio industry changing in several ways, particularly with regard to the creation of content. The 2020 FICCI-EY Report indicates that factors such as internet penetration and mobile usage growth, social media popularity, and increased demand for shorter content have enabled many radio companies to start producing video for use as advertisement and ad-supported content output. In addition, it envisages the introduction of subscription-based models and the rise in digital offerings in the near future by D2C community building. Financial progress has also seen the state of the radio industry. The size of the sector has increased from 8.4 billion in 2008 to 27.5 billion in 2019, according to the FICCI-KPMG Survey 2019. Although radio advertisement revenue remains 3-4 percent of the overall advertising revenue against a global average of 8-9 percent, non-advertising revenue has improved. They account for almost 7-8 percent of total radio segment revenues, according to the FICCI-EY study listed earlier (as high as 20 percent for some radio companies). Radio penetration in India remains strong as well, with a recent survey finding that 86 percent of respondents used radio (live or on-demand) to access music on average. Will the case against radio broadcasting becoming a commercial company vulnerable to higher royalties still stand for these sudden and numerous shifts in the radio business? In the other hand, unhappy voices in the music industry have merged over the past few years into a single call to abolish the very model of statutory licensing in favor of privately traded licenses in what is believed to be a domain of private rights. They contend that it is music that draws high listenership to radio outlets, and the required 2% royalty fee on net ad sales generates a condition in which ‘equal value’ returns are withheld to the music labels for their contribution to the revenues of the radio industry. The IMI-IFPI Digital Music Report 2019 reveals that broadcasting is responsible for 21.7 percent of music listening time among the three radio, audio download, and video streaming methods of music, but returning just 2.9 percent of the industry’s overall revenue. The rigid legal licensing model and the low royalties imposed by it have been due to this disparity. Therefore, during this consultation period, it is extremely likely that music industries would vigorously resist the continuation of the current royalty rate. 

Under the much criticized legislative licensing clause, the requirement of the IPAB to address radio royalties offers an incentive to take these issues into account and hammer out a royalty mechanism that best serves the needs of all players in the radio as well as the music industry. How IPAB deals with these modified conditions will be fascinating to see.

References

[1]  Writ Petition (Civil) No. 5893 of 2018; Civil Miscellaneous No. 22982 of 2018, 32754 of 2018

[2] CIVIL APPEAL NOS.4196-4197 OF 2012

[3] Heather Mcdonald, Paying and collecting mechanical royalities, https://www.thebalancecareers.com/mechanical-royalties-2460503,  February 4, 2021 

[4] Intellectual Property Appellate Board order fixes statutory licensing rate for radio royalties, https://www.jcvindia.com/intellectual-property-appellate-board-order-fixes-statutory-licensing-rate-for-radio-royalties/, February 4, 2021

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