On 31st December 2020, an IPAB bench consisting of the Chairman Manmohan Singh J. and two technical members Surya Senthil and SP Chockalingam, delivered a grand statutory license order for radio broadcasts under Section 31D of the Copyright Act. We had previously blogged about the Public Notice issued by IPAB seeking suggestions from stakeholders for the fixation of these rates. The notice came in the wake of the expiry of the erstwhile Copyright Board’s compulsory license order (CB order) under Section 31(1)(b) which had set the rate for radio royalties at 2% of the Net Advertisement Revenues. In this detailed order, IPAB not only adopted new rates for radio royalties but it also completely revamped the existing royalty model. It also went ahead and fixed royalty rates for underlying works in addition to the sound recordings that radio broadcasters had sought licenses for. [Long post ahead]
[Please also see my next post, on the Delhi High Court order which came out immediately after this order – holding that royalties are not payable to authors of underlying works when a sound recording is broadcasted!]
No Cross-examination of Witnesses
Before diving into the order itself – it is pertinent to mention: In a Bloomberg Quint article (paywall), Prashant points out that the parties involved in the matter appear to havesurprisingly waived their right to cross-examine each others’ witnesses. This is rather baffling, considering the parties’ arguments involve multiple conflicting reports and statements whose veracity could only have been ascertained through a detailed cross-examination of expert testimony. Naturally, IPAB ends up not relying on any of the reports presented for its decision. As Prashant explains, this omission of cross-examination might be owing to the mandatory 2 month limit within which IPAB is forced to render its decision. The fact that this hushed decision has not seen the unpacking of the many economic and factual claims relied on, casts a long shadow over it.
IPRS’s intervention application and the Royalty for Underlying Works
Prior to fixing the royalty rate, IPAB admitted an intervention application from IPRS which sought to argue that separate royalty rates needed to be fixed for literary and musical works incorporated in sound recordings. However, Section 31D empowers broadcasting organizations to seek a statutory license, and tasks IPAB with fixing the rates for such a license. As the radio broadcasters only sought statutory licenses for sound recordings, did IPAB have the authority to admit a third party and fix royalty rates for underlying works? While the order repeatedly reminds us that it is conducting a non-adversarial ‘consultative process’ and not functioning as a civil court, neither the Copyright Act nor the Copyright Rules 2013 instruct IPAB to observe this distinction. It may be argued that IPAB decided to fix underlying works’ royalties in exercise of its ‘suo motu powers’, recognizing IPRS as an ‘interested person’ under Rule 31(1), 31(2) and 31(3) of Copyright Rules 2013 – but the order itself offers no such explanation. Besides, IPAB is a court of law and not a regulatory body. As such, if it does not have the authority to allow a third party into the hearing, the decision could fail to withstand appellate scrutiny.
Having heard IPRS, IPAB noted the Supreme Court’s 1977 decision in IPRS v. Eastern India Motion Pictures,which had held that works created for incorporation a film come within Section 17(b) and (c), and the copyright in those underlying works divests from the original author and vests in the producer. It scrutinized the 2012 Amendments to Sections 17, 18 and 19 that exempted underlying works incorporated in cinematograph films from automatic assignment and further created an inalienable right to ‘receive an equal share of royalties’ for the authors of these underlying works. It then read these sections together with Section 31D, as they are creations of the same amendment, holding that the exception carved out for underlying works meant that the right to royalties over these works was now a ‘shared right’ between the author and whoever owned the copyright.
However, what Sections 18 and 19 create is a distinct contractual right that arises upon assignment of copyright. Section 31D on the other hand deals with statutory royalties, not necessarily connected with assignment. To rely on Sections 18 and 19 in order to interpret statutory licenses creates unnecessary confusion, particularly when the term ‘share’ has not been used in Section 31D. This is because Section 18 is rather unclear on who is to pay the authors their share, i.e., whether multiple separate-but-equal royalties are to be paid by the licensee, or a single royalty is to be split in equal parts (thereby greatly reducing the final amount received by authors). With IPAB conflating the two concepts and pronouncing a ‘shared right’, it may become easy for future licensees to argue that Section 18 intends a single royalty to be equally divided – thereby greatly harming the economic interests of the authors themselves.
Adopting a Methodology
To decide upon a methodology, IPAB considered the following models proposed –
- Needle per hour (NPH) model, which calculates royalty at a fixed amount per hour on the basis of actual usage.
- Net Advertisement Revenue (NAR) model which fixes royalty as a percentage of the ad revenues of the radio business
- Gross Revenue model, which calculates royalty as a percentage of all revenues of the radio business, thereby incorporating the growing non-ad revenues
- A Hybrid Model involving both NPH and NAR
Radio Broadcasters’ Arguments
The Radio broadcasters favoured the NAR model, which is what the CB Order had finalised, setting royalties at a heavily criticised 2% NAR (pro-rata basis) to support the declining radio companies that lacked capacity to afford high royalties. Building upon that, the radio broadcasters argued that an increasing number of listeners are shifting to mobile apps and other digital platforms for music. Radio business performs public functions despite being burdened by several kinds of licensing fees to the government in addition to music royalty, as it continues to operate on a free-to-air, non-subscription based model and thus caters to the masses. It runs social awareness programs and broadcasts news, and has helped disseminate information during COVID-19. NPH model’s fixed rates which are not sensitive to the broadcasters’ losses and would thus be onerous for them. Ad revenues on the other hand are accurate indicators of the broadcasters’ income. Further, the global standard of royalty lies between 1-5% on NAR. They sought royalty at a rate of 0.75% to 2% of NAR.
Music Companies’ and PPL’s Arguments
The respondents vehemently opposed the argument that radio business is facing losses. They cited reports such as the FICCI-EY Report 2020, FICCI-KPMG Report 2019 among others, to argue that the radio industry grown significantly in size with investment in new radio stations across the country with non-ad revenues rising to about 20% of total revenues, and has far exceeded the music industry’s growth. They asserted that the input cost of making music has risen exponentially and radio industry reaps ‘the fruits of finished labour’. Moreover, radio companies are owned by conglomerates which engage in multi-platform barter deals with advertisers and thus present manipulated accounts of their radio ad revenues.
They also highlighted that radio companies are in fact paying royalty rates as high as 6-7% of NAR to Non-PPL members on whom the CB Order did not apply. They opposed the invocation of public interest arguing that music is not public good and radios in fact earn maximum business by repeatedly playing popular Bollywood music instead of promoting different kinds of ghazals, folk, Indi-pop music, and regional content. Largely favouring the NPH model which accommodates time-slot and city-wise differentials, some respondents were amenable to a gross revenue model too.
Having heard all these arguments, IPAB decided that the NPH Model was the most suitable option as it accommodates the varying levels of listenership in different cities, and during different times of the day, making it compatible with Rule 31(7). It rejected the NAR model as the method of calculating ad revenues varies between broadcasters and this creates difficulty in computation. Other than completely ignoring the burgeoning non-ad revenues of broadcasters, it also subjects the copyright owner to the broadcaster’s business practices which should not have a bearing on royalty determination.
This shift to a pay-per-use model is a much welcome development, as it was patently unfair to allow broadcasters to keep paying on the basis of their returns, which could remain low because of poor business decisions on their part.
The CB order of 2010 had based its decision primarily on the woes of the radio broadcasters who had relied on their low growth rate and social awareness initiatives to put forth a compelling case that brought down the prevailing 20% NAR/INR 2400 NPH rate charged by PPL to a meagre 2% NAR. IPAB however opined that statutory licensing is not intended to protect public interest in copyrighted works like compulsory licensing does. It is intended to ensure hassle-free licensing at a rate that closely resembles the free market rate and ensures adequate returns to copyright owners. It thus requires the balancing of interests of both the licensor and licensee.
Financial Health of the Industries
The parties presented multiple expert reports making contradictory claims regarding each others’ financial state. The Copyright Board in 2010 had examined multiple reports from FICCI, Ernst & Young, as well as expert witness testimony. These reports had been dissected and their claims weighed upon through examination of several expert witnesses from both sides, helping the Copyright Board arrive at its decision. IPAB on the other hand did not engage in such a detailed inquiry, as explained before. Instead it observed that conclusions couldn’t be drawn but credible doubts had been cast over the radio companies’ claim of declining revenues and loss of listenership (para 108). Ultimately, IPAB disregarded the plea that radio was burdened with several fees and permits already and lacked the capacity to pay high royalties. It observed that the applicants willingly chose to pursue this business and could not rely on other expenditures to deny the fair value due to copyright owners (para 99).
This assessment ties in well with the previous finding that statutory licensing intends to accommodate interests of both parties. While the other content broadcasted by radio may be of social importance, the burden of incentivizing the radio business cannot be shifted on the shoulders of the music industry which puts together immense creative and financial efforts in creating music.
Setting a Benchmark for Prevailing Rates
An important question to consider was what should be taken as ‘prevailing standards of royalties’ directed by Rule 31(7)(d). A number of broadcasters insisted upon the 2% of NAR rate set by CB Order 2010 since it was in force till its expiry in September 2020, seeking an equivalent rate adapted to the NPH model. The respondents suggested instead the rates charged by non-PPL members in voluntary licenses as they represented a truer picture of existing market prices. IPAB rejected the 2% NAR equivalent as it was 10 years old and far too low even by market standards prevailing in 2010 (Copyright Board had fixed a higher rate of INR 660 NPH as far back as in 2002!). Royalty rates followed in foreign countries were also rightly rejected as they did not reflect the realities of the Indian market. Instead, IPAB looked to the license fees paid by All India Radio (AIR) as a benchmark to arrive at its final matrix.
Ultimately cities were divided into 5 tiers and separate rates were set. Time-slots too were divided into prime time, other time and lean time. A similar scheme was adopted to fix royalties for underlying works.
IPAB rejected respondents’ request for higher royalty rates for popular songs which were repeatedly played as they claimed this to have a saturation effect on the masses, observing that it could not be determined whether it was the popularity of the song that led to repeat broadcast or was it the repeated broadcast that made the song popular. Another plea similarly shot down was that of setting higher rates for playing of complete songs in place of shortened, ‘radio edits’ claiming that that discourage music purchase. Similarly, the request for fixing higher rates for new songs was rejected too as IPAB observed that it could not be decisively said that age of a song is correlated to its popularity.
Despite the fact that this order has been passed for the period between 01/10/2020 to 30/09/2021, IPAB remained conscious to not let business returns during the COVID pandemic influence the rates as it deemed the same to be temporary and not indicative of the long term situation. Lastly, IPAB also allowed regional players with lower listenership to negotiate voluntary licenses and arrive at prices suitable to their business. Although the order has not explicitly clarified whether it is an order in rem, the fact that allows space for voluntary licensing indicates that those not party to this application may be free to negotiate independent licenses.