Compass Lexecon Clients Achieve "Big Win" in Landmark Copyright Royalty Board Ruling in Industry Wide Non-Interactive Webcasting Ratemaking Proceeding

Five Compass Lexecon Experts Testify at the Hearing for Webcasters

In a December 2015 decision, the Copyright Royalty Board (CRB) concluded "Web IV," a multi-year process to determine the statutory royalty rate paid by non-interactive internet radio webcasting services such as iHeartRadio (formerly Clear Channel) and Pandora to copyright holders for performance of sound recordings from 2016-2020. Compass Lexecon was retained by counsel for iHeartMedia, Inc. to assist in developing their rate proposal and to testify as experts. Compass Lexecon was separately retained by the National Association of Broadcasters (NAB) for the same purposes, and also by Pandora Media, Inc. In what industry observers described as a "big win" for the webcasters, the CRB set the commercial non-subscription webcasting rate at $0.0017 per performance for 2016-2020, a 32% reduction from the $0.0025 rate that iHeartMedia and NAB members paid in 2015. Before this decision, the rate for commercial webcasters had never before declined, so the large decline in the 2016 rate was unprecedented. Moreover, unlike rates set in past proceedings, which included pre-set increases throughout the rate period, the CRB rate for 2016-2020 will remain constant apart from annual adjustments for general inflation or deflation. The flat rate determined by the CRB is also far lower than the rate proposed by copyright holder consortium SoundExchange, which proposed that webcasters pay the greater of 55% of revenues, and a per-performance rate that grew from $0.0025 in 2016 to $0.0029 in 2020.

Compass Lexecon's President Professor Daniel R. Fischel and Compass Lexecon Senior Consultant Professor Douglas G. Lichtman offered joint testimony on behalf of iHeartMedia, which included multiple written reports as well as deposition and trial testimony. Testimony by Professor Fischel and Professor Lichtman was key to the CRB's determination of appropriate benchmark agreements, and the ultimate rate decision of the CRB judges relied heavily on an agreement that was proffered as a benchmark by Professor Fischel in his hearing testimony. The CRB also relied heavily on the rebuttal testimony of Professors Fischel and Lichtman in rejecting SoundExchange's proposal for non-subscription webcasting royalty rates.

Compass Lexecon Senior Vice President Dr. Todd D. Kendall also testified at the hearing on behalf of iHeartMedia, in addition to providing a report and deposition. Dr. Kendall's testimony focused on his empirical study further rebutting the opposing expert's model by demonstrating that webcast listening promotes music purchases more than does listening to on-demand services.

Separately, Compass Lexecon Senior Consultant Professor Michael L. Katz testified on behalf of the National Association of Broadcasters, demonstrating that the appropriate royalty rate structure would be "workably competitive," with rates reflecting competition among copyright holders. The CRB adopted Professor Katz's economic framework in setting rates. Professor Katz offered written, deposition and trial testimony as to his findings.

Finally, Compass Lexecon Executive Vice President Steven R. Peterson was retained in the proceedings on behalf of the National Association of Broadcasters and Pandora Media, Inc. Dr. Peterson demonstrated that opposing expert testimony regarding consumer willingness to pay for online music inappropriately masked substantial heterogeneity across those listeners, a finding that the CRB agreed with. Dr. Peterson also concluded that opposing expert testimony claiming that webcasting firms could be healthy and profitable at current rates was flawed and unsound. Dr. Peterson offered written, deposition and trial testimony as to his findings. Compass Lexecon also coordinated with Pandora's principal economic expert, Professor Carl Shapiro.

iHeartMedia, Inc. was successfully represented in the proceedings by attorneys from Kellogg, Huber, Hansen, Todd, Evans & Figel, PLLC, including Mark C. Hansen, John Thorne, Evan T. Leo, Kevin J. Miller, Leslie V. Pope, and Caitlin Hall. The National Association of Broadcasters was successfully represented by attorneys from Wiley Rein LLP, including Bruce G. Joseph and Karyn K. Ablin. Pandora Media, Inc. was successfully represented by attorneys from Weil, Gotshal & Manges LLP, including Bruce Rich, Benjamin E. Marks, Todd Larson, and Jacob B. Ebin. Compass Lexecon testifying experts were supported by teams including Rajiv Gokhale, Theresa Sullivan, Erika Morris, Clifford Ang, Avisheh Mohsenin and Ron Laschever.