National Association of Broadcasters v South African Music Performance Rights Association

The National Association of Broadcasters (NAB), representing 31 commercial and public radio stations, and the South African Music Performance Rights Association (SAMPRA), a collecting society for royalties for sound recordings, disputed the appropriate rate of royalties broadcasters should pay for broadcasting sound recordings. Following legislative amendments in 2002 to the Copyright Act 98 of 1978 and Performers' Protection Act 11 of 1967, commercial and public radio stations became obliged to pay needletime royalties to owners of copyright in sound recordings and performers. SAMPRA and NAB proposed different formulae for calculating royalties. SAMPRA proposed a maximum 10% of net broadcasting revenue for 100% music usage (scaling down proportionately). NAB proposed a complex formula involving time channels, profit margins, and audience reach resulting in approximately 1% of net revenue. The Copyright Tribunal (Sapire AJ) adopted SAMPRA's formula but reduced the maximum rate from 10% to 7%. Both parties appealed. Evidence before the Tribunal included economists, industry experts, and international comparisons showing most countries pay 1-5% of revenue.

• What is the reasonable rate of royalties payable by commercial and public radio stations to owners of copyright in sound recordings?
• What formula should be applied to determine the royalty rate?
• What factors should the Copyright Tribunal consider in determining a reasonable royalty rate under section 9A of the Copyright Act?
• Did the Copyright Tribunal err in its determination by ignoring relevant evidence and factors?
• Does the Copyright Tribunal have jurisdiction to determine the date from which royalties become payable?
• What procedure should the Copyright Tribunal follow in determining royalty rates?

The appeal was upheld in part and the cross-appeal dismissed, with no order as to costs. The Copyright Tribunal's determination was set aside and substituted with a formula prescribing: A/B x C x 3/100, where A = time broadcasting SAMPRA sound recordings; B = total time broadcasting editorial content (excluding only advertisements); C = net broadcasting revenue certified by accountants and confirmed in financial statements. This produces a maximum royalty of 3% of net revenue for 100% music usage, scaling down proportionately.

The Copyright Tribunal must determine what is 'reasonable in the circumstances' under section 33(5)(b) read with section 9A of the Copyright Act. In doing so, the Tribunal must consider all relevant evidence and factors, and cannot make arbitrary determinations based solely on a 'value judgment'. Relevant factors include: international comparisons and practices; the relationship to royalties paid for other rights (such as composer rights); the regulatory environment affecting broadcasters; economic consequences including currency outflow; the risk of perverse outcomes; simplicity and practicality of the formula; and the pay-for-play principle. Revenue should be based on actual financial statements rather than notional calculations. Only advertisements should be excluded from editorial content when calculating the proportion of music usage. Profitability and audience-reach should not be factored into the royalty calculation. A maximum rate of 3% of net broadcasting revenue for 100% music usage, scaling down proportionately with music usage, is reasonable in South African circumstances. The Copyright Tribunal's jurisdiction under section 9A is narrowly circumscribed to determining the royalty rate and does not extend to determining the date from which royalties become payable, which involves questions of prescription and copyright infringement.

The Court made significant observations about the deficiencies in the legislative framework. It noted that the statutory scheme is 'tortuous' and 'convoluted', requiring provisions of Chapter 3 to be read 'mutatis mutandis' to accommodate section 9A disputes. The Court expressed concern that despite the Copyright Review Commission's 2011 report describing the regulations as 'vague and unclear' and lamenting the failure to prescribe procedure for adjudication of royalty rates, no progress had been made after three years. The Court stated: 'This is an aspect the Minister should address urgently.' The Court noted it was 'distressing' that no procedure had been prescribed. The Court observed that the broadcasting industry in South Africa is among the most profitable in the world with profit margins of 40-50%. The Court noted that much of the royalties collected would flow out of South Africa to the USA and other countries. The Court observed that not all performers in the USA have royalty rights for terrestrial radio broadcasts. The Court commented that the approach to the High Court for a declaratory order regarding the Tribunal's jurisdiction was 'misplaced' and that it should have been for the Tribunal to consider its own jurisdiction, subject to appeal if it erred.

This is the first case determining needletime royalties under the Copyright Act framework established in 2002. It establishes the binding precedent for calculating royalties payable by radio broadcasters to sound recording copyright owners and performers. The judgment provides important guidance on factors to be considered in determining reasonable royalty rates, including international comparisons, the relationship to composer royalties, regulatory burdens, economic consequences, and the principle of simplicity in formulae. It clarifies the limited jurisdiction of the Copyright Tribunal and establishes that determining the date from which royalties are payable falls outside the Tribunal's powers. The judgment also highlights serious deficiencies in the legislative framework, particularly the absence of prescribed procedure for the Tribunal and the convoluted statutory scheme requiring provisions to be read 'mutatis mutandis', calling for urgent legislative reform.