[Editor Charlie sez: This is why audits are important.]
In 2015, SoundExchange filed suit against Muzak, a wholly-owned subsidiary of Canada’s Mood Media Corporation, for underpayment. The lawsuit arose from Mood Media’s attempt to acquire new music services and pay for the use of sound recordings on these services at grandfathered, below market rates which were intended for a very limited set of companies. On April 25, 2017, the D.C. Circuit ruled in favor of SoundExchange.
Commenting on the ruling, SoundExchange President and CEO Michael Huppe said:
“On behalf of music creators, we are gratified by the D.C. Circuit’s ruling in our favor today. This important decision rejects Muzak’s effort to expand its limited grandfathered eligibility for below-market rates. As the Court properly recognized, Muzak’s position ‘threatens the very purpose of the [Digital Millennium Copyright] Act.’ Looking ahead, the decision will help SoundExchange continue its efforts to ensure that recording artists and rights owners receive proper compensation when their creative work is used.”
Technical background on the case
The passage of the Digital Millennium Copyright Act of 1998 (DMCA) set forth under the law that most subscription services (e.g. those services that deliver music content to cable and satellite television providers) would have their statutory rates set by a fair market value standard (i.e. willing buyer, willing seller). When the DMCA was passed, a small handful of “pre-existing” services, including Muzak and their provision of music to Dish Network, were grandfathered into an outdated standard for setting royalty rates – a standard that frequently results in artists and labels being paid less than a fair rate.
In 2011, Muzak was purchased by Mood Media who, in turn, also purchased DMX, a Texas-based company that also provided music for cable and satellite television networks, including DirecTV. DMX had previously been licensing music under the regular fair market standard. In 2014, Mood Media moved DMX’s cable and satellite music service contracts (including DirecTV) to Muzak, thereby converting a large part of DMX’s former business into a faux “pre-existing” service and dramatically slashing what it paid for the use of the music it was providing.