For purposes of this subpart, the following definitions shall apply:
Affiliate shall have the meaning given in Sec. 385.11.
Applicable consideration shall have the meaning given in Sec. 385.11, except that for purposes of this subpart C, references in the definition of ``Applicable consideration'' in Sec. 385.11 to licensed activity shall mean licensed subpart C activity, as defined in this section.
Free trial royalty rate means the statutory royalty rate of zero in the case of certain free trial periods, as provided in Sec. 385.24.
GAAP shall have the meaning given in Sec. 385.11.
Interactive stream shall have the meaning given in Sec. 385.11.
Licensee shall have the meaning given in Sec. 385.11.
Licensed subpart C activity means, referring to subpart C of this part--
(1) In the case of a limited offering, the applicable interactive streams or limited downloads;
(2) In the case of a locker service, the applicable interactive streams, permanent digital downloads, restricted downloads or ringtones;
(3) In the case of a music bundle, the applicable reproduction or distribution of a physical phonorecord, permanent digital download or ringtone; and
(4) In the case of a mixed service bundle, the applicable--
(i) Permanent digital downloads;
(ii) Ringtones;
(iii) To the extent a limited offering is included in a mixed service bundle, interactive streams or limited downloads; or
(iv) To the extent a locker service is included in a mixed service bundle, interactive streams, permanent digital downloads, restricted downloads or ringtones.
Limited download shall have the meaning given in Sec. 385.11.
Limited offering means a subscription service providing interactive streams or limited downloads where--
(1) An end user is not provided the opportunity to listen to a particular sound recording chosen by the end user at a time chosen by the end user (i.e., the service does not provide interactive streams of individual recordings that are on-demand, and any limited downloads are rendered only as part of programs rather than as individual recordings that are on-demand); or
(2) The particular sound recordings available to the end user over a period of time are substantially limited relative to services in the marketplace providing access to a comprehensive catalog of recordings (e.g., a service limited to a particular genre, or permitting interactive streaming only from a monthly playlist consisting of a limited set of recordings).
Locker service means a service providing access to sound recordings of musical works in the form of interactive streams, permanent digital downloads, restricted downloads or ringtones, where the service has reasonably determined that phonorecords of the applicable sound recordings have been purchased by the end user or are otherwise in the possession of the end user prior to the end user's first request to access such sound recordings by means of the service. The term locker service does not extend to any part of a service otherwise meeting this definition as to which a license is not obtained for the applicable reproductions and distributions of musical works.
Mixed service bundle means an offering of one or more of permanent digital downloads, ringtones, locker services or limited offerings, together with one or more of non-music services (e.g., Internet access service, mobile phone service) or non-music products (e.g., a device such as a phone) of more than token value, that is provided to users as part of one transaction without pricing for the music services or music products separate from the whole offering.
Music bundle means an offering of two or more of physical phonorecords, permanent digital downloads or ringtones provided to users as part of one transaction (e.g., download plus ringtone, CD plus downloads). A music bundle must contain at least two different product configurations and cannot be combined with any other offering containing licensed activity under subpart B of this part or subpart C of this part.
(1) In the case of music bundles containing one or more physical phonorecords, the physical phonorecord component of the music bundle must be sold under a single catalog number, and the musical works embodied in the digital phonorecord delivery configurations in the music bundle must be the same as, or a subset of, the musical works embodied in the physical phonorecords; provided that when the music bundle contains a set of digital phonorecord deliveries sold by the same record company under substantially the same title as the physical phonorecord (e.g., a corresponding digital album), up to 5 sound recordings of musical works that are included in the stand-alone version of such set of digital phonorecord deliveries but are not included on the physical phonorecord may be included among the digital phonorecord deliveries in the music bundle. In addition, the seller must permanently part with possession of the physical phonorecord or phonorecords sold as part of the music bundle.
(2) In the case of music bundles composed solely of digital phonorecord deliveries, the number of digital phonorecord deliveries in either configuration cannot exceed 20, and the musical works embodied in each configuration in the music bundle must be the same as, or a subset of, the musical works embodied in the configuration containing the most musical works.
Paid locker service means a locker service that is a subscription service.
Permanent digital download shall have the meaning given in Sec. 385.2.
Purchased content locker service means a locker service made available to end-user purchasers of permanent digital downloads, ringtones or physical phonorecords at no incremental charge above the otherwise applicable purchase price of the permanent digital downloads, ringtones or physical phonorecords, with respect to the sound recordings embodied in permanent digital downloads or ringtones or physical phonorecords purchased from a qualifying seller as described in paragraph (1) of this definition of ``Purchased content locker service,'' whereby the locker service enables the purchaser to engage in one or both of the qualifying activities indentified in paragraph (2) of this definition of ``Purchased content locker service.'' In addition, in the case of a locker service made available to end-user purchasers of physical phonorecords, the seller must permanently part with possession of the physical phonorecords.
(1) A qualifying seller for purposes of this definition of ``purchased content locker service'' is the same entity operating such locker service, one of its affiliates or predecessors, or--
(i) In the case of permanent digital downloads or ringtones, a seller having another legitimate connection to the locker service provider set forth in one or more written agreements (including that the locker service and permanent digital downloads or ringtones are offered through the same third party); or
(ii) In the case of physical phonorecords, a seller having an agreement with--
(A) The locker service provider whereby such parties establish an integrated offer that creates a consumer experience commensurate with having the same service both sell the physical phonorecord and offer the locker service; or
(B) A service provider that also has an agreement with the entity offering the locker service, where pursuant to those agreements the service provider has established an integrated offer that creates a consumer experience commensurate with having the same service both sell the physical phonorecord and offer the locker service.
(2) Qualifying activity for purposes of this definition of ``purchased content locker service'' is enabling the purchaser to--
(i) Receive one or more additional phonorecords of such purchased sound recordings of musical works in the form of permanent digital downloads or ringtones at the time of purchase, or
(ii) Subsequently access such purchased sound recordings of musical works in the form of interactive streams, additional permanent digital downloads, restricted downloads or ringtones.
Record company shall have the meaning given in Sec. 385.11.
Restricted download means a digital phonorecord delivery distributed in the form of a download that may not be retained and played on a permanent basis. The term restricted download includes a limited download.
Ringtone shall have the meaning given in Sec. 385.2.
Service provider shall have the meaning given in Sec. 385.11, except that for purposes of this subpart references in the definition of ``Service provider'' in Sec. 385.11 to licensed activity and service revenue shall mean licensed subpart C activity, as defined in this section, and subpart C service revenue, as defined in this section, respectively.
Subpart C offering means, referring to subpart C of this part, a service provider's offering of licensed subpart C activity, as defined in this section, that is subject to a particular rate set forth in Sec. 385.23(a) (e.g., a particular subscription plan available through the service provider).
Subpart C relevant page means, referring to subpart C of this part, a page (including a Web page, screen or display) from which licensed subpart C activity, as defined in this section, offered by a service provider is directly available to end users, but only where the offering of licensed subpart C activity, as defined in this section, and content that directly relates to the offering of licensed subpart C activity, as defined in this section, (e.g., an image of the artist or artwork closely associated with such offering, artist or album information, reviews of such offering, credits and music player controls) comprises 75% or more of the space on that page, excluding any space occupied by advertising. A licensed subpart C activity, as defined in this section, is directly available to end users from a page if sound recordings of musical works can be accessed by end users for licensed subpart C activity, as defined in this section, from such page (in most cases this will be the page where the transmission takes place).
(1) Subject to paragraphs (2) through (6) of the definition of ``Subpart C service revenue,'' as defined in this section, and subject to GAAP, subpart C service revenue shall mean, referring to subpart C of this part, the following:
(i) All revenue recognized by the service provider from end users from the provision of licensed subpart C activity, as defined in this section;
(ii) All revenue recognized by the service provider by way of sponsorship and commissions as a result of the inclusion of third-party ``in-stream'' or ``in-download'' advertising as part of licensed subpart C activity, as defined in this section, (i.e., advertising placed immediately at the start, end or during the actual delivery, by way of transmissions of a musical work that constitute licensed subpart C activity, as defined in this section); and
(iii) All revenue recognized by the service provider, including by way of sponsorship and commissions, as a result of the placement of third-party advertising on a subpart C relevant page, as defined in this section, of the service or on any page that directly follows such subpart C relevant page, as defined in this section, leading up to and including the transmission of a musical work that constitutes licensed subpart C activity, as defined in this section; provided that, in the case where more than one service is actually available to end users from a subpart C relevant page, as defined in this section, any advertising revenue shall be allocated between such services on the basis of the relative amounts of the page they occupy.
(2) In each of the cases identified in paragraph (1) of the definition of ``Subpart C service revenue,'' of this section such revenue shall, for the avoidance of doubt,
(i) Include any such revenue recognized by the service provider, or if not recognized by the service provider, by any associate, affiliate, agent or representative of such service provider in lieu of its being recognized by the service provider;
(ii) Include the value of any barter or other nonmonetary consideration;
(iii) Not be reduced by credit card commissions or similar payment process charges; and
(iv) Except as expressly set forth in this subpart, not be subject to any other deduction or set-off other than refunds to end users for licensed subpart C activity, as defined in this section, that they were unable to use due to technical faults in the licensed subpart C activity, as defined in this section, or other bona fide refunds or credits issued to end users in the ordinary course of business.
(3) In each of the cases identified in paragraph (1) of the definition of ``Subpart C service revenue'' of this section, such revenue shall, for the avoidance of doubt, exclude revenue derived solely in connection with services and activities other than licensed subpart C activity, as defined in this section, provided that advertising or sponsorship revenue shall be treated as provided in paragraphs (2) and (4) of the definition of ``Subpart C service revenue'' of this section. By way of example, the following kinds of revenue shall be excluded:
(i) Revenue derived from non-music voice, content and text services;
(ii) Revenue derived from other non-music products and services (including search services, sponsored searches and click-through commissions);
(iii) Revenue generated from the sale of actual locker service storage space to the extent that such storage space is sold at a separate retail price;
(iv) In the case of a locker service, revenue derived from the sale of permanent digital downloads or ringtones; and
(v) Revenue derived from other music or music-related products and services that are not or do not include licensed subpart C activity, as defined in this section.
(4) For purposes of paragraph (1) of the definition of ``Subpart C service revenue'' of this section, advertising or sponsorship revenue shall be reduced by the actual cost of obtaining such revenue, not to exceed 15%.
(5) In the case of a mixed service bundle, the revenue deemed to be recognized from end users for the service for the purpose of the definition in paragraph (1) of the definition of ``Subpart C service revenue'' of this section shall be the greater of--
(i) The revenue recognized from end users for the mixed service bundle less the standalone published price for end users for each of the non-music product or non-music service components of the bundle; provided that, if there is no such standalone published price for a non-music component of the bundle, then the average standalone published price for end users for the most closely comparable non-music product or non-music service in the U.S. shall be used or, if more than one such comparable exists, the average of such standalone prices for such comparables shall be used; and
(ii) Either--
(A) In the case of a mixed service bundle that either has 750,000 subscribers or other registered users, or is reasonably expected to have 750,000 subscribers or other registered users within 1 year after commencement of the mixed service bundle, 40% of the standalone published price of the licensed music component of the bundle (i.e., the permanent digital downloads, ringtones, locker service or limited offering); provided that, if there is no such standalone published price for the licensed music component of the bundle, then the average standalone published price for end users for the most closely comparable licensed music component in the U.S. shall be used or, if more than one such comparable exists, the average of such standalone prices for such comparables shall be used; and further provided that in any case in which royalties were paid based on this paragraph due to a reasonable expectation of reaching 750,000 subscribers or other registered users within 1 year after commencement of the mixed service bundle and that does not actually happen, applicable payments shall, in the accounting period next following the end of such 1-year period, retroactively be adjusted as if paragraph (5)(ii)(B) of the definition of ``Subpart C service revenue'' of this section applied; or
(B) Otherwise, 50% of the standalone published price of the licensed music component of the bundle (i.e., the permanent digital downloads, ringtones, locker service or limited offering); provided that, if there is no such standalone published price for the licensed music component of the bundle, then the average standalone published price for end users for the most closely comparable licensed music component in the U.S. shall be used or, if more than one such comparable exists, the average of such standalone prices for such comparables shall be used.
(6) In the case of a music bundle containing a physical phonorecord, where the music bundle is distributed by a record company for resale and the record company is the compulsory licensee--
(i) Service revenue shall be 150% of the record company's wholesale revenue from the music bundle; and
(ii) The times at which distribution and revenue recognition are deemed to occur shall be in accordance with Sec. 201.19 of this title.
Subscription service means a digital music service for which end users are required to pay a fee to access the service for defined subscription periods of 3 years or less (in contrast to, for example, a service where the basic charge to users is a payment per download or per play), whether such payment is made for access to the service on a standalone basis or as part of a bundle with one or more other products or services, and including any use of such a service on a trial basis without charge as described in Sec. 385.24.