Determination of Rates and Terms for Digital Performance of Sound Recordings and Making of Ephemeral Copies To Facilitate Those Performances (Web V)

CourtCopyright Royalty Board
Citation86 FR 59452
Published date27 October 2021
Record Number2021-20621
Federal Register, Volume 86 Issue 205 (Wednesday, October 27, 2021)
[Federal Register Volume 86, Number 205 (Wednesday, October 27, 2021)]
                [Rules and Regulations]
                [Pages 59452-59593]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-20621]
                [[Page 59451]]
                Vol. 86
                Wednesday,
                No. 205
                October 27, 2021
                Part IILibrary of Congress-----------------------------------------------------------------------Copyright Royalty Board-----------------------------------------------------------------------37 CFR Part 380Determination of Rates and Terms for Digital Performance of Sound
                Recordings and Making of Ephemeral Copies To Facilitate Those
                Performances (Web V); Final Rule
                Federal Register / Vol. 86, No. 205 / Wednesday, October 27, 2021 /
                Rules and Regulations
                [[Page 59452]]
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                LIBRARY OF CONGRESS
                Copyright Royalty Board
                37 CFR Part 380
                [Docket No. 19-CRB-0005-WR (2021-2025)]
                Determination of Rates and Terms for Digital Performance of Sound
                Recordings and Making of Ephemeral Copies To Facilitate Those
                Performances (Web V)
                AGENCY: Copyright Royalty Board, Library of Congress.
                ACTION: Final rule and order.
                -----------------------------------------------------------------------
                SUMMARY: The Copyright Royalty Judges announce their final
                determination of the rates and terms for two statutory licenses
                (permitting certain digital performances of sound recordings and the
                making of ephemeral recordings) for the period beginning January 1,
                2021, and ending on December 31, 2025.
                DATES:
                 Effective date: October 27, 2021.
                 Applicability date: The regulations apply to the license period
                beginning January 1, 2021, and ending December 31, 2025.
                ADDRESSES: The final determination is posted in eCRB at https://app.crb.gov/. For access to the docket to read the final determination
                and submitted background documents, go to eCRB and search for docket
                number 19-CRB-0005-WR (2021-2025).
                FOR FURTHER INFORMATION CONTACT: Anita Blaine, CRB Program Assistant,
                (202) 707-7658, [email protected].
                SUPPLEMENTARY INFORMATION:
                Final Determination
                 The Copyright Royalty Judges (Judges) hereby issue their written
                determination of royalty rates and terms to apply from January 1, 2021,
                through December 31, 2025, to digital performance of sound recordings
                over the internet by nonexempt, noninteractive transmission services
                and to the making of ephemeral recordings to facilitate those
                performances.
                 The rate for commercial subscription services in 2021 is $0.0026
                per performance. The rate for commercial nonsubscription services in
                2021 is $0.0021 per performance. The rates for the period 2022 through
                2025 for both subscription and nonsubscription services shall be
                adjusted to reflect the increases or decreases, if any, in the general
                price level, as measured by the change in the Consumer Price Index for
                All Urban Consumers (U.S. City Average, all items) (CPI-U) from that
                published by the Bureau of Labor Statistics (BLS) in November 2020, as
                set forth in the regulations adopted by this determination.
                 The rates for noncommercial webcasters are: $1,000 annually for
                each station or channel for all webcast transmissions totaling not more
                than 159,140 Aggregate Tuning Hours (ATH) in a month, for each year in
                the rate term. In addition, if, in any month, a noncommercial webcaster
                makes total transmissions in excess of 159,140 ATH on any individual
                channel or station, the noncommercial webcaster shall pay per-
                performance royalty fees for the transmissions it makes on that channel
                or station in excess of 159,140 ATH at the rate of $0.0021 per
                performance in 2021. The rates for transmissions over 159,140 ATH per
                month for the period 2022 through 2025 shall be adjusted to reflect the
                increases or decreases, if any, in the general price level, as measured
                by the changes in the CPI-U from that published by BLS in November
                2020, as set forth in the regulations adopted by this determination.
                 The Judges also determine herein details relating to the rates for
                each category of webcasting service, such as minimum fee and
                administrative terms, in the following analysis. ``Exhibit A'' to this
                determination contains the regulatory language codifying the terms of
                the Judges' determination.
                I. Background
                A. Purpose of the Proceeding
                 The licenses at issue in the captioned proceeding, viz., licenses
                for commercial and noncommercial noninteractive webcasting, are
                compulsory. Title 17, United States Code (Copyright Act or Act),
                establishes exclusive rights reserved to copyright owners, including
                the right to ``perform the copyrighted work publicly by means of a
                digital audio transmission.'' See 17 U.S.C. 106(6). The digital
                performance right is limited, however, by section 114 of the Act, which
                grants a statutory license for nonexempt noninteractive internet
                transmissions of protected works. 17 U.S.C. 114(d). Eligible webcasters
                are entitled to perform sound recordings without an individual license
                from the copyright owner, provided they pay the statutory royalty rates
                for the performance of the sound recordings and for the ephemeral copy
                of the sound recording necessary to transmit it. 17 U.S.C. 114(f),
                112(e). Licensee webcasters pay the royalties to a Collective, which
                distributes the funds to performing artists and copyright owners. The
                statutory rates and terms apply for a period of five years. The Act
                requires that the Judges ``establish rates and terms that most clearly
                represent the rates and terms that would have been negotiated in the
                marketplace between a willing buyer and a willing seller.'' 17 U.S.C.
                114(f)(2)(B). The marketplace the Judges look to is a hypothetical
                marketplace, free of the influence of compulsory, statutory licenses.
                Web II, 72 FR 24084, 24087 (May 1, 2007). The Judges ``shall base their
                decision on economic, competitive[,] and programming information
                presented by the parties . . . .'' 17 U.S.C. 114(f)(2)(B), 112(e)(4)
                (emphasis added). Within these categories, the Judges' determination
                shall account for (1) whether the internet service substitutes for or
                promotes the copyright owner's other streams of revenue from the sound
                recording and (2) the relative roles and contributions of the copyright
                owner and the service, including creative, technological, and financial
                contributions, and risk assumption. Id. The Judges may consider rates
                and terms of comparable services and comparable circumstances under
                voluntary, negotiated license agreements. Id. The rates and terms
                established by the Judges ``shall distinguish'' among the types of
                services and ``shall include'' a minimum fee for each type of service.
                Id. (emphasis added).
                B. Procedural Posture
                 Following the timeline prescribed by the Act, the Judges published
                notice of commencement of this proceeding in the Federal Register. 84
                FR 359 (Jan. 24, 2019). Twenty parties in interest filed petitions to
                participate in the proceeding. Nine of those petitioners subsequently
                withdrew from the proceeding, and the Judges dismissed one of the
                petitioners because the Judges determined that he lacked the requisite
                substantial interest in the proceeding.\1\
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                 \1\ The following parties filed petitions to participate: Accu
                Radio LLC (withdrew), College Broadcasters Inc. (settled), David
                Powell (dismissed), Educational Media Foundation (joined case of
                NRBNMLC), Live365 Broadcaster LLC (withdrew), LA RAZA MEDIA GROUP
                LLC (withdrew), Pandora Media LLC (Pandora), Radio Coalition LLC
                (withdrew), Sirius XM Radio, National Religious Broadcasters
                Noncommercial Music License Committee (NRBNMLC), National
                Association of Broadcasters (NAB), Feed Media, Inc. (withdrew), Dash
                Radio, Inc. (withdrew), Tunein Inc. (withdrew), National Public
                Radio (settled), Radio Paradise Inc. (withdrew), SoundExchange, Inc.
                (SoundExchange) (filing jointly on behalf of The American Federation
                of Musicians and the United States and Canada, Screen Actors Guild/
                American Federation of Television and Radio Artists, The American
                Association of Independent Music, Sony Music Entertainment, UMG
                Recordings, Inc., Warner Music Group Corp., and Jagjaguwar Inc.),
                iHeart Media Inc., ICON Health & Fitness Inc. (withdrew), and Google
                Inc.
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                [[Page 59453]]
                1. Negotiated Settlements
                 The Judges received two settlements, one between SoundExchange and
                certain public broadcasters and the other between SoundExchange and
                certain educational webcasters.
                a. Public Broadcasters
                 One of the settlements, among SoundExchange, National Public Radio
                (NPR), and the Corporation for Public Broadcasting (CPB), addressed
                rates and terms for certain internet transmissions by public
                broadcasters, NPR, American Public Media, Public Radio International,
                Public Radio Exchange, and certain other unnamed public radio stations
                for the period from January 1, 2021, through December 31, 2025. The
                Judges published the terms of the settlement in the Federal Register on
                October 29, 2019. The Judges received no comments on the proposal and
                approved the settlement on February 28, 2020.\2\
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                 \2\ 85 FR 11857 (Feb. 28, 2020).
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                b. Educational Webcasters
                 The other settlement, between SoundExchange and College
                Broadcasters, Inc. (CBI), addressed rates and terms for certain
                internet transmissions of sound recordings by college radio stations
                and other noncommercial educational webcasters for the period from
                January 1, 2021, through December 31, 2025. The Judges published the
                terms of the settlement in the Federal Register on October 30, 2019.
                The Judges received no comments on the proposal and approved the
                settlement on March 4, 2020.\3\
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                 \3\ 85 FR 12745 (Mar. 4, 2020).
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                2. The Current Proceeding To Adjudicate Rates and Terms
                 The Act provides that the Judges shall make their determinations
                ``on the basis of a written record, prior determinations and
                interpretations of the Copyright Royalty Tribunal, Librarian of
                Congress . . .'' and their own prior determinations to the extent those
                determinations are ``not inconsistent with a decision of the Register
                of Copyrights . . . .'' 17 U.S.C. 803(a). Pursuant to 17 U.S.C. 803(b),
                the Judges conduct a hearing to create that ``written record.'' To that
                end, non-settling parties appeared before the Judges virtually for an
                evidentiary hearing. At the hearing, SoundExchange represented the
                interests of licensors. Several non-settling licensees also
                participated in the hearing.\4\
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                 \4\ The non-settling licensees were Google, iHeart Media, NAB,
                NRBNMLC, Pandora, and Sirius XM.
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                 The hearing commenced on August 4, 2020, and concluded on September
                9, 2020.\5\ The parties submitted proposed findings and conclusions
                (and responses thereto) in writing, prior to their closing arguments on
                November 19, 2020. During the hearing, the Judges heard oral testimony
                from 33 witnesses (some of them for both direct case and rebuttal
                testimony) and considered the testimony of eight witnesses on the
                papers. The witnesses included 13 qualified experts. The Judges
                admitted 748 exhibits into evidence, consisting of over 900,000 pages
                of documents (9227 MB of electronic files in eCRB), and considered
                numerous illustrative and demonstrative materials that focused on
                aspects of the admitted evidence and the permitted oral testimony.
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                 \5\ The hearing was originally scheduled to commence on March
                16, 2020, but was delayed due to the coronavirus pandemic. See Order
                Granting Joint Motion for Continuance of Hearing (Mar. 12, 2020)
                (delaying commencement of hearing until April 28, 2020. In
                consultation with the participants, the Judges granted several
                additional continuances, until ultimately scheduling a virtual
                hearing employing videoconferencing technology to commence on August
                4, 2020. See Order Granting Joint Motion for Second Continuance of
                Hearing (Apr. 1, 2020); Order Granting Joint Motion for Third
                Continuance of Hearing (May 1, 2020); Order on Hearing Schedule and
                Related Pre-Hearing Matters (Jun. 10, 2020); Order Setting Virtual
                Hearing and Addressing other Hearing-Related Matters (Jun. 25,
                2020); Order Postponing Virtual Hearing (Jul. 14, 2020); Order
                Rescheduling Virtual Hearing (Aug. 3, 2020).
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                 Pursuant to section 803(c)(1), the initial Determination in this
                matter was due no later than December 16, 2020 (i.e., 15 days before
                the expiration of the current statutory rates and terms). See 17 U.S.C.
                803(c)(1). On July 6, 2020, the Acting Register of Copyrights, at the
                request of the Judges, exercised her authority under 17 U.S.C. 710 to
                ``toll, waive, adjust, or modify'' the timing provision in section
                803(c)(1) to account for the disruption and delay caused by the COVID-
                19 pandemic. The Acting Register extended the Judges' deadline for
                issuing an initial Determination by up to 120 days, effectively making
                the deadline April 15, 2021. See Public Notice Regarding Timing
                Provisions for Persons Affected by COVID-19, U.S. Copyright Office,
                https://www.copyright.gov/coronavirus/ (last visited Jan. 11, 2021).
                The Register of Copyrights announced an additional 60-day extension on
                March 29, 2021, in the Copyright Office's NewsNet, Issue No. 889.
                II. Context of the Current Proceeding: Prior Rate Determinations
                 Congress created the exclusive sound recordings digital performance
                copyright in 1995. See Digital Performance Right in Sound Recordings
                Act of 1995, Public Law 104-39, 109 Stat. 336 (1995). At the same time,
                Congress limited that performance right by granting noninteractive
                subscription services a statutory license to perform sound recordings
                by digital audio transmission. In 1998, Congress created the ephemeral
                recording license and further defined and limited the statutory license
                for digital performance of sound recordings. See Digital Millennium
                Copyright Act, Public Law 105-304, 112 Stat. 2860 (1998) (DMCA).
                A. Web I-Web III
                 The Judges summarized the history of webcasting determinations from
                Web I through Web III in detail in their Web IV determination. See
                Determination of Royalty Rates and Terms for Ephemeral Recording and
                Webcasting Digital Performance of Sound Recordings, Final rule and
                order, 81 FR 26316, 26317-19 (May 2, 2016) (Web IV). The Judges hereby
                incorporate that discussion by reference into this Determination.
                B. Web IV Determination and Appeals
                 The Judges commenced the Web IV proceeding in January 2014.
                SoundExchange and a pro se petitioner, George Johnson d/b/a GEO Music,
                represented the interests of licensors. Seven licensees also
                participated in the hearing.\6\ The Judges approved two negotiated
                agreements, one for public broadcasters between SoundExchange and NPR
                and CPB, and the other for educational webcasters between SoundExchange
                and CBI.
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                 \6\ The licensees were Harvard Radio Broadcasting, Inc., IBS,
                iHeartMedia, NAB, NRBNMLC, Pandora, and Sirius XM.
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                 The Judges concluded that ``there is continued support in the
                marketplace for a different rate structure for commercial and
                noncommercial webcasters.'' 81 FR 26316, 26320 (May 2016). The Judges
                therefore adopted separate rate structures for noncommercial and
                commercial webcasters. With respect to noncommercial webcasters, the
                Judges adopted a $500 per station or channel fee for all transmissions
                by noncommercial webcasters up to a threshold of 159,140 aggregate
                tuning hours (ATH) for 2016 through 2020. For transmissions in excess
                of 159,140 ATH, the Judges set a rate of $0.0017 per performance for
                2016, which would be adjusted annually for changes to the CPI-U for the
                years 2017-2020. Id. at 26396.
                 The Judges also identified a distinction between two different
                types of copyright owners. Based on the
                [[Page 59454]]
                record, the Judges observed that ``in the marketplace, Services have
                agreed to pay higher rates to'' major record labels (Majors) than to
                so-called independent labels (Indies). Id. at 26319. To gain clarity on
                whether the Judges could establish different rates based on differences
                among copyright owners, the Judges referred to the Register of
                Copyrights (Register) the novel question of whether the Act permits the
                Judges to differentiate based on types of licensors. The Register
                concluded that the Judges' question did not meet the statutory criteria
                for referral and declined to answer it. Id. In the absence of an
                adequate record to support such differentiation, the Judges declined to
                adopt separate rates for Majors and Indies. Id.
                 The Judges also addressed potential distinctions between groups of
                licensees. In particular, NAB argued that simulcasting is different
                from other forms of commercial webcasting and therefore simulcasters
                (i.e., terrestrial radio stations that simulcast over-the-air
                broadcasts on the internet) should pay a lower rate than other
                commercial webcasters. Id. at 26320. Based on the record in Web IV,
                however, the Judges concluded that NAB did not satisfy its burden to
                demonstrate that simulcasting differs in ways that would cause willing
                buyers and willing sellers to agree to a lower royalty rate in the
                hypothetical market. Therefore, the Judges did not adopt a different
                rate structure for simulcasters than that which applied to other
                commercial webcasters. Id.
                 SoundExchange and Pandora each proposed different greater-of rate
                structures employing a per-play rate and a percentage-of-revenue rate.
                All of the Services, other than Pandora, opposed such a two-pronged
                approach. The Judges concluded that the record did not support a
                greater-of rate structure in the rate period at issue in Web IV. Id. at
                26323. Rather, the Judges found that the statutory rate should continue
                to be set on a per-play basis for commercial webcasters. Id. at 26325.
                 The Judges set two separate rates for commercial noninteractive
                webcasting. One applied to performances on subscription-based
                commercial noninteractive services. A separate rate applied to
                performances on nonsubscription services (i.e., advertising supported
                services that are free to the listener). Id. at 26404. The Judges set
                each of the rates for 2016 (the first year of the five-year statutory
                license term) and then applied an inflation-based adjustment to the
                rates for the remaining years of the license. The Judges looked to
                separate benchmarks to establish the rates. For commercial
                noninteractive subscription services, the Judges used a benchmark
                developed by SoundExchange's expert, Dr. Rubinfeld, to which the Judges
                applied a 12% ``steering'' reduction to reflect a lack of competition
                in that particular segment of the market among the providers of the
                copyright works. The Judges also credited a rate established in an
                agreement between Pandora and Merlin. Those two rates formed a zone of
                reasonableness, within which the Judges chose a per-performance rate of
                $0.0022 for 2016. Id. at 26405.
                 With respect to the rate for commercial nonsubscription services,
                the Judges identified two usable benchmarks. One was based on a rate in
                an agreement between iHeart and Warner. The other was based on a rate
                from an agreement between Pandora and Merlin. Id. at 26405. The first
                represented an agreement between a service and a Major and the second
                between a service and Indies. The Judges used these rates to form a
                zone of reasonableness. The Judges selected a rate for 2016 of $0.0017,
                which took into account a greater number of streams from Major sound
                recordings as opposed to the percentage of streams from Indie sound
                recordings. The rates for 2017 through 2020 would be adjusted to
                account for changes in the CPI. The rate for the Section 112 license
                would constitute 5% of the royalty services would pay for performances
                under the Section 114 license. Id. at 26406.
                 SoundExchange and George Johnson appealed the Judges' determination
                to the U.S. Court of Appeals for the D.C. Circuit. The court affirmed.
                SoundExchange, Inc. v. Copyright Royalty Bd., 904 F.3d 41 (Sep. 18,
                2018).
                III. The Role of Effective Competition in Setting Webcasting Rates
                A. The Concept of ``Effectively Competitive'' Rates
                 In Web IV, the Judges held that the Copyright Act either required
                them, or permitted them, in their discretion, ``to set a rate that
                reflects a market that is effectively competitive.'' Web IV, 81 FR at
                2633 (emphasis added). The D.C. Circuit affirmed the Judges' conclusion
                that they had the discretionary authority ``to determine rates through
                the lens of an effective-competition standard'' (but held that the
                Judges were not required to do so). SoundExchange, 904 F.3d at 57.
                 More particularly, the D.C. Circuit found reasonable the Judges'
                construction of the statutory ``willing seller/willing buyer-
                marketplace'' standard as calling for the establishment of rates that
                would have been set in an effectively competitive market. In that
                regard, the D.C. Circuit pointed to testimony and record evidence--
                referenced approvingly by the Judges--stating that ``neither sellers
                nor buyers can be said to be `willing' partners to an agreement if they
                are coerced to agree to a price through the exercise of overwhelming
                market power.'' SoundExchange, 904 F.2d at 56 (quoting Web IV, 81 FR at
                26331).
                 Additionally, the D.C. Circuit grounded its affirmance on its
                finding that the statutory willing buyer/willing seller-marketplace
                standard was inherently ambiguous. Because of this ambiguity, the D.C.
                Circuit held that the Judges had properly exercised their statutory
                duty by considering ``the clear statutory purpose, applicable prior
                decisions, and the relevant legislative history.'' SoundExchange, 904
                F.3d at 55 (quoting Web IV at 26332). In particular, the D.C. Circuit
                took note of the Judges' reliance on their own webcaster rate
                determination that had immediately preceded Web IV:
                 The [Judges] relied on one of [their] prior determinations in
                reasoning that, ``[b]etween the extremes of a market with
                `metaphysically perfect competition' and a monopoly (or collusive
                oligopoly) market devoid of competition there exists in the real
                world . . . a mind-boggling array of different markets, all of which
                possess varying characteristics of a `competitive marketplace.' ''
                [Web IV, 81 FR at 26333 (quoting Web III Remand, 79 FR at 23114
                n.37)].
                SoundExchange, 904 F.3d at 57.
                 In fact, the D.C. Circuit not only found that the Judges acted
                reasonably in this regard, but also that--when exercising their
                discretion--the Judges ``must consider `competitive information'''
                contained in the hearing record, in order ``to identify the relevant
                characteristics of competitiveness on which to base [their]
                determination of the statutory rates.'' SoundExchange, 904 F.3d at 56-
                57 (emphasis added).
                 Consistent with the D.C. Circuit's decision affirming Web IV, the
                Judges in this Web V proceeding again apply the standard that royalty
                rates for noninteractive services should be set at levels that reflect
                those that would be set in an effectively competitive market. Further,
                the Judges note that no party in this proceeding challenges the
                application of this effective competition standard, although
                SoundExchange and the Services offer vastly different understandings of
                how the Judges should apply the standard in this case.
                 In Web IV, the Judges applied the concept of ``effective
                competition'' as a
                [[Page 59455]]
                counterweight to the ``complementary oligopoly'' power of the Majors.
                Web IV, 81 FR at 26368 (identifying the ``complementary oligopoly that
                exists among the Majors,'' allowing them to ``utilize their combined
                market power to prevent price competition among them . . . .''). Simply
                put, the Judges found that each Major is a ``Must Have'' licensor for
                noninteractive services (in the hypothetical unregulated market),
                meaning that each noninteractive service ``must have'' a license for
                the entire repertoires of Sony, Universal and Warner, in order to
                remain in business. Also, because the interactive market was proffered
                as a benchmark market in Web IV (as in the present proceeding), the
                Judges performed the same inquiry for that market, concluding that
                interactive licensees likewise ``must have'' access to the repertoires
                of each Major in order to survive commercially. Web IV, 81 FR at 26340,
                26342. From a more technical economic viewpoint, the ``Must Have''
                status of the three Majors rendered each a ``complementary
                oligopolist.'' \7\ As explained in Web IV, this status allows each
                Major to wield the individual economic power of a monopolist, but the
                exercise of that power leads to royalty rates that are even greater
                than those that would be set by a single monopolist. Specifically, the
                Judges held:
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                 \7\ ``Complementary oligopolists'' supply products or, as here,
                offer licenses, for access to products, that are ``perfect
                complements,'' meaning that the products or licenses they offer are
                essential, i.e., ``Must Haves,'' for a buyer/licensee in order to
                operate its business. Such products/licenses are known in economics
                as ``Cournot Complements.'' See Web IV, 81 FR at 26342-43.
                 `[I]f the repertoires of all [Majors] were each required by
                webcasters (i.e., if the repertoires were necessary complements) . .
                . each [Major] would have an incentive to charge a monopoly price to
                maximize its profits . . . constitut[ing] higher monopoly costs . .
                . paid by webcasters to each of the [Majors].' . . . The Judges in
                this determination adopt this economic reasoning and will not allow
                such complementary oligopoly power to be incorporated into the
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                statutory rate.
                Web IV, 81 FR at 26368 & n.142 (quoting Web III Remand, 79 FR at
                23114); see also Web IV, 81 FR at 26342-43 (summarizing corroborating
                economic expert testimony as (i) stating that the complementary
                oligopoly structure is ``even worse than a market controlled by a
                single monopoly supplier . . . [as] first identified by Antoine Cournot
                in 1838''; and (ii) explaining that Universal had argued to the
                Department of Justice that its merger with EMI ``would lead to lower
                prices because it would remove the Cournot Complements pricing effect''
                between the merging entities.).
                 In Web IV, the dispute regarding the ``effective competition''
                standard focused essentially on the absence of horizontal price
                competition between and among the Majors--and whether such horizontal
                competition could be generated by noninteractive services in the
                hypothetical (i.e., unregulated) market.\8\ Based on the record in that
                proceeding, the Judges determined that the Services had successfully
                demonstrated how effectively competitive rates had been set, (i.e., via
                steering, discussed infra) even in the face of a complementary
                oligopoly.\9\
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                 \8\ The section 114 statutory rate supplants an unregulated
                market rate, so the Judges must ascertain the rates that would have
                been set in such a hypothetical market. See Web IV, 81 FR at 26316,
                26333. In Web IV, though, in addition to receiving evidence
                regarding the hypothetical market, the Judges were presented with
                actual market evidence of effectively competitive rates from the
                noninteractive market. Id. at 26343 (``[T]he Judges are not left
                with mere hypotheticals . . . . Rather, the Judges were presented
                with hard and persuasive evidence that . . . reduced royalty rates
                in the noninteractive market and would do so in the hypothetical
                market as well.'').
                 \9\ The more particular issue was whether noninteractive
                services could foment such horizontal price competition among record
                companies through the services' expressed intent to ``steer'' their
                algorithmically or humanly curated plays toward those licensed by
                Majors who agree to royalty rates lower than those of their
                competitors. Web IV, 81 FR at 26348 (``[T]he ability of
                noninteractive services to steer away from higher priced recordings
                and toward lower priced recordings (or threaten to do so) serves as
                a buffer against the supranormal pricing that arises from the impact
                of complementary oligopoly pricing . . . .'').
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                 The foregoing findings regarding the ``Must Have'' status of the
                Majors in the interactive benchmark market are not challenged in this
                proceeding. However, SoundExchange argues that, unlike in the Web IV
                period, the benchmark interactive market now generates effectively
                competitive rates, because the present record demonstrates that Spotify
                has gained licensee-side power sufficient to offset, in whole or in
                part, the Majors' ``Must Have'' status. SoundExchange's Second
                Corrected Proposed Findings of Fact and Conclusions of Law ] 89 et seq.
                (and record citations therein) (SX PFFCL). The Services dispute the
                assertion that the record shows Spotify to have acquired such power or
                that the interactive market has otherwise become effectively
                competitive. Services' Joint Proposed Findings of Fact and Conclusions
                of Law ] 62 et seq. (Services PFFCL). (This issue is discussed in
                detail infra, section III.B.).\10\
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                 \10\ However, the Services dispute the assertion that all three
                Majors would be ``Must Have'' licensors in the hypothetical
                noninteractive market. Services PFFCL ] 195 et seq. That issue is
                discussed infra, section IV.C.2.b in the Judges' consideration of
                Pandora's ``Label Suppression Experiments.''
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                 Thus, the present record raises a new question: Have there have
                been changes in bargaining power between the Majors and Spotify in the
                interactive benchmark market such that the royalty rates in their
                agreements are consonant with the ``effectively competitive'' standard?
                 In order to address this new question, the Judges find it first
                necessary to consider the concept of ``effective competition'' in a
                context dictated by the present record, one that did not arise in Web
                IV. To put this analysis in proper economic context, it is helpful and,
                indeed, necessary, to begin by identifying the aspects of the
                ``effective competition'' standard that were addressed and determined
                in Web IV. In summary, those points are the following:
                 1. The Majors possess ``complementary oligopoly power'' in the
                actual (unregulated) interactive market and in the hypothetical
                (unregulated) noninteractive market that ``thwart[s] price competition
                and [is] inconsistent with an `effectively competitive market' . . .
                .'' Web IV, 81 FR at 26335.
                 2. Because there are a ``mind-boggling'' number of markets with
                various competitive characteristics, there exists a range of rates that
                may satisfy the ``effectively competitive'' standard--between the
                statutorily-created de facto zero rate for terrestrial sound recordings
                and the complementary oligopoly rate generated by the Majors' power as
                complementary oligopolists--each of which can be seen as a ``bookend''
                for the range of potential rates. Web IV, 81 FR at 26334.\11\
                ---------------------------------------------------------------------------
                 \11\ To borrow from Tolstoy, perfectly competitive and perfectly
                monopolist markets all gravitate toward well-understood equilibria
                in the same way, but oligopolistic markets move in different ways.
                ---------------------------------------------------------------------------
                 3. The ``essence of a competitive standard is that it suggests a
                continuum and differences in degree rather than in kind,'' which
                dovetails with the Judges' statutory charge to ``weigh competitive
                information'' in order to ``decide whether the rates proposed
                adequately provide for an effective level of competition.'' Web IV, 81
                FR at 26334.\12\
                ---------------------------------------------------------------------------
                 \12\ Economists have acknowledged the pragmatic nature of
                applying the ``effective competition'' standard. See, e.g., Alfred
                E. Kahn, Antitrust Policy, 67 Harv. L. Rev., 28, 35, (1953)
                (``[T]here exists no generally accepted economic yardstick
                appropriate to . . . determine what degree [of monopoly power] is
                compatible with [effective] competition.''); J. Markham, An
                Alternative Approach to the Concept of Workable Competition 349, 361
                (1950) (The concepts of ``market competition are essentially
                pragmatic'').
                ---------------------------------------------------------------------------
                 4. When the hearing record provides actual evidence allowing the
                Judges to
                [[Page 59456]]
                determine whether a rate is effectively competitive, that evidence and
                the adjudicatory process vitiate the theoretical absence of an a priori
                ``bright line'' to distinguish effectively competitive and
                noncompetitive rates. Web IV. 81 FR at 26343.
                 In Web IV, the evidence demonstrated only one potential method for
                the amelioration of the ability of the Majors, as complementary
                oligopolists, to set noncompetitive rates. Specifically, Pandora and
                iHeart introduced evidence of agreements with Merlin and Warner,
                respectively, that incorporated ``steering'' into those agreements.
                ``Steering'' in this context means the presence of contract provisions
                by which a licensee will increase the number of plays of the
                counterparty record company above its historic market share, in
                exchange for the record company's agreement to accept a lower royalty
                rate than other record companies. Web IV, 81 FR at 2366 (``The Judges
                find that steering in the hypothetical noninteractive market would
                serve to mitigate the effect of complementary oligopoly . . . and
                therefore move the market toward effective, or workable, competition''
                together with ``the ever-present `threat' that competing [licensors]
                will undercut each other in order to [license] more . . . .'').
                 But Web IV does not consider in detail whether evidence of any
                other economic factors could also serve to offset or ameliorate the
                complementary oligopoly power present on the licensor/record company
                supply-side of the market. And further, the Judges never intimated--let
                alone determined--that steering was the sole method by which the
                complementary oligopoly power on the licensor side could be
                ameliorated.\13\ Indeed, the Web IV Determination clearly explains that
                the steering adjustment is not a sui generis device for adapting a
                benchmark rate, but rather ``is of a class with any other adjustments
                necessary to harmonize the benchmark rate with the statutory
                requisites.'' Web IV, 81 FR at 26368.\14\
                ---------------------------------------------------------------------------
                 \13\ In fact, Web IV makes clear that the Judges found the
                injection of steering into the market (actual or hypothetical) could
                be ``sufficient'' to ameliorate the anticompetitive impact of
                complementary oligopoly power--not that an injection of steering was
                necessary to do so. See Web IV, 81 FR at 26367-68; see also id. at
                26369 (Professor Shapiro noting that steering is only ``an example
                of price competition at work.'').
                 \14\ In Web IV, the Judges did touch upon the potential for
                countervailing licensee power as a potential mitigating or
                offsetting factor. SoundExchange asserted that Pandora had
                significant (monopsony) market power in its own right in the
                noninteractive market that generated rates below effectively
                competitive rates in its benchmark agreement with Merlin. But the
                Judges rejected SoundExchange's argument, finding--in reliance on an
                analysis presented by Pandora's economic expert witness, Professor
                Shapiro--that ``Pandora's share of the Merlin Labels' [overall]
                revenues is far short of the level that would be necessary for
                Pandora to have undue market power in its negotiations with
                Merlin.'' Web IV, 81 FR at 26371. Implicitly, the Judges there
                indicated that, had Pandora possessed sufficient market power, that
                fact may have weighed in the Judges' calculus in reducing the
                effective competition adjustment, thereby increasing the effectively
                competitive statutory rate.
                ---------------------------------------------------------------------------
                 Web IV also must be understood as limited by the fact that the
                parties implicitly agreed (given the facts of that case) to apply a
                particular conception of ``competition''--``price competition.'' In
                fact, although the parties and the Judges discussed extensively the
                meaning of ``effective competition,'' they intentionally did not
                provide a rigid definition for the concept of ``competition.'' This
                absence is unsurprising because the only form of competition at issue
                in Web IV was price competition--a standard neoclassical variant. Web
                IV, 81 FR at 26366 (``The Judges find that steering in the hypothetical
                noninteractive market would serve to mitigate the effect of
                complementary oligopoly on the prices paid by the noninteractive
                services and therefore move the market toward effective, or workable,
                competition. Steering is synonymous with price competition in this
                market . . . .'') (emphasis added). But the Judges did not have cause
                to examine in any detail whether, beyond price competition, it was
                appropriate to consider other dimensions of competition, of which there
                are several. See generally Donald J. Harris, On the Classical Theory of
                Competition, 12 Cambridge J. of Econ., 139, 141, 146 (1988)
                (contrasting the ``relative tranquility [of] the neoclassical
                conception of competition . . . formalized in a vast array of modern
                textbooks'' with ``a structure of oligopolistic firms in which price
                competition is simply one component . . . of a broader process of
                strategic rivalry among leading firms [and] other possible behavioural
                rules on price formation.'') (emphasis added).
                 So, although the importance of effective price competition cannot
                be disputed, the Judges must consider whether, if such competition is
                lacking, other forms of market behavior either substitute for price
                competition or otherwise generate prices consonant with those that
                would be established through price competition in an effectively
                competitive market. In fact, as discussed below, the Judges have
                engaged in such analyses in prior cases.
                 The first case in which the Judges considered other economic
                dimensions beyond price competition was the SDARS III proceeding. In
                that case, the Judges again addressed the complementary oligopoly power
                of the Majors, albeit in connection with a different and now superseded
                statutory rate-setting standard. SDARS III, 83 FR at 65320 n.82.\15\
                There, the Judges noted that the licensor-side complementary oligopoly
                power could be ameliorated by the ``countervailing power'' of a
                licensee (Sirius XM in that case) that possessed a large share of the
                downstream market at issue (a monopoly share of the satellite radio
                market in that case). SDARS III, 83 FR at 65238.\16\
                ---------------------------------------------------------------------------
                 \15\ The superseded statutory standard was set forth in 17
                U.S.C. 801(b)(1). Despite the different standard, the Judges applied
                the same hypothetical market approach in SDARS III, before
                considering whether that hypothetical market rate should be adjusted
                to account for factors set forth in the now superseded statute.
                SDARS III, 83 FR. at 65237, 65253.
                 \16\ That countervailing power, the Judges noted, existed if the
                market in which the licensee operated is not subject to meaningful
                potential substitution from listening via another form of music
                delivery. Id.
                ---------------------------------------------------------------------------
                 And, in the next rate-setting case, Phonorecords III, the Judges
                (in the majority and in the dissent) found that the licensors--owners
                of the copyrights for musical works--possessed complementary oligopoly
                power. The majority Determination found that this noncompetitive effect
                could be ameliorated--not only by steering or another form of price
                competition--but by the application of economic game theoretic modeling
                (specifically, the Shapley Value approach) that economic experts
                testified would have such an effect. Phonorecords III, 84 FR at 1947,
                1950 (``The Judges look to the Shapley Analyses . . . as one means of
                deriving a reasonable royalty rate (or range of reasonable royalty
                rates) . . . . The Judges . . . find that the Shapley Analysis . . .
                eliminates the `holdout' problem that would otherwise cause a rate to
                be unreasonable, in that it would fail to reflect effective (or
                workable) competition.'').\17\
                ---------------------------------------------------------------------------
                 \17\ Although the D.C. Circuit vacated and remanded the
                Phonorecord III Determination, the general point stands: The Judges
                consider factors and methods other than price competition (via
                steering or otherwise) to determine whether a rate is ``effectively
                competitive'' and, more specifically, whether such other factors or
                methods counterbalance the rate inflation caused by the
                complementary oligopoly effect.
                ---------------------------------------------------------------------------
                 The Phonorecords III Dissent, although certainly not discounting
                the value of the Shapley Value approach, asserted instead that the
                complementary oligopoly power could be better ameliorated by adopting
                the benchmark proposed by the interactive streaming service-licensees,
                which was essentially
                [[Page 59457]]
                the Phonorecords II rate structure, i.e., a benchmark based on the
                rates in effect in the prior rate period that had been adopted in a
                settlement between industrywide trade associations, the NMPA and DiMA,
                representing licensors and licensees, respectively. Phonorecords III,
                84 FR at 1993 (dissent) (``settlement agreements tend to eliminate
                complementary oligopoly inefficiencies, and provide guidance as to an
                effectively competitive rate.''). Thus, once again, a Copyright Royalty
                Judge applied a factor--countervailing power--other than the presence
                of price competition, to determine an effectively competitive rate.
                 In this regard, it is important to note that the concepts of
                ``effective competition'' and ``countervailing power'' are not mutually
                exclusive, but are better understood as complementary. Professor John
                Kenneth Galbraith, who developed the concept of ``countervailing
                power,'' defined it as follows:
                 [W]ith the widespread disappearance of competition in its
                classic form . . . it was easy to suppose that since competition had
                disappeared, all effective restraint on private power had
                disappeared . . . . [However,] [i]n fact, new restraints on private
                power did appear to replace competition . . . . [T]hey appeared not
                on the same side of the market but on the opposite side, not with
                competitors but with customers or suppliers . . . countervailing
                power.
                John Kenneth Galbraith, American Capitalism: The Concept of
                Countervailing Power 111 (1952).
                 In Web IV, the Judges recognized the economist J.M. Clark as the
                individual who introduced into microeconomics analysis the concept of
                effective competition, which he originally described as ``workable
                competition.'' Web IV, 81 FR at 26341 n.96 (citing J. M. Clark, Toward
                a Concept of Workable Competition, 30 Am. Econ. Rev. 241 (1940)). Two
                decades hence, Professor Clark wrote a book that served, in his words,
                as an ``elaboration of [the] line of inquiry'' dating from his seminal
                1940 article. John Maurice Clark, Competition as a Dynamic Process at
                ix (1961). In that volume, Professor Clark took note of the
                compatibility between the concept of ``countervailing power'' and his
                own concept of workable/effective competition. Clark, supra at 5
                (noting approvingly Professor Galbraith's view that, if competition is
                found wanting, ``countervailing power'' serves as a ``rough
                substitute'' that can ``deprive monopoly of its arbitrary power . . .
                .'').\18\
                ---------------------------------------------------------------------------
                 \18\ In his 1961 treatise, Professor Clark expressly ``shift[s]
                . . . from `workable' to `effective competition''', because ``[t]he
                theory of effective competition is dynamic theory,'' going beyond
                ``the analysis of static equilibrium'' to ``bring[] in the . . .
                interplay between aggressive and defensive forms of competition . .
                . .'' Id. at ix. (emphasis added).
                ---------------------------------------------------------------------------
                 Likewise, in American Capitalism, Professor Galbraith expressly
                acknowledges the interplay between Professor Clark's conception of
                effective/workable competition and the principle of ``countervailing
                power'':
                 There remains the possibility that within the structure of the
                market shared by a few firms there are practical restraints on
                economic power--that there is an attenuated but still workable
                competition which minimizes the scope for exercise of private market
                power . . . . This line of argument has emphasized results . . . .
                The notion of workable competition takes cognizance of the . . .
                point that over-all consequences, while in theory are deplorable,
                are often in real life quite agreeable . . . . [W]hat is unworkable
                in principle becomes workable in practice . . . because the active
                restraint [on the exercise of market power] is provided not by
                competitors but from the other side of the market by strong buyers.
                Galbraith, supra at 57-58, 112 (emphasis added); see also id.158 n.912
                (noting the ``originality of Professor J.M. Clark'' and crediting his
                1940 article for the development of the concept of workable
                competition).\19\
                ---------------------------------------------------------------------------
                 \19\ Despite Professor Galbraith's well-known progressive
                leanings, his concept of ``countervailing power'' as a means for
                more competitively dividing profits between input oligopolists and
                oligopsonists has been well-received by ardent free market
                economists as well, including a Nobel Prize winner. See, e.g.,
                George J. Stigler, The Economist Plays with Blocs, 44 Am. Econ.
                Rev., no.2, 7, 9, 13-14 (1954) (papers and proceedings) (agreeing
                that Galbraith's concept of ``countervailing power'' describes a
                context in which ``a monopsonist or a set of oligopsonists arises
                and shares the gains of a previously unhampered monopolist or set of
                oligopolists,'' because ``[i]t is true that as countervailers they
                might share monopoly profits . . . .''). However, Professor Stigler
                disagreed vehemently with the notion that the bilateral oligopolies
                formed through the exercise of countervailing power ``reduce prices
                to consumers'' or ``should in general eliminate, and not merely
                redistribute, monopoly gains.'' Id. at 9, 13. But such downstream
                effects are irrelevant to the Judges' statutory task of setting an
                effectively competitive royalty rate in the upstream market.
                Moreover, Professor Stigler cautioned that the presence of
                ``countervailing power'' in a market will not necessarily ``place
                groups on a basis of equality with respect to one another . . . .''
                Id. at 14 (emphasis added). Accordingly, even if Spotify has
                acquired some additional bargaining power, that does not mean that
                its bargaining power is equal to the complementary oligopoly of the
                Majors. That is, any new bargaining power enjoyed by Spotify could
                mitigate the Majors' complementary oligopoly power but not
                necessarily offset it in full.
                ---------------------------------------------------------------------------
                 In sum, the inclusion of the concepts of price competition and
                countervailing power into microeconomic analysis--as already applied by
                the Judges in several determinations--makes it clear that the Judges
                must consider record evidence regarding both of these economic concepts
                in order to fulfill their statutory mandate to establish rates that
                would be set between willing sellers and willing buyers in the
                marketplace. The Judges discuss and apply both of these economic
                concepts below.
                B. Evaluation of Arguments Concerning Effective Competition
                1. SoundExchange's Claim That Spotify has Downstream Pricing Power That
                Mitigates or Offsets the Majors' Complementary Oligopoly Power
                 SoundExchange asserts several bases for its claim that the
                complementary oligopoly power of the Majors has been mitigated in part,
                or offset in full, by the increase in Spotify's market power, which has
                manifested in the latter's ability to [REDACTED]. More particularly, in
                the agreements between Spotify and the Majors that immediately preceded
                their 2017 agreements,\20\ the contract rate for [REDACTED]. In all
                three subsequent 2017 agreements between Spotify and the Majors,
                [REDACTED]. Trial Ex. 5609 ] 24 (WDT of Aaron Harrison) (Harrison WDT);
                Trial Ex. 5611 ] 10 (WDT of Reni Adadevoh) (Adadevoh WDT); Trial Ex.
                5613 ] 31 (WDT of Mark Piibe) (Piibe WDT) ([REDACTED]).
                ---------------------------------------------------------------------------
                 \20\ The 2017 agreements were the most recent agreements
                available for inclusion in the record in this Web V proceeding.
                ---------------------------------------------------------------------------
                 SoundExchange identifies the following three interrelated sources
                for Spotify's alleged increase in pricing power in 2017 that generated
                this [REDACTED]:
                 1. Spotify now generates [REDACTED]. SX PFFCL ] 306 et seq.
                 2. Spotify can now [REDACTED]. SX PFFCL ] 311 et seq.
                 3. Spotify now has the ability to steer a significant number of
                plays on Spotify-curated playlists. SX PFFCL ] 346 et seq.
                 The Judges examine each of these assertions seriatim below.
                a. Has Spotify's Increased Share of each Major's Revenue provided
                Spotify with Leverage to Obtain [REDACTED]?
                 SoundExchange asserts that--between 2014 and 2017--there has been
                explosive growth in the subscription on-demand format. More
                specifically, SoundExchange notes that, whereas in 2013, U.S. retail
                revenue from on-demand services was approximately $0.9 billion, by
                2016, this revenue total had increased to approximately $2.8 billion
                and, by 2017, to approximately
                [[Page 59458]]
                $4.2 billion. This growth has continued, with 2018 retail revenue from
                on-demand services greater than $5.4 billion, and, by 2019, reaching
                $6.8 billion. See Trial Ex. 5604 app. 2 (WDT of Catherine Tucker)
                (Tucker WDT); Trial Ex. 4115 at 3.\21\
                ---------------------------------------------------------------------------
                 \21\ The Services do not dispute the fact of significant growth
                in the subscription on-demand market over this period, but they
                assert that Professor Tucker's data appear to include ad-supported
                on-demand revenue as well as subscription on-demand revenue. Compare
                SX PFFCL ] 306, with Tucker WDT app. 2. This specific potential
                discrepancy does not alter the substance of the parties' dispute nor
                the Judges' analysis of this issue.
                ---------------------------------------------------------------------------
                 Accordingly, SoundExchange maintains that the Majors have now
                become increasingly reliant on income generated by all the interactive
                services. Because of this changed circumstance, SoundExchange avers
                that the balance of pricing power as between the Majors and Spotify has
                changed, with the latter now in a position to bargain more aggressively
                for favorable rates and terms. See Trial Ex. 5602 ]] 119-131 (WDT of
                Jon Orszag) (Orszag WDT).
                 The Services assert that this is merely a re-tread of the
                SoundExchange argument the Judges rejected in SDARS III. Although the
                Services dispute neither the growth in music industry revenue nor the
                growth of interactive streaming industry revenue from 2014 through
                2017,\22\ they assert that the revenue data does not support Sound
                Exchange's argument that a single service's growth--here, Spotify's
                revenue growth--supports the assertion that the Majors' complementary
                oligopoly power has been compromised. More specifically, the Services
                maintain that the important metric is the percentage of the music
                industry's total revenue generated by Spotify. In this regard, the
                Services take note that Spotify accounted for [REDACTED] [REDACTED] of
                the Majors' total U.S. revenue in 2017, and only [REDACTED] in 2018.
                Trial Ex. 1105 ] 64 (AWRT of Steven Peterson) (Peterson WRT); Trial Ex.
                4107 at 10 & n.17 (WRT of Carl Shapiro) (Shapiro WRT). Additionally,
                the Services' economic expert witnesses reject the idea that the
                Majors' complementary oligopoly power vis-[agrave]-vis Spotify has been
                compromised because of the latter's contribution to the Majors' revenue
                stream. These witnesses further aver that, because Spotify and its on-
                demand service competitors offer essentially the same service at the
                same downstream subscription price, if one Major's repertoire was
                unavailable on Spotify, subscribers would turn to its competitors, thus
                abandoning Spotify in the process. 8/25/20 Tr. 3713-14 (Peterson); 8/
                19/20 Tr. 2859 (Shapiro).
                ---------------------------------------------------------------------------
                 \22\ ``The Services agree that streaming accounts for a larger
                percentage of the overall revenue for recorded music, however the
                industry's total revenue has increased substantially since 2013.''
                Services RPFFCL ] 308.
                ---------------------------------------------------------------------------
                 The Judges agree with the Services reasoning and conclusion,
                finding that the increase in revenues from the entire interactive
                services sector cannot support SoundExchange's argument that Spotify's
                pricing power vis-[agrave]-vis the Majors has strengthened.\23\ The
                Judges find that Spotify's relative pricing power must be evaluated in
                the context of Spotify's particular economic position. The Judges find
                nothing in the record to demonstrate that Spotify provides an on-demand
                service that is so unique to listeners as to imbue it with greater
                bargaining leverage.\24\ More particularly, even acknowledging that,
                ceteris paribus, a Major would prefer to avoid the loss of Spotify's
                [REDACTED] to overall music revenues, the substitutability of the on-
                demand subscription services indicates to the Judges that the potential
                loss of Spotify's royalty payments to a Major would be quickly offset
                in the form of increased royalties from Spotify's competitors, as
                subscribers substituted alternative on-demand subscription services
                that offered the music licensed by all the record companies. Thus,
                there is no basis for the Judges to conclude that a Major would be
                willing to capitulate to Spotify by [REDACTED].
                ---------------------------------------------------------------------------
                 \23\ The Services are correct in noting that the Judges rejected
                the same argument when asserted by SoundExchange in a prior
                proceeding. See SDARS III, 83 FR at 65238, 65245. However, each
                proceeding considers the facts as presented in the record of that
                pending proceeding, so the Judges are not constrained here by the
                factual record as presented in SDARS III.
                 \24\ In the language of economics, Spotify and the other on-
                demand services--such as Apple Music, Google, Amazon, and others
                with a smaller market footprint--may provide somewhat differentiated
                on-demand experiences inter se, but nothing in the record suggests
                that whatever differences exist make them anything other than mere
                ``monopolistic competitors,'' rather than buyers/licensees with
                enhanced pricing power. See generally Robert S. Pindyck & Daniel L.
                Rubinfeld, Microeconomics 451 (8th ed. 2012) (In a
                ``monopolistically competitive market . . . [f]irms compete by
                selling differentiated products that are highly substitutable for
                one another. . . . [T]he cross-price elasticities of demand are
                large but not infinite . . . [t]here is free entry and exit . . .
                [and] [i]n long-run equilibrium . . . the firm earns zero profit
                even though it has monopoly power [over its own brand].''). Further,
                the essential products offered by interactive services, as
                SoundExchange's industry witnesses all tout, are their sound
                recording repertoires, which makes a listener's selection of any
                particular streaming service of secondary concern compared to the
                ability to access all the music. See Harrison WDT ] 5 (identifying,
                as examples, 23 Universal artists who are ``some of the best known
                and most popular recording artists in the world''); Piibe WDT ]] 6-7
                (listing, as examples, Sony's own 23 artists who are ``superstars''
                and ``legendary recording artists''); Adadevoh WDT ] 3 (listing, as
                examples, 10 Warner artists who are among ``today's most popular
                artists, within a roster of ``some of the most celebrated artists in
                recorded music history''). These artists and their recordings are
                not available only on Spotify.
                 The chronic lack of profits and essentially identical downstream
                subscription prices persuade the Judges that the Services are
                correct that the on-demand streaming services lack of market power
                downstream and an absence of pricing power upstream. Further, the
                meteoric growth of Apple Music in the streaming market and the
                recent strong growth of Amazon and Google in the on-demand sector,
                show that the on-demand streaming market has characteristics of a
                competitive market. See Orszag WDT tbl.4.
                ---------------------------------------------------------------------------
                 To make this argument from a different perspective, SoundExchange
                also looks at Spotify's U.S. revenue through the narrower prism of
                total U.S. subscription interactive revenues--noting that Spotify was
                responsible in 2016 and 2017 for a more considerable portion--almost
                [REDACTED]% of such domestic royalties. Orszag WDT ] 124, tbl.11.
                However, the Services aver that this [REDACTED]% figure needs to be
                placed in an appropriate temporal context. Specifically, they note that
                Spotify's share of U.S. gross subscription interactive revenues has
                actually fallen from 2015, when it was [REDACTED]% of the total, to
                2018, when it accounted for [REDACTED]% of the total. See Orszag WDT ]
                124, tbl.10.
                 Because the specific issue under consideration is the alleged
                change in Spotify's pricing power since the execution of the parties'
                2013 agreements, the Judges find that the dynamic changes in
                subscription revenue shares during the relevant period is a more
                meaningful metric than the static [REDACTED]%-[REDACTED]% market share
                measure. Because Spotify's share of domestic revenues has diminished
                [REDACTED] since 2015--according to Mr. Orszag's own written
                testimony--there is no basis to support SoundExchange's claim that the
                Majors had become more dependent upon Spotify's revenue stream over
                this period. Moreover, because the decrease in Spotify's share of
                domestic on-demand subscription revenue coincided with the rapid growth
                of Apple Music's entry into the market, these data further confirm the
                substitutability of interactive services among the listening public,
                further diminishing the Majors' dependence on any single interactive
                service.
                 Placing Spotify's royalty revenues in the context of two Majors'
                internal contract renewal discussions, SoundExchange relies on the
                testimony of two witnesses, for Sony and Warner
                [[Page 59459]]
                respectively.\25\ First, according to the Sony witness, the [REDACTED]
                9/2/20 Tr. 5228 (Piibe); Trial Ex. 5467 at 1. Moreover, Sony believed
                that Spotify was [REDACTED]. 9/2/20 Tr. 5368 (Piibe).
                ---------------------------------------------------------------------------
                 \25\ The Judges discuss the separate negotiations between
                Spotify and the three Majors in detail infra.
                ---------------------------------------------------------------------------
                 Second, Warner also emphasized the impact of [REDACTED]. In its
                internal documents discussing negotiations with Spotify, Warner
                executives expressed the importance of [REDACTED], with one executive
                stating: ``[REDACTED]'' Trial Ex. 4025 at 1. However, the Services
                point out that, in the very same document, Warner executives were also
                emphasizing that [REDACTED] and that Warner [REDACTED] Trial Ex. 4025
                at 1.\26\
                ---------------------------------------------------------------------------
                 \26\ As the Judges discuss in greater detail infra, the interest
                Warner (or either of the other Majors) had in [REDACTED] is the only
                economically credible rationale for [REDACTED].
                ---------------------------------------------------------------------------
                 Moreover, although the internal [REDACTED] deliberations summarized
                in Trial Ex. 4025 reference the [REDACTED], the recitation of that
                latter point is not economically relevant, let alone dispositive.
                Internal business documents that reflect information such as historical
                revenue or other accounting data but ignore crucial economic
                information regarding, for example, the fluidity of market shares, the
                elasticity of market demand, and the absence of barriers to entry, are
                not only lacking in economic relevancy, they obscure the identification
                of relevant economic evidence. See Geoffrey A. Manne & E. Marcellus
                Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business
                Documents in Antitrust Enforcement and Adjudication, 47 Ariz. L. Rev.
                654 (2005) (noting in the analogous area of antitrust law, ``[r]eliance
                on accounting data, market characterizations, and statements of intent
                by economic actors threatens to undermine the economic foundations of
                antitrust jurisprudence, and thus the purpose of the antitrust
                laws.''). This caution extends from comments made by negotiators in the
                trenches up to discussions in corporate boardrooms. See William Inglis
                & Sons Baking Co. v. ITT Cont'l Baking Co., 668 F.2d 1014, 1028 (9th
                Cir. 1982) (discounting the probative value of ``boardroom
                ruminations'' in antitrust cases). In fact, Mr. Orszag is in agreement
                with regard to the primacy of economic testimonial analysis over such
                other evidence. 8/11/20 Tr. 1338 (Orszag) (``It's well understood in
                competition economics . . . that . . . economic analysis should play a
                dominant role'' relative to the role of statements of the commercial
                actors and internal company documents.) (emphasis added).\27\
                ---------------------------------------------------------------------------
                 \27\ In Web IV, the Judges found that the existence of
                negotiations between Must Have record companies and interactive
                services did not prove that the latter had pricing power, because
                expert economic testimony explained that even monopolists will
                negotiate in order to estimate their counterparties' willingness-to-
                pay. Thus, the Judges held: ``[T]he mere existence of . . .
                negotiations is uninformative as to whether the rates negotiated
                between the interactive services and the Majors are competitive.''
                Web IV, 81 FR at 26343. Thus, evidence of negotiations must be
                examined contextually--on a case-by-case basis--to ascertain whether
                that evidence in fact reflects an effectively competitive
                environment.
                ---------------------------------------------------------------------------
                 In sum, the Judges find that Spotify's share of the Majors'
                downstream revenue does not explain why [REDACTED].
                b. Can Spotify [REDACTED]?
                 SoundExchange asserts that the Majors could not reasonably
                [REDACTED], because [REDACTED]. SX PFFCL p. 105 et seq. First, Sony's
                testifying witness, Mr. Piibe, explained that the [REDACTED]. 9/2/20
                Tr. 5229-30 (Piibe). Further, according to a Warner analysis,
                [REDACTED]. Trial Ex. 5077. See also Harrison WDT ] 35 (``It would take
                time to [REDACTED] . . . .''). From this testimony and evidence,
                SoundExchange concludes that ``[REDACTED] . . . .'' SX PFFCL ] 317 (and
                record citation therein).
                 The Services emphasize in response that this argument again ignores
                the fundamental bargaining point: That because [REDACTED]. Services'
                Corrected Reply to SoundExchange's Proposed Findings of Fact and
                Conclusions of Law ] 311 (and record citations therein) (Services
                RPFFCL). To that end, the Services point to the testimony of a
                [REDACTED] witness, who said that [REDACTED]. 9/9/20 Tr. 5932
                ([REDACTED]). See also 9/2/20 Tr. 5424-25 ([REDACTED]) (noting that if
                [REDACTED]).
                 With regard to the distinction between short-run and long-run
                effects, Professor Shapiro contextualizes the issue in an economic
                manner. Shapiro WRT at 7 n.16 (``the economics of bargaining teaches
                that bargaining power depends on the long-run impact on both parties of
                failing to reach an agreement, with future impacts suitably discounted
                as are all cash flows.''). That is, he considers the problem as a
                weighing of present discounted values to Spotify, on the one hand, and
                to a Major, on the other, over a one-year period,\28\ of a license
                negotiation impasse that leaves Spotify without the Must Have Major
                and, reciprocally, leaves the Major without the Spotify platform. The
                Judges find his analysis highly persuasive, and thus quote it at some
                length below:
                ---------------------------------------------------------------------------
                 \28\ It was agreed that [REDACTED]. Peterson WRT ] 66; 9/3/20
                Tr. 5928-30 ([REDACTED]); see also 8/11/20 Tr. 1293-94 (Orszag)
                (``obviously there's a longer-term effect that would occur that
                would be adverse to Spotify''); Leonard WRT ] 77 (``[A] label would
                have a greater ability to wait out the impasse, given that it would
                continue to receive royalties from other sources, whereas the
                service's entire subscription revenues would potentially be at risk
                . . . .'').
                 [C]onsider as an example the negotiations between Spotify and
                Sony. Sony is ``must-have'' for Spotify (as Mr. Orszag concedes), so
                if Spotify fails to sign a license with Sony, Spotify's interactive
                service will decline, fail to be commercially viable, and be forced
                to close down. Unquestionably, that makes an impasse very costly for
                Spotify, so Sony has a great deal of bargaining power in its
                negotiations with Spotify.
                 Mr. Orszag['s] claim[ ] that Spotify has comparable pricing
                power comparable to that of a ``must-have'' service for Sony . . .
                does not withstand scrutiny. If Sony does not sign a license with
                Spotify, so Spotify is forced to stop offering Sony tracks, Sony
                will immediately suffer a loss of royalty income from Spotify . . .
                . According to Table 13 in the Orszag WDT, Sony received [REDACTED]%
                of its total revenue from Spotify in 2017.
                 Mr. Orszag provides no explanation of why Sony losing up to
                [REDACTED]% of its revenue from recorded music is comparable, in
                terms of impact and thus bargaining power, to Spotify having to shut
                down its service altogether. Moreover, the [REDACTED]% figure for
                Spotify's share of Sony's revenue in 2017 is far too high as a
                measure of the revenue that Sony would have lost, had Sony music no
                longer been available on Spotify. Crucially, the [REDACTED]% figure
                represents the immediate impact on Sony, before any Spotify
                subscribers respond to the absence of Sony music.
                 Quite soon, Sony's loss of income would be much smaller. As
                emphasized repeatedly by SoundExchange--indeed as a foundational
                pillar of its entire case here--a ``must-have'' record company bears
                a substantial opportunity cost of licensing to a music service
                because without its music listeners to that service will shift their
                listening time to other forms of music listening. By definition,
                that implies that when Sony does not license to Spotify, Sony will
                gain substantial revenue from other licensees and other forms of
                listening. As a matter of arithmetic, that means that Sony would
                lose less than [REDACTED]% of its revenue.
                 As an illustrative example, suppose that Spotify would shut down
                after one year, due to its lack of Sony's ``must-have'' repertoire,
                and suppose that all of the former Spotify subscribers would replace
                their Spotify subscriptions with subscriptions to other interactive
                services that pay royalties comparable to those paid by Spotify. In
                that case, Sony would be made entirely whole after the first year.
                In that situation, Spotify would have very little pricing power in
                its negotiations with Sony, far less than Sony's power as a ``must-
                have'' record company.
                [[Page 59460]]
                 Mr. Orszag and the label witnesses on which he relies emphasize
                the short-term cost to a record company of not licensing to Spotify.
                However, economic theory tells us that the correct measure of the
                cost to Sony of not licensing to Spotify in a bargaining context is
                the present discounted value of the revenue that Sony would lose in
                total. The present discounted value includes short-term and long-
                term effects, weighting them appropriately given the time value of
                money.
                 This is a critical point in understanding relative bargaining
                power in the upstream interactive services market. The underlying
                idea is relatively simple and hopefully intuitive: When two parties
                are bargaining, their bargaining power does not just depend upon how
                costly an impasse would be for each of them over the first day or
                week, but rather upon how costly an impasse would be over time. Mr.
                Orszag's analysis is unreliable because he focuses excessively on
                the short-term cost to a major record company of not licensing to
                Spotify and fails to account for the long-term effects.
                Shapiro WRT at 7-8 (emphasis added; footnotes omitted).
                 Applying an 8% annual discount factor--that Professor Shapiro found
                to be a reasonable cost of capital to use for generating present
                value--as well as other assumptions not challenged as unreasonable by
                SoundExchange--Professor Shapiro found that not licensing to Spotify
                would: (i) Cause Sony to lose only [REDACTED]% of the present
                discounted value of its royalty income; and (ii) by [REDACTED]
                contrast, cause Spotify to lose approximately 95% of the present
                discounted value of its revenue and profits. Shapiro WRT at 9.
                Accordingly, Professor Shapiro concludes that ``[c]learly, in this
                situation Sony would be in the driver's seat in negotiating with
                Spotify.'' Shapiro WRT at 9.
                 The only rejoinder by SoundExchange, through Mr. Orszag, is that
                the record reflects a [REDACTED] than the weighting reflected in a
                present value approach that did not incorporate this [REDACTED].
                However, the record is barren of any analysis [REDACTED] The Judges
                find this alternative not credible. Moreover, even if the Majors did
                [REDACTED], they would surely recognize (and, indeed, do not dispute)
                that [REDACTED].
                 Indeed, the Services emphasize that the testimony of Majors'
                witnesses regarding the impact of [REDACTED] was speculative and lacked
                support--particularly as it related to [REDACTED]. See 9/2/20 Tr. 5388
                (Piibe) ([REDACTED]); 9/3/20 Tr. 5731-32 (Harrison) (admitting that
                [REDACTED]).
                 Given the dearth of analysis in the record of the relative harms to
                Spotify and the Majors from a prolonged blackout, and the fact that
                such a consequence would spell Spotify's commercial demise, the Judges
                find that SoundExchange's assertion that [REDACTED], beggars belief.
                 The Services also seek to diminish the evidentiary value of Trial
                Ex. 5077, on which [REDACTED] relies. That document, the Services note,
                is a [REDACTED]. Moreover, the Services point out that this document
                [REDACTED]. Services RPFFCL ] 315 (and record citations therein).\29\
                ---------------------------------------------------------------------------
                 \29\ The Services also note that the reference to a [REDACTED]
                reflects a situation that arose in Mexico and that there is no
                evidence or testimony to support [REDACTED] implication that this
                foreign event is representative of what would occur in the United
                States. See Trial Ex. 5077; Services RPFFCL ] 317.
                ---------------------------------------------------------------------------
                 In sum, the Judges find that SoundExchange's claim that the effect
                on a Major of its loss of the Spotify platform (i.e., going dark on
                Spotify) has altered the power dynamic between Spotify and the Must
                Have Majors to be incomplete at best, and almost certainly incorrect.
                In order to demonstrate that the power complementary oligopolists bring
                to the market and thus to the bargaining table had been neutralized to
                any degree, [REDACTED] needed to do more than [REDACTED]. Because the
                context of this analysis is to ascertain relative negotiating power,
                SoundExchange needed to demonstrate that the economic impact to the
                Majors of going dark on Spotify would at least approximate the impact
                of such an event on Spotify. This SoundExchange decidedly did not do.
                Rather, the evidence is clear--and the economic logic of maximizing the
                present value of profits and minimizing the present value of losses is
                compelling--that a Major going dark on Spotify would work expeditiously
                to contain losses and entice Spotify subscribers to maximize their own
                self-interest by moving to an interactive service that continued to
                play that Major's music.
                 SoundExchange alternatively seeks to show that the Majors'
                bargaining power has been compromised vis-[agrave]-vis Spotify because
                Spotify [REDACTED]. SX PFFCL ]] 318-327 (and record citations therein).
                In response, the Services note the absence of testimony from artists
                themselves regarding whether they might depart from a Major who failed
                to secure a license deal with Spotify. In fact, the Services point out
                that testimony upon which SoundExchange does rely--[REDACTED]--
                indicates [REDACTED] [REDACTED].'' 9/2/20 Tr. 5426-27 (Jennifer
                Fowler). And, in terms of the legal and practicable ability of
                [REDACTED]. 9/9/20 Tr. 5952-54 (Sherwood); 9/3/20 Tr. 5738 (Harrison).
                 The Judges find compelling the absence of the testimony from any
                artists as to how they would react if the Major with which they had
                contracted lost the Spotify platform because of an impasse in licensing
                negotiations. In the absence of such testimony, the Judges put
                particular weight on the testimony, cited above, from [REDACTED]
                indicating that [REDACTED].
                 SoundExchange also suggests that a Major would suffer several
                miscellaneous injuries if it reached an impasse with Spotify that
                resulted in that Major going dark on the Spotify platform. First, the
                Major would [REDACTED]. See generally Trial Ex. 5017; SX PFFCL ] 328
                (and record citations therein). However, the Judges agree with the
                Services that a Major's ongoing ability to obtain data from other
                interactive services would reduce the impact of such a data loss,
                especially as erstwhile Spotify subscribers--unhappy with the loss of a
                Major's repertoire--migrated to other on-demand services. Moreover,
                even the prospect of a short-term data loss is quite low, given the
                futility of a Spotify strategy of actually forcing a Must Have to go
                dark.
                 Another damage which SoundExchange posits derives from the
                testimony of a Universal executive who was concerned that a [REDACTED]
                could [REDACTED] Harrison WDT ] 35; 9/3/20 Tr. 5724 (Harrison). The
                Judges find this testimony to constitute mere speculation, and
                meritless speculation at that. The Judges find it bordering on the
                absurd to contemplate that a licensing impasse between a single service
                and a single Major [REDACTED]. Other interactive services that are
                already competing vigorously in the market stand at the ready to
                acquire Spotify's subscribers and, given the low barriers to entry for
                streaming services, the concept of contestable competition means that a
                new competitor could also enter and compete for a share of the market.
                See Shapiro WRT at 9.\30\
                ---------------------------------------------------------------------------
                 \30\ Further, Spotify's competitors (as well as aggrieved
                artists and social and mass media) would likely spread the word
                publicly regarding the music missing from Spotify in the event of a
                blackout of a Major, hastening the transition of Spotify customers
                to other interactive services. Ironically, as discussed infra, this
                is the very sort of accelerating demise that, according to
                SoundExchange (in convincingly criticizing Pandora's Label
                Suppression Experiments), would befall a noninteractive service that
                attempted to black-out a Major. If noninteractive ad-supported
                listeners--who pay nothing out-of-pocket to listen to music curated
                by the service--would switch away from the service if they became
                aware of the blackout of a Major, then, a fortioiri, Spotify's
                interactive subscribers--who do pay out-of-pocket to listen to music
                they demand--would certainly switch away from Spotify if it likewise
                blacked-out a Major's entire repertoire.
                ---------------------------------------------------------------------------
                [[Page 59461]]
                 Continuing with its speculation regarding miscellaneous harm,
                SoundExchange argues that, upon a licensing impasse with a Major,
                Spotify's subscribers would not abandon it because (i) subscribers pay
                monthly or yearly for their subscriptions, (ii) Spotify delivers well-
                customized recommendations, (iii) subscribers have invested time in
                building their music collection, (iv) subscribers who purchased Spotify
                as a part of a bundle may be less likely to cancel their subscription,
                and (v) subscribers might anticipate a quick resolution to the
                licensing dispute. SX PFFCL ]] 339-343 (and record citations therein).
                The Judges agree though with the Services that these assertions are
                little more than rank speculations. As the Services point out, because
                on-demand plays account for [REDACTED]% of Spotify listening hours, the
                idea that subscribers would tolerate the loss of any Majors' repertoire
                because of behavioral impediments is not only unexplored, it assumes a
                remarkable irrationality among subscribers with regard to their own
                tastes and preferences. Further, SoundExchange's assertion of this
                speculative status quo outcome is 180 degrees from its immediately
                preceding speculative assertion that the entire subscription concept
                and market would collapse if a single Major went dark on Spotify. While
                there may be a rational argument why either outcome could occur,
                neither extreme is reasonable or based on record evidence. Moreover, it
                is not rational to posit that such a licensing disagreement would cause
                the industry both to remain in stasis and to disappear. Indeed, by
                making both arguments simultaneously without evidentiary support,
                SoundExchange seems willing to engage in the evidentiary equivalent of
                throwing spaghetti against the wall to see if any of it sticks.\31\
                ---------------------------------------------------------------------------
                 \31\ SoundExchange also posits that whatever injury would befall
                the domestic industry would also injure the global music market. SX
                PFFCL]] 337-338. However, this assertion is likewise devoid of
                evidentiary support, as there is no adequate record support that
                foreign agreements are affected by the existence, vel non, of
                licensing agreements in U.S. interactive markets. See Services
                RPFFCL ] 338. As a general rule, the Judges have eschewed reliance
                on developments in foreign markets when the proofs are insufficient
                to demonstrate a posited connection between foreign and U.S. market
                that is relevant to these proceedings. SDARS II, 78 FR at 23058 (and
                precedent cited therein).
                ---------------------------------------------------------------------------
                 In sum, the Judges find insufficient evidence to support
                SoundExchange's argument that a Major going dark on Spotify would lead
                to a ``parade of horribles'' befalling that Major so substantial as to
                imbue in Spotify a market power sufficient to [REDACTED].
                c. Does Spotify's technological ability to steer plays on spotify-
                curated playlists provide it with pricing power sufficient to mitigate
                or offset the Majors' complementary oligopoly power?
                 The bulk of Spotify's argument in support of its claim that Spotify
                has a pricing power commensurate with the overall bargaining power of
                the Majors is based on Spotify's technological ability to steer plays
                of sound recordings toward or against a record company. This emphasis
                on steering is unsurprising, because in Web IV the Judges relied on
                evidence of the noninteractive services' ability to steer, and their
                credible threats to do so, as ameliorating the anticompetitive effect
                of the Majors' complementary oligopoly.
                 More particularly, SoundExchange asserts that Spotify developed a
                substantial ability to influence listening on its platform subsequent
                to the execution of its 2013 Agreements with the Majors. See, e.g.,
                Orszag WDT ]] 138-151; 9/2/20 Tr. 5414 (Fowler); 9/2/20 Tr. 5197-98
                (Piibe). Spotify's purported power to influence market share, according
                to SoundExchange, flowed mainly from its alleged ability to influence
                market share through economically strategic placement of sound
                recordings within Spotify-controlled playlists. Orszag WDT ]] 141-
                146.\32\ By way of background, in July 2015, Spotify launched playlists
                personalized for its subscribers, including Discovery Weekly, to assist
                subscribers in identifying new music tailored to their listening
                preferences. Orszag WDT ] 62. Contemporaneously, Spotify began to
                prioritize those playlists and additional Spotify-curated playlists,
                for various genres, by giving them prominent and superior locations in
                its search and display features. Trial Ex. 5619 ]] 15, 17 (CWDT of
                Jennifer Fowler). See also SX PFFCL ]] 359-360 (and record citations
                therein). From 2015 to 2017, these Spotify-curated playlists increased
                as a share of listening on Spotify from less than 20% to approximately
                31% of Spotify platform listening. Orszag WDT ] 142.
                ---------------------------------------------------------------------------
                 \32\ SoundExchange further notes that [REDACTED] has [REDACTED].
                SX PFFCL ]] 370-71 (and record citations therein); Orszag WDT ] 148.
                Less significantly, SoundExchange avers that Spotify can also
                leverage its [REDACTED]. Orszag WDT ] 147.
                ---------------------------------------------------------------------------
                 According to SoundExchange, the economic value of these Spotify-
                curated playlists extends beyond a subscriber's initial accessing of
                songs on the playlist. Listeners also can add songs from those
                playlists onto their own playlists and into their own music
                collections, and, having positively experienced music curated by
                Spotify, they are more likely to search for music from the same
                artists, and thus from the same record company. SX PFFCL ]] 363-364,
                366 (and record citations therein).
                 Consequently, SoundExchange avers that record companies consider
                playlists to be [REDACTED], and thus they devote considerable effort
                and resources to the development and implementation of playlist
                strategies. SX PFFCL]] 365, 367 (and record citations therein).
                Further, the [REDACTED]. See Trial Exs. 5070-5072; Harrison WDT ]] 49,
                52. SoundExchange further relies on the testimony of Michael Sherwood,
                a Warner Senior Vice President responsible for overseeing its Spotify
                and other streaming service accounts, Trial Ex. 5620 ]] 1-2 (WDT of
                Mike Sherwood), who testifies that [REDACTED]. 9/9/20 Tr. 5921-22
                (Sherwood).
                 Moreover, SoundExchange emphasizes that Pandora's own economic
                expert witness, Professor Shapiro, acknowledges that, by the time
                Spotify and the Majors were negotiating their 2017 Agreements, Spotify
                already possessed the ability to influence listening and record company
                market share through its selection and placement of songs on Spotify-
                curated playlists. 8/19/20 Tr. 2868 (Shapiro) (``Spotify has some
                ability to influence listening through a service-generated playlist.
                [Mr. Orszag] emphasizes that. I agree that they definitely have that
                ability.'').
                 SoundExchange relies yet again on Professor Shapiro's testimony to
                argue that, when a streaming service such as Spotify has the technical
                ability to steer, its credible threat to steer against a Major during
                contract negotiations can constitute sufficient leverage by which
                Spotify can negotiate better terms for itself. See 8/20/20 Tr. 3067-68
                (Shapiro). SoundExchange's expert is in full agreement, testifying that
                in negotiations related to steering, as in negotiations generally, ``it
                is often the threat that can influence outcomes . . . as long as the
                threat is credible.'' 8/11/20 Tr. 1255 (Orszag) (emphasis added); see
                also id. at 1211-13, 1347-48.
                 Continuing its attempt to build its steering argument on the back
                of Professor Shapiro's own testimony, SoundExchange points out that he
                admitted that a steering threat could be implicit as well as explicit.
                8/20/20 Tr. 3066-67 (Shapiro). Moreover, the evidence of [REDACTED],
                might be seen, Professor Shapiro recognizes, [REDACTED]. 8/20/20 Tr.
                3052 (Shapiro). For these reasons,
                [[Page 59462]]
                SoundExchange emphasizes, in Web IV Professor Shapiro testified that
                ``if the services have substantial ability to steer'' then the market
                can be ``workably competitive'' notwithstanding that each Major remains
                a Must Have. See 8/20/20 Tr. 3036 (Shapiro).
                 SoundExchange does recognize that, for Spotify to be able to
                transform its technological ability to engage in editorial steering
                into [REDACTED], its threats must be credible to a Major, so that
                actual steering is neither needed nor implemented. SX PFFCL ] 354
                (citing Orszag WDT ] 149). On this score, Professor Shapiro likewise is
                in full agreement. He testifies that steering threats are ``depend[ent]
                on the credibility of these threats'' as well as the ``fallback''
                positions of the parties in the event the threat of steering leads to a
                failure of the parties to enter into a licensing agreement. 8/20/20 Tr.
                3053 (emphasis added).
                 The Services strongly disagree with SoundExchange's steering
                argument. First, they minimize the economic importance of playlist
                listening--where steering might take place--notwithstanding its recent
                growth. In particular, they criticize Mr. Orszag for trumpeting that
                31% of all Spotify listening is to Spotify-curated playlists, when this
                figure obviously means that approximately 69% of all listening remains
                on-demand in nature and thus outside of Spotify's curatorial
                gatekeeping capacity. Thus, the Services argue, the defining feature of
                Spotify (and other interactive services) remains the offering to a
                subscriber of access to a virtually complete repertoire of songs for
                on-demand listening. Services RPFFCL ] 358 (and record citations
                therein). Google's economic expert, Dr. Leonard, takes note of a
                behavioral study of Spotify users [REDACTED] See Trial Ex. 2122 at 8.
                Dr. Leonard takes from the 69%:31% split referenced above and the
                [REDACTED] that ``[a] user's ability to play any song on demand remains
                a defining characteristic of interactive services and a driver of user
                demand for these services.'' Trial Ex. 2160 ] 73 (CWRT of Gregory
                Leonard) (Leonard WRT).
                 Further, on a fundamental level, the Services assert that
                SoundExchange misapprehends the concept of steering, untethering the
                concept from its economic significance. The relevant form of
                ``steering'' for purposes of this proceeding, the Services maintain, is
                one that generates price competition among the Majors. Services PFFCL ]
                64 (citing Web IV, 81 FR at 26343 (``[s]teering is synonymous with
                price competition in this market'') and SoundExchange, 904 F.3d at 52
                (affirming the Judges' decision that ``the likely effect of steering in
                the music industry would be to promote price competition'')).
                 The Services distinguish Web IV in this regard by emphasizing that
                the Judges in that case had relied on two agreements that contained
                explicit steering provisions designed to generate lower royalty rates
                in exchange for additional plays--what the Services characterize as the
                essence of steering. First, the Services point to the agreement between
                Pandora and Merlin for Pandora's noninteractive service, which provided
                that ``the [REDACTED]'' as set out in the agreement. Web IV, 81 FR at
                26356. Second, the Services refer to the Web IV Judges' description in
                that determination of an ``iHeart/Warner Agreement [that] incorporates
                the same economic steering logic as the Pandora/Merlin Agreement.'' Id.
                at 26375.
                 But, in the present case, the Services aver that the Majors had
                [REDACTED]. In fact, the Services maintain, Mr. Orszag concedes this
                point, testifying in response to a question from the Judges that
                [REDACTED].'' 8/12/20 Tr. 1536 (Orszag); see also id. at 1711 (Orszag)
                (``[REDACTED].''); Shapiro WRT at 16 (summarizing lack of evidence in
                Orszag WDT and noting ``when Mr. Orszag discusses how the major record
                companies have responded to the growing role of service-generated
                playlists, he does not claim they have reduced their royalty rates to
                encourage increased plays of their material''). In this regard,
                Google's economic expert witness, Dr. Peterson, noted that [REDACTED].
                Peterson WRT ] 74.
                 The Services also point to the hearing testimony of [REDACTED], who
                acknowledged that [REDACTED]. Specifically, they note that: (1)
                [REDACTED] 9/2/20 Tr. 5371-72 ([REDACTED]) (emphasis added); (2)
                [REDACTED].'' 9/3/20 Tr. 5698 ([REDACTED]) (emphasis added); and (3)
                [REDACTED] 9/3/20 Tr. 5531-32, 5480-81 ([REDACTED]) (emphasis added);
                see also Trial Ex. 4014 at 3 (``[REDACTED].'').
                 Accordingly, the Services maintain that [REDACTED] present no
                evidence or testimony that [REDACTED]. See 9/02/20 Tr. 5435 (Fowler);
                9/09/20 Tr. 5949-50 (Sherwood). Accordingly, the Services note that,
                [REDACTED], Mr. Orszag was compelled to concede that competition for
                playlist slotting is not based on royalty rate discounts (or side
                payments). 8/11/20 Tr. 1313 (Orszag). The Services maintain that this
                testimony is powerful evidence ``undermining [the] theory that playlist
                competition is an outgrowth of steering-based price competition.''
                Services RPFFCL ] 359. In fact, the Services note, [REDACTED]. See
                Services PFFCL ] 66 ([REDACTED]) (and record citations therein).
                 The Services also take issue with Spotify's claim that the 31% of
                listening that occurs on Spotify-curated playlists is entirely subject
                to Spotify's steering capabilities. Specifically, the Services note
                that 17 percentage points of that listening (more than half of the 31%)
                occurs on algorithmically-curated playlists that are personalized for
                each user based on his or her listening behavior and thus outside
                Spotify's control.'' See Orszag WDT ] 61. Moreover, no SoundExchange
                witness provided any evidence that Spotify exerts any price-based
                influence over this algorithm (or over the autoplay algorithm), such as
                in the Pandora/Merlin agreement relied upon by the Judges in Web IV.
                See 9/2/20 Tr. 5406 (J. Fowler); 8/11/20 Tr. 1316 (Orszag).
                 The Services also assert that SoundExchange is exaggerating the
                importance of playlists within Spotify's entire streaming platform. It
                notes [REDACTED] indicating that ``[REDACTED]'' Trial Ex. 2074. In the
                same vein, the Services take note of the testimony of a [REDACTED], who
                acknowledged that, for [REDACTED] 9/2/20 Tr. 5432-33, 5443
                ([REDACTED]). Furthermore, the Services emphasize that SoundExchange
                relies essentially on supposition that playlist listening drives
                listeners' subsequent on-demand streaming decisions, noting the absence
                of any detailed studies that would confirm this hypothesis. Services
                RPFFCL ]] 365-366 (and record citations therein).
                 The Services further note that, in the [REDACTED]. 9/2/20 5370-71
                (Piibe); 9/3/20 Tr. 5537-39 (Adadevoh).
                 According to the Services, [REDACTED]. Essentially, according to
                the Services, [REDACTED]t. See Services PFFCL ]] 151-156 (and record
                citations therein).
                 To make clear the scope of the relevant [REDACTED], the Services
                rely on the exact language of the 2017 agreements between the Majors
                and Spotify. The Services assert that this contract language, set forth
                below, [REDACTED], thus disposing of the very notion that [REDACTED]:
                The Sony-Spotify Agreement
                 [REDACTED]
                 Trial Ex. 5011 at 36 (Sony-Spotify 2017 Agreement); see also Trial
                Ex. 5074 at 22 ([REDACTED] in Sony-Spotify immediately prior 2013
                Agreement) (emphasis added).
                [[Page 59463]]
                The Universal-Spotify Agreement
                 [REDACTED]
                 Trial Ex. 5037 at 45, 96 (Universal-Spotify 2017 Agreement); see
                also Trial Ex. 2062 at 38 ([REDACTED] in Universal-Spotify 2013
                Agreement).
                The Warner-Spotify Agreement
                 [REDACTED]
                 Trial Ex. 5020 at 20, 36 (Warner-Spotify 2013 Agreement).\33\
                ---------------------------------------------------------------------------
                 \33\ [REDACTED]. See Trial Ex. 5038 at 24 (``[REDACTED]''). See
                also 9/3/20 Tr. 5549-51, 5557-61 (Adadevoh) (acknowledging these
                provisions were intended to [REDACTED]).
                ---------------------------------------------------------------------------
                 The Services note a consensus between SoundExchange and Services'
                expert witnesses that [REDACTED]. See, e.g., 8/12/20 Tr. 1709 (Orszag);
                Leonard WRT ] 66. More particularly, they point to Dr. Leonard's
                testimony that [REDACTED]. Leonard WRT ]] 60-63 (reviewing [REDACTED]
                provisions in the Spotify agreements); see also 8/25/20 Tr. 3716-17
                (Peterson); see also Peterson WRT ]] 69-70 (noting the [REDACTED]); 8/
                12/20 Tr. 1699-1701, 1704 (Orszag) (acknowledging that [REDACTED]).
                 SoundExchange maintains, though, that these [REDACTED] have not
                been sufficient to [REDACTED], as discussed supra). Specifically,
                SoundExchange argues:
                 1. [REDACTED]. See, e.g., 9/3/20 Tr. 5702 (Harrison). SoundExchange
                notes that [REDACTED] construed the [REDACTED]. See Trial Exs. 4031 at
                37 ([REDACTED]) & 5020 at 20 ([REDACTED]).
                 2. A service that curates its own playlist, such as Spotify, could
                [REDACTED]. See 9/3/2020 Tr. 5700-01 (Harrison) (discussing the
                Spotify-Universal agreement).
                 3. There are significant [REDACTED], including the Majors'
                [REDACTED]. Orszag WDT ] 150 (``[REDACTED].''). And, even if a record
                company [REDACTED]. See id. [REDACTED]). Moreover, the [REDACTED]. See
                9/2/20 Tr. 5404-06, 5446-47 (J. Fowler).
                 4. Even [REDACTED]. 8/11/20 Tr. 1317-18 (Orszag); accord Trial Ex.
                4017 at 4 (noting that [REDACTED]); Trial Ex. 2124 at 1 (``[REDACTED]);
                9/2/2020 Tr. 5204 (Piibe) (``[REDACTED]).
                 5. Even if the [REDACTED], SoundExchange claims they would
                nonetheless be left with [REDACTED]. It asserts that [REDACTED]--but
                that would [REDACTED]. See, e.g., Harrison WDT ] 56; Adadevoh WDT ] 34,
                38 & n.27; Piibe WDT ]] 29-30; 9/3/20 Tr. 5482 (Adadevoh).
                 Consequently, SoundExchange maintains, it is unsurprising that the
                record contains no evidence that [REDACTED]. See, e.g., 9/3/20 Tr. 5481
                (Adadevoh); accord id. at 5565 (Adadevoh) (noting that [REDACTED]).
                And, when Universal asserted to Spotify that the latter was [REDACTED].
                9/3/20 Tr. 5702 (Harrison).
                 Additionally, SoundExchange avers that, even assuming arguendo the
                [REDACTED] and effectively competitive. Specifically, SoundExchange
                explains that [REDACTED]. Accordingly, although Majors may want or need
                to [REDACTED] such as those quoted above, [REDACTED]. Rather, according
                to SoundExchange, Spotify is [REDACTED] or, importantly here, to
                [REDACTED]. See 8/11/20 Tr. 1254 (Orszag).
                 That is, as Mr. Orszag explains, once a streaming service has
                successfully used a [REDACTED], the Major may in turn seek [REDACTED].
                See 8/11/20 Tr. 1331-32 (Orszag). By similar economic logic, a Major
                that had entered a negotiation [REDACTED] may decide [REDACTED]. See 9/
                2/20 Tr. 5203-05 (Piibe).
                 Thus, SoundExchange maintains, the mere presence of [REDACTED], on
                which the Services rely, is hardly conclusive evidence that the market
                lacks effective competition. Rather, as Professor Shapiro himself
                acknowledges, in an effectively competitive market, a service might
                agree to accept an [REDACTED]. 8/19/20 Tr. 3089-92 (Shapiro).
                 The Services respond, though, that the notion that the [REDACTED]
                was contradicted by SoundExchange's own witnesses. Specifically, as the
                Majors and Spotify negotiated over terms in 2016 and 2017, they
                [REDACTED]. See, e.g. 9/3/20 Tr. 5551 (Adadevoh) (agreeing that
                [REDACTED]''); see also 9/3/20 Tr. 5704-05 (Harrison).
                 Moreover, the Services aver, the terms of [REDACTED] with the
                [REDACTED]. See, e.g., Peterson WRT ] 69. That is, while Spotify
                negotiated [REDACTED], Spotify remained [REDACTED]. Trial Ex. 5074 at
                22; Trial Ex. 5020 at 20, 36. Indeed, SoundExchange's own witness, Mr.
                Orszag, concedes that throughout Spotify's presence in the United
                States streaming market, [REDACTED] 8/12/20 Tr. 1703-04 (Orszag); see
                also Services PFFCL ] 100 (summarizing additional evidence).
                 The Services also assert that there is no evidence that, as
                SoundExchange maintains, the Majors negotiated for [REDACTED]. Instead,
                the Services point to the Majors' imposition of [REDACTED]. See Shapiro
                WRT at 22 (noting the Majors' recognition that [REDACTED]).
                 More particularly, the Services explain that the Majors' [REDACTED]
                ensured that a [REDACTED]. That is, unless other labels [REDACTED]. 8/
                20/20 Tr. 3058 (Shapiro); see also 8/13/20 Tr. 1905-06 (Orszag)
                ([REDACTED]''). The Services also rely on the testimony by Mr.
                Harrison, the Universal executive appearing at trial, who agreed that
                [REDACTED],'' and that ``[[REDACTED]'' 9/3/20 Tr. 5705-06
                (Harrison).\34\
                ---------------------------------------------------------------------------
                 \34\ Because Mr. Harrison testified, without dispute, that
                Universal ([REDACTED]) could only use the [REDACTED], Universal
                apparently could not, for example, [REDACTED].
                ---------------------------------------------------------------------------
                 Importantly, SoundExchange's position--that the [REDACTED] in the
                2017 agreements reflect a [REDACTED]--is inconsistent with
                SoundExchange's argument, itemized supra, that, for ``[REDACTED]'' SX
                PFFCL ] 388.
                 In addition to their rejoinders to SoundExchange's [REDACTED]
                assertions, set forth supra, the Services take issue with each of
                SoundExchange's additional arguments regarding the [REDACTED]. First,
                they note that the only example SoundExchange could muster regarding
                potentially [REDACTED] was related to [REDACTED] entered into between
                [REDACTED]. However, there is no evidence in the record regarding how
                [REDACTED] interpreted the [REDACTED] and, further, that the context
                for any possible disagreement [REDACTED]. Further, there is no record
                evidence indicating that Pandora had the intent to influence, or did
                influence, [REDACTED]'s streams. Moreover, the Services note that there
                is no sufficient proof that the [REDACTED] in the [REDACTED] agreement
                are the same in all respects as those in the [REDACTED] agreement.
                Services RPFFCL ]] 389-390.
                 The Judges find that SoundExchange's reliance on [REDACTED] is
                unavailing because [REDACTED]. Moreover, although [REDACTED] is a
                participant in these proceedings (represented by SoundExchange and its
                counsel), no [REDACTED] witness testified that [REDACTED] sound
                recordings was--to its understanding--a [REDACTED]. More broadly, the
                Judges find wholly undeveloped SoundExchange's speculative assertion
                that a service and a label may have [REDACTED]. Of course, they might
                have (or claim to have) [REDACTED], but that possibility hardly
                indicates that [REDACTED]. Moreover, the parties (services and labels)
                spend substantial sums on attorneys to draft contract language
                [REDACTED], the Judge are unwilling to
                [[Page 59464]]
                find that industrywide [REDACTED], as a class, are [REDACTED].
                 Second, the Services' assert as meritless SoundExchange's argument
                that, even under [REDACTED], Spotify could [REDACTED]. The Services
                point out that [REDACTED]--the only label SoundExchange cites for this
                argument--prohibits ``any form of preferential or otherwise enhanced
                positioning, placement or status'' and provides that [REDACTED] Trial
                Ex. 5037 at 45, 96.
                 Moreover, the Services aver that the Majors do not [REDACTED]. In
                fact, the Services note, in 2017, [REDACTED]. See Trial Ex. 4014; 9/3/
                20 Tr. 5537-39 (Adadevoh) (reviewing Trial Ex. 4014, an internal Warner
                analysis of [REDACTED] and agreeing that Warner had found
                [REDACTED]'').\35\
                ---------------------------------------------------------------------------
                 \35\ The Services also note that SoundExchange separately claims
                that the Majors [REDACTED]. This claim [REDACTED], belies
                SoundExchange's claim that it [REDACTED] The Judges agree with the
                Services.
                ---------------------------------------------------------------------------
                 The Judges find that there is insufficient evidence to support
                SoundExchange's claim that it is hamstrung in attempting to [REDACTED].
                Given the ostensible greater importance the Majors place in this
                proceeding on [REDACTED]--see Trial Ex. 2124 at 1 (``[REDACTED]--the
                Judges find that a Major would [REDACTED]. Moreover, [REDACTED].
                 Further in this regard, the Services disagree with SoundExchange's
                claim that record companies would have ``[REDACTED].'' Rather, the
                Services point to, inter alia, Trial Ex. 2108, in which [REDACTED].
                Trial Ex. 2108 at 2-3. The Services assert that this [REDACTED] shows
                the Majors have an available [REDACTED]. Further, the Services maintain
                that the mere fact that [REDACTED] is consistent with [REDACTED] rather
                than with speculation that [REDACTED]. See Services RPFFCL ] 395 (and
                record citations therein).
                 The Judges find there is inadequate evidence to demonstrate that
                the Majors [REDACTED], for the reasons given by the Services. Further,
                consistent with the Judges comment regarding legal representation
                supra, the Majors have at their disposal highly talented commercial,
                corporate and litigation attorneys, who receive handsome fees for
                [REDACTED]. Although [REDACTED], a sufficient record of [REDACTED] must
                be demonstrated by a more persuasive record than exists in this
                proceeding. Finally, in this regard, if the Majors [REDACTED], why does
                SoundExchange argue that the [REDACTED]? If [REDACTED]? Indeed, the
                fact that there is [REDACTED] in the record, as discussed supra, does
                not mean that [REDACTED]; it points to the value of such [REDACTED].
                The Majors' claims (1) that [REDACTED] and (2) that [REDACTED], are
                blatantly inconsistent.
                 Accordingly, on balance the Judges find that there is insufficient
                evidence to demonstrate that [REDACTED] in their stated intent. The
                Judges take particular note of SoundExchange's acknowledgement,
                discussed supra, that the Majors (1) had [REDACTED], (2) did not
                [REDACTED], (3) found it difficult to [REDACTED], (4) asserted
                [REDACTED], (5) failed to [REDACTED], and (6) agreed to [REDACTED].
                 Shifting from the issue of [REDACTED], the Services disagree with
                SoundExchange regarding the economic importance of this issue. They
                note that, pursuant to an internal Sony document, [REDACTED]
                comprise[REDACTED] and that, [REDACTED], replacing those [REDACTED]
                with [REDACTED] would only [REDACTED]. Trial Ex. 4017 at 4. See also 9/
                03/20 Tr. 5544-45 (Adadevoh) ([REDACTED]); Trial Ex. 4014 at 3.
                 The Judges agree with the Services that Spotify's [REDACTED] to
                suggest a sea change in Spotify's pricing power. And, there is no
                evidence that Spotify could alter its business model by engaging in a
                wholesale [REDACTED] with subscribers remaining indifferent to such a
                fundamental change in the service. This is critical because the Judges
                do not lose sight of the purpose of this particularized analysis of the
                benchmark interactive service, which is to determine if Spotify has
                changed in a manner that lessens or eliminates the complementary
                oligopoly power of the Majors, such that an effective competition
                adjustment in the target noninteractive statutory market is either
                unnecessary or should be reduced. A [REDACTED] (themselves generating
                but a minority of Spotify's listening) is wholly uninformative as to
                this issue.\36\
                ---------------------------------------------------------------------------
                 \36\ The Judges discuss the negotiation of ``[REDACTED]'' with
                Spotify later in this Determination. But, the Judges note here that
                they find unavailing Mr. Orszag's attempt to de-contextualize the
                impact of [REDACTED] by his noting that a [REDACTED]% loss in Sony's
                market share would equate to a $[REDACTED] annual revenue loss. Mr.
                Orszag reports that in 2018 Sony's digital music U.S. revenue
                totaled $[REDACTED]. Orszag WDT tbl.13. Thus, the $[REDACTED] short-
                term revenue loss posited by Mr. Orszag equals [REDACTED] about
                [REDACTED] one percent of Sony's total annual U.S. digital music
                revenue. Although $[REDACTED] is a large sum in many contexts, it is
                small in the present context, especially because the purpose of the
                exercise is to determine Spotify's pricing power relative to the
                complementary oligopoly market power of the Majors. Clearly the
                $[REDACTED] figure fails to reflect the appropriate magnitude of the
                impact of Spotify's [REDACTED]. Such distorted use of monetary sums
                is inappropriate. Cf. Pablo J. Barrio et al., Improving the
                Comprehension of Numbers in the News, Proc. 2016 Conf. Hum. Factors
                Computing 1 (Ass'n for Computing Mach. 2016) (``Unfamiliar
                measurements make up much of what we read, but unfortunately carry
                little or no meaning . . . as they can be difficult to interpret
                without the appropriate context.'') (available on Google Scholar at
                www.cs.columbia.edu (accessed June 9, 2021).
                ---------------------------------------------------------------------------
                d. The (Partial) Evidence and Testimony Regarding the Majors'
                Negotiations With Spotify Leading to Their 2017 Agreements
                 In addition to its foregoing arguments, SoundExchange relies on
                evidence and testimony regarding the negotiations between Spotify and
                the three Majors. Sound Exchange avers that this evidence and testimony
                show that in the run-up to the execution of the 2017 Agreements
                [REDACTED]. Accordingly, the Judges next consider that evidence and
                testimony.
                 Before they weigh the record in that regard, the Judges take note
                of the nature and sequencing of that evidence and testimony. First,
                SoundExchange proffered this information in a disjointed manner.
                Multiple documents from the archives of the three Majors were
                introduced--primarily email correspondence between and among various
                executives within each Major--discussing the Spotify negotiations.
                However, none of the individuals who actually negotiated with Spotify--
                and virtually none of the authors or recipients of these internal
                emails--provided oral or written testimony at the hearing. Rather,
                SoundExchange proffered witnesses from the Majors who had some
                knowledge of these documents and second-hand knowledge of the oral
                negotiations between their employers and Spotify.\37\ The Judges would
                have much preferred to hear from first-hand witnesses from the Majors'
                negotiating teams, who actually bargained with Spotify, in order to
                appreciate how the usual bargaining dominance of the Majors might (or
                might not) have been usurped by Spotify. Further, the documents to
                which the Majors' second-hand
                [[Page 59465]]
                witnesses testified are not always models of clarity, and these second-
                hand witnesses could not go beyond the four corners of the documents to
                explain, identify or provide a sufficient economic context for these
                documents. See Manne & Williamson, supra at 645; see also Web IV, 81 FR
                at 26352 (When ``the Judges' task is to determine . . . economic
                significance . . . the contracts are but one . . . piece of evidence .
                . . [and] [w]here . . . a transaction is part of a complex . . .
                business relationship it is appropriate--even necessary--for the Judges
                to consider other evidence and analysis to determine the true economic
                value of the transaction.'') (emphasis added). And, to the extent oral
                negotiations between Spotify and the Majors, or between the Majors'
                negotiating teams and their superiors, were never summarized or were
                summarized in writings not in evidence, the record is incomplete in the
                absence of testimony from the Majors' negotiators and other direct
                decision-makers.
                ---------------------------------------------------------------------------
                 \37\ The Judges admitted these documents into the record,
                finding them sufficiently authenticated, and, exercising their
                discretion to admit hearsay evidence, the Judges did not exclude
                these documents on that basis. But the issue of admissibility does
                not raise the same concerns regarding the weight to be given to
                documents written or received by relevant actors who were not called
                to testify to explain the context, completeness and ambiguities, if
                any, relating to those documents. Further, the actual negotiators
                could have been called to testify regarding oral negotiations (the
                Majors are all parties in this proceeding) and to explain and
                contextualize statements contained in internal emails. Thus, to the
                extent the record evidence of the Spotify-Majors negotiations is
                incomplete or uncertain, the Judges find that SoundExchange must
                bear the consequences of such deficiencies.
                ---------------------------------------------------------------------------
                 Second, SoundExchange proffered only correspondence from the
                licensor side, that is, from the Majors. The record does not contain
                any documentary evidence (or testimony, for that matter) from Spotify
                regarding its negotiations with the Majors. Accordingly, there is an
                incomplete and one-sided record of the negotiations upon which
                SoundExchange relies.\38\ SoundExchange asserts that this
                incompleteness is inconsequential because what is relevant are the
                Majors' understandings and perceptions of [REDACTED].
                ---------------------------------------------------------------------------
                 \38\ In previous proceedings, the Judges have considered
                negotiation documents when the record contained such material from
                both counterparties. That is not the case with the record here.
                ---------------------------------------------------------------------------
                 The Judges agree that the Majors' understanding of Spotify's
                position [REDACTED] is the ultimate relevant factor in explaining how
                and why the Majors responded as they did in negotiations. However, to
                determine whether the Majors' claimed understanding is credible, and to
                weigh the value of each factor, the Judges would need to know much more
                about how Spotify bargained and the representations it made. The actual
                negotiators would have been the best witnesses to provide that level of
                detail to assist the Judges in determining whether the Majors'
                [REDACTED] is factually persuasive.
                 This is crucial for two reasons. First, the Services offer up a
                quite different explanation. They argue that the Majors were simply
                utilizing their complementary oligopoly power to [REDACTED]. See
                Services PFFCL ]] 138-150 (and record citations therein). SoundExchange
                is making an argument that relies on facts that, if relied upon by the
                Judges, would lead to a radical departure from the bargaining analysis
                they identified and adopted in Web IV--one which is consistent with the
                economic framework of complementary oligopoly that has an unchallenged
                lineage dating back to the 19th century work of the economist A.A.
                Cournot. See Web IV, 81 FR at 26342. Such a departure from the prior
                bargaining framework is certainly conceivable, but the hearing record
                necessary to support the task should be substantial; instead,
                SoundExchange's presentation appears to the Judges to have been
                stitched together and, for the reasons discussed supra, lacking a sound
                basis in economics, as well as in the very principles and dynamics of
                bargaining that it applies to the hypothetical noninteractive
                market.\39\
                ---------------------------------------------------------------------------
                 \39\ By contrast with the problematic record relating to the
                effects of Spotify's supposed new-found pricing power, and as
                discussed in detail infra, the Majors' internal documents and
                hearing testimony reveal [REDACTED]. As also discussed infra, the
                Majors' [REDACTED].
                ---------------------------------------------------------------------------
                 The Judges keep these considerations in mind as they analyze below
                the parties' arguments regarding the import of the relevant strands of
                evidence and testimony regarding Spotify's negotiations with the
                Majors.
                i. The Universal-Spotify Negotiations
                 Universal and Spotify began their negotiations to replace their
                2013 agreement in [REDACTED], see Trial Ex. 4027 at 1, and completed
                the negotiations at [REDACTED]. See Trial Ex. 5037 at 1. Early in the
                negotiations, according to an internal company document, Universal
                identified [REDACTED] as an issue to be addressed. Trial Ex. 5410 at 1.
                SoundExchange notes that Universal's subsequent internal communications
                reflect its [REDACTED]. Trial Ex. 4016 at 1 (``[REDACTED]''); see also
                Trial Exs. 4019, 5429 at 1. Further, some Universal negotiators--again,
                who did not testify--expressed in internal documents their belief that
                [REDACTED], Trial Ex. 5422 at 1, with the author of an internal
                Universal email, adding [REDACTED]. Trial Ex. 5221 at 5.\40\
                ---------------------------------------------------------------------------
                 \40\ Because the author of the email did not testify, the
                unusual placement and styling of this alleged quote (itself hearsay)
                was not the subject of examination at the hearing.
                ---------------------------------------------------------------------------
                 When apprised of [REDACTED], according to an internal Universal
                email, Spotify acknowledged to Universal that it [REDACTED]. Trial Ex.
                5413 at 1. Consistent with [REDACTED], Universal's testifying witness,
                Aaron Harrison, acknowledged that [REDACTED]. 9/3/20 Tr. 5701
                (Harrison).
                 In an attempt to [REDACTED], Universal ultimately proposed that
                [REDACTED]. Trial Ex. 5410 at 1. However, Universal's internal emails
                indicated that Spotify had [REDACTED] Trial Ex. 5421 at 1. Rather,
                Spotify took the position that it would be ``[REDACTED].'' Trial Ex.
                5414 at 1. Ultimately, the final 2017 Agreement included [REDACTED].
                See generally Trial Ex. 5037. (However, as noted above, the 2017
                Agreement included [REDACTED].
                 In response, the Services point out, as an initial matter, that the
                statements in Trial Ex. 5414 constitute double hearsay, in that they
                repeat [REDACTED] (the first hearsay) to a [REDACTED], which were then
                repeated in the exhibit (the second hearsay). The Services also argue
                that the Judges should give no weight to Trial Ex. 5521, which also
                contains double hearsay, viz., [REDACTED] [REDACTED] (the first
                hearsay), repeated in an internal email (the second hearsay). In any
                event, the Services maintain, no part of the [REDACTED] that would
                generate price competition.
                 Moreover, the Services aver that these statements are flatly
                inconsistent with the acknowledgement by Universal's testifying
                witness, Mr. Harrison, that Universal [REDACTED], but rather Universal
                sought to [REDACTED] Trial Ex. 4016 at 1. Thus, Universal's negotiating
                stance, according to the Services, was to [REDACTED]. To that extent,
                the Services do acknowledge that Universal [REDACTED]--see Harrison WDT
                ] 56; 9/3/2020 Tr. 5743-5744 (Harrison)--but Universal was [REDACTED].
                Id. at 5744 (Harrison). Accordingly, Universal had to rely on the
                [REDACTED]. Harrison WDT ] 56. Additionally, the Services note that the
                2017 Agreement [REDACTED].
                 The Services also contest SoundExchange's characterization of
                [REDACTED]. Specifically, the Services point to the [REDACTED], which
                requires that Spotify [REDACTED] and that Spotify would ``[REDACTED]''
                Trial Ex. 2062 at 53-54 (2013 Spotify-Universal Agreement).
                 In fact, Trial Ex. 5429 (a 2016 negotiation email cited by
                SoundExchange) acknowledged that the [REDACTED] Trial Ex. 5429 at 4.
                Moreover, according to the Services, Spotify's [REDACTED] rendered
                dubious, unsubstantiated, and unwarranted Universal's [REDACTED].
                 Further, as an economic matter, the Services assert that
                Universal's [REDACTED] gives away the game--
                [[Page 59466]]
                Universal was seeking to [REDACTED] that the Services characterize as a
                ``perverse conception of `price competition' to say the least.''
                Services RPFFCL ]] 419-421 (and record citations therein). Moreover,
                the Services aver, in any event, the presence of [REDACTED] Spotify's
                agreements with the [REDACTED]. See Services RPFFCL ] 425
                 The Judges find that the evidence and testimony relating to these
                negotiations, relied upon by SoundExchange, are insufficient to
                demonstrate that Spotify had acquired any greater pricing power in
                connection with the negotiation of the 2017 Agreement. The [REDACTED]
                in the 2013 Agreement [REDACTED] in the 2017 Agreement, as confirmed in
                Universal's own internal email. Further, as the Services point out,
                Universal's testifying witness, Mr. Harrison, contradicted the key
                point that SoundExchange is attempting to make with regard to these
                negotiations: [REDACTED] 9/3/20 Tr. 5701 (Harrison). This broad
                statement clearly undermines SoundExchange's assertion that
                [REDACTED].\41\ Further, because Universal's agreement to [REDACTED],
                the Judges agree with the Services that Universal's pointed attempt to
                have Spotify agree to [REDACTED] demonstrates that Universal was
                [REDACTED].
                ---------------------------------------------------------------------------
                 \41\ The Judges find startling, though, the Services'
                dismissal--as a ``perverse conception of `price competition' ''--of
                SoundExchange's more nuanced claim that [REDACTED]. This is
                precisely the phenomenon that Professor Shapiro enthusiastically
                endorsed in Web IV and which the Judges adopted. Web IV, 81 FR at
                26366 (Professor Shapiro testifying that it was ``absolutely''
                correct that ``the threat of steering . . . pushes [the record
                companies] . . . towards their original [market share] percentages
                to avoid being that odd man out who was the holdout for the higher
                price . . . .''). In any event, Mr. Harrison's testimony that
                [REDACTED] renders moot the Services' jarring attempt to repudiate
                the notion of a Major agreeing to lower rates in exchange for
                protection from steering. Moreover, if, hypothetically, the facts
                had demonstrated [REDACTED], then [REDACTED] might have made sense
                as a way for a Major to avoid the situation where it [REDACTED].
                However, under SoundExchange's own theory of the case, as discussed
                elsewhere in this Determination, the idea that the Majors thought
                [REDACTED], would be a chimera, given that the Majors aver that
                [REDACTED].
                ---------------------------------------------------------------------------
                 On a more general basis, the Judges find SoundExchange's portrayal
                of Universal as essentially a ``pitiful helpless giant'' in
                negotiations to be at odds with the reality of its status as a
                complementary oligopolist wielding a Must Have repertoire. It did not
                have to [REDACTED], but rather, ceteris paribus, could have [REDACTED].
                 Additionally, SoundExchange's assertion that Universal [REDACTED]
                in the 2017 Agreement is problematic for two reasons. First, Universal
                claimed to be [REDACTED], so why did Universal [REDACTED]? Again,
                SoundExchange's characterization of this largest Must Have Major as
                some sort of pitiful helpless giant (like Gulliver restrained by the
                Lilliputians) is simply not credible, because, as discussed elsewhere
                in this Determination, Spotify would be out of business [REDACTED]
                without a Major's repertoire, whereas Universal and the other Majors
                would continue in business, as Spotify's listeners would migrate to a
                substitute streaming service. And, if the [REDACTED] as SoundExchange
                claimed (because, as discussed supra, a Major could not [REDACTED] then
                why was Universal (or any Major) [REDACTED]--especially given that
                SoundExchange proffered evidence that the Majors claimed [REDACTED].
                 Moreover, in Web IV, SoundExchange provided substantial detail
                regarding how the Majors would respond to thwart an attempt by a
                service to engage in steering as a means of price competition. A Major
                would threaten to black out its repertoire on that service or actually
                do so (a threat that remains viable, as discussed in this
                Determination). Second, a Major could demand that all royalties be paid
                up front on a non-refundable basis, according to historic market
                shares, making subsequent market share deviations costly (i.e., the
                marginal cost of deviating toward a Major beyond its historic share
                would be a positive royalty, compared to the zero marginal cost of
                playing a marginal sound recording as part of a Major's historic share,
                because the royalties based on historic market share had been prepaid).
                Finally, in Web IV, SoundExchange noted that each Major could insist on
                an MFN or similar anti-steering/anti-discrimination clause, making
                deviations from historic share play a breach of contract. Web IV, 81 FR
                at 26364-65.\42\
                ---------------------------------------------------------------------------
                 \42\ The very concept of licensors requiring historic shares to
                be maintained appears inconsistent with effective competition. In
                Web IV, the Judges noted that ``demands by the Majors to prevent
                steering by insisting that a noninteractive service not deviate from
                an historical (``natural'') division of market shares would be a
                classic example of anticompetitive conduct.'' Web IV, 81 FR at 26373
                (citing Blue Cross & Blue Shield United of Wisconsin v. Marshfield
                Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (Posner, J.).
                ---------------------------------------------------------------------------
                 In Web IV, the Judges acknowledged the capacity of the Majors to
                engage in such conduct, and the Judges characterized such conduct as
                simply alternate expressions of their complementary oligopoly power
                that, under the statute, the Judges were intending to mitigate, in
                order to identify rates that would be set in an effectively competitive
                market. Web IV, 81 FR at 26373-74. In the present proceeding,
                SoundExchange has not provided a sufficient evidentiary basis to show
                that Spotify would be immune from such tactics. Moreover, it would be
                in each Major's long-run interest, acting alone, yet consciously aware
                of the parallel incentives of the other Majors, to threaten and, if
                necessary, follow through on such actions, because of each Major's
                individual Must Have status (and each Major's knowledge of the other
                Majors' Must Have status).\43\ Simply put, the Majors' power provides
                them with multiple tactics, which, if triggered, would confront Spotify
                with certain and prompt economic ruin, as its subscribers expeditiously
                defected to Apple, Amazon, Google, or one of Spotify's smaller
                competitors.
                ---------------------------------------------------------------------------
                 \43\ Indeed, an important point made by Professor Willig,
                SoundExchange's Shapley Value and bargaining expert, regarding the
                noninteractive market is fully applicable here. Each Major, as a
                Must Have, would recognize its power to withhold (or threaten to
                withhold) a license in order to maximize the benefit of the bargain.
                See also Richard A. Posner, Oligopoly and the Antitrust Law: A
                Suggested Approach, 21 Stan. L. Rev. 1067, 1081a n.39 (1969) (A
                ``meeting of the minds'' among oligopolists is ``illuminated by game
                theorists [who note that] mutual dependence . . . demands . . .
                collaboration [that is] . . . tacit if not explicit . . . .'').
                There is no reason to believe that this phenomenon does not exist in
                the unregulated interactive music licensing market. Kristelia A.
                Garcia, Facilitating Competition by Remedial Regulation, 31 Berkeley
                Tech. L.J. 183, 188 (2016) (``In an industry like music licensing .
                . . parallel pricing and tacit collusion can . . . remov[e] the
                threat of meaningful competition from the marketplace.'').
                ---------------------------------------------------------------------------
                 Accordingly, the Judges reject the argument that Spotify's economic
                position generated a change in bargaining and market power [REDACTED].
                Rather, it is apparent to the Judges that Universal must have had
                [REDACTED].\44\
                ---------------------------------------------------------------------------
                 \44\ That [REDACTED] is discussed infra, section III.B.2, after
                the Judges consider the evidence regarding the negotiations between
                Spotify and Sony and between Spotify and Warner.
                ---------------------------------------------------------------------------
                ii. The Warner-Spotify Negotiations
                 At the outset of negotiations regarding the 2017 Agreement, Spotify
                represented to Warner that it had [REDACTED]. 9/3/20 Tr. 5479; 5526-27
                (Adadevoh).
                 In response to a Spotify proposal for [REDACTED], Warner explored
                with Spotify a [REDACTED]. See Trial Exs. 5264 at 4; 5265 at 2; 9/3/
                2020 Tr. 5495-96 (Adadevoh). According to Warner's testifying witness,
                Ms. Adadevoh--who did not participate in the negotiation sessions with
                Spotify--Spotify rejected this [REDACTED] proposal, and [REDACTED]. See
                Trial Exs. 5264 at 4; 5265 at 2; 9/3/2020 5495-97 (Adadevoh). According
                to Warner,
                [[Page 59467]]
                Spotify also rejected its subsequent proposal for [REDACTED]. Trial Ex.
                4020 at 1.
                 In February 2017, Warner alternately proposed that, in
                consideration of a [REDACTED], Spotify [REDACTED]. However, Spotify
                refused. Trial Exs. 5520 at 2; 5038; 9/3/20 Tr. 5505 (Adadevoh).
                 Ultimately, Warner agreed to [REDACTED]. According to Ms. Adadevoh,
                Warner agreed to [REDACTED], motivated in part by [REDACTED].
                SoundExchange avers that Warner's [REDACTED] was reasonable because
                Spotify had [REDACTED]. Trial Ex. 5401 at 3. In this regard, Ms.
                Adadevoh testified at the hearing that Warner's perception of Spotify's
                [REDACTED] 9/3/20 Tr. 5490-91 (Adadevoh). Accordingly, she testified
                that Warner [REDACTED]. 9/3/20 Tr. 5531 (Adadevoh).
                 During these negotiations, Warner attempted to determine whether
                its speculation was justified that Spotify might have [REDACTED].
                Through this analysis, Warner was [REDACTED]. Nonetheless, according to
                SoundExchange, Warner's [REDACTED], but rather reflected the
                [REDACTED]. SX PFFCL ] 435 (citing Trial Ex. 4014 at 1; 9/3/20 Tr.
                5601-02 (Adadevoh)).
                 Ms. Adadevoh testified that--notwithstanding the [REDACTED] that
                Spotify had [REDACTED]--Warner [REDACTED]. Trial Ex. 5612 ] 12 (WRT of
                Reni Adadevoh); 9/3/20 Tr. 5530-31 (Adadevoh). The importance of
                [REDACTED] was noted in an email written by Warner's lead negotiator
                with Spotify, who wrote that ``[REDACTED]'' the effect on WMG's
                [REDACTED] would be [REDACTED]. Trial Ex. 2124 at 1. The same email
                also stated that the [REDACTED] in Warner's 2013 agreement with Spotify
                did not [REDACTED]. Trial Ex. 2124 at 1; Adadevoh WDT ] 12.
                 To underscore Warner's purported concern that Spotify might
                [REDACTED], SoundExchange also notes discussions on a Warner [REDACTED]
                regarding [REDACTED]. Trial Ex. 4025 at 1.
                 Ultimately, Warner agreed to [REDACTED], which was included in its
                2017 Agreement with Spotify. Trial Ex. 5038; Adadevoh WDT ]] 11-12.
                According to Ms. Adadevoh, Warner [REDACTED] because ``[REDACTED]'' 9/
                3/20 Tr. 5480.
                 The Services respond first by noting that SoundExchange has ignored
                the import of Warner's complementary oligopoly power in connection with
                the bargaining dynamics. Absent consideration of this fact, they argue
                that Ms. Adadevoh's assertion that [REDACTED] is simply conclusory and
                hardly credible. Additionally, the Services maintain that there is no
                evidence linking [REDACTED] to either (1) a [REDACTED] or (2) a
                [REDACTED].
                 The Services also assert that a key document on which SoundExchange
                relies, Trial Ex. 4022, actually identifies [REDACTED] in its 2017
                Agreement with Spotify.\45\ Among these drivers, according to the
                Services' understanding of this Warner document, was [REDACTED]. See
                Trial Ex. 4011 at 1 (``[REDACTED]'').
                ---------------------------------------------------------------------------
                 \45\ The Services also identify several other ``drivers'' that
                led Warner to agree to the terms of the 2017 Agreement,
                predominantly relating to Warner's [REDACTED]. These other points
                are discussed infra.
                ---------------------------------------------------------------------------
                 The Services also note that another document on which SoundExchange
                relies regarding the Warner-Spotify negotiations, Trial Ex. 5264,
                consists of double hearsay--providing a second-hand report of Spotify
                statements. Moreover, the Services claim the statements contained
                therein cannot even unambiguously be attributed to specific sources--
                making it difficult to tell whether certain text reflects a Spotify
                statement, Ms. Gardner's reaction thereto, or something else entirely.
                Moreover, the Services point out that the testifying Warner witness,
                Ms. Adadevoh, did not claim to have personal knowledge sufficient to
                provide the requisite clarity.
                 The Services also characterize as misleading SoundExchange's
                attempt to portray [REDACTED] as an example of Spotify's market power.
                Rather, they claim that an examination of Trial Ex. 5265 reveals that
                Spotify was [REDACTED] in the 2017 Agreement; rather, Spotify was
                making the practical observation that if a [REDACTED]. Trial Ex. 5265
                at 4-5. And, the Services add, allowing a [REDACTED] noted supra in
                Trial Ex. 4011.
                 The Services also dispute SoundExchange's assertion that Spotify's
                refusal to provide Warner with [REDACTED] demonstrates Spotify's
                increased bargaining or market power. They note that it was Spotify's
                [REDACTED]. Moreover, the Services note that Warner made its proposal
                [REDACTED] (see Trial Ex. 5520) [REDACTED], belying Ms. Adadevoh's
                suggestion that [REDACTED]. Additionally, the Services point out that
                Trial Ex. 5520 also reveals that Warner sought to [REDACTED]--
                underscoring the degree to which Warner recognized that it, too,
                [REDACTED]--and that Warner was willing to agree to [REDACTED] because
                of [REDACTED]. See Trial Ex. 5520 at 3.
                 More broadly, the Services argue that, if it was true that Spotify
                had been [REDACTED], the negotiation files would have been [REDACTED],
                and yet, by contrast, the quantum of evidence on which Warner relies is
                remarkably slender. Services RPFFCL ] 434 (and record citations
                therein). And, with regard to the extant record evidence, the Services
                characterize as insufficient and unconvincing SoundExchange's attempt
                to recharacterize Warner's internal [REDACTED]. See Trial Ex. 4014.
                Continuing its attack on what it describes as SoundExchange's purported
                misstatement of the evidentiary record, the Services point to another
                SoundExchange document, Trial Ex. 2124, which includes, [REDACTED]--
                contradicting SoundExchange's argument that the [REDACTED] (as
                discussed supra).
                 Continuing its attack on the usefulness of the evidence relied upon
                by SoundExchange relating to Warner's negotiations with Spotify, the
                Services note that Trial Ex. 4025, apparently describing [REDACTED] is
                replete with double hearsay, in the form of a declarant's summary of
                third-party statements by other declarants. The Services state that
                there is no indication that any particular comment in this exhibit
                reflects Warner's final or official position, or that they are not
                merely the opinions of each individual. On the substance of this
                exhibit, the Services point out that this document contains [REDACTED],
                ignored by SoundExchange, which [REDACTED]. Services RPFFCL ] 438 (and
                record citations therein).
                 The Judges find the Services' arguments convincing. Warner's
                internal correspondence indicates it was [REDACTED]. But, when it
                [REDACTED] Warner's contract with Spotify. On these facts, the Judges
                cannot find support for Spotify's supposed new-found power [REDACTED].
                 Further, there is no persuasive evidence [REDACTED] included in
                that contract. The Judges will not presume such a [REDACTED] when the
                record does not reflect that this [REDACTED] occurred. Alternatively
                stated, SoundExchange is asserting that the Judges should find
                causation--that the [REDACTED] and vice versa--when the evidence
                [REDACTED]. Here, the absence of testimony from the actual negotiators
                looms large; if there had been evidence of such [REDACTED] (which is
                not in the present record) in first-hand testimony from the
                negotiators, the Judges could have weighed their direct and cross-
                examination testimony to assist in
                [[Page 59468]]
                making a finding as to this issue. But, no such record exists.
                Accordingly, the possibility that [REDACTED] were the consequence of
                Spotify's new market power [REDACTED] is not more plausible than the
                Services' position that the [REDACTED] were included, [REDACTED], to
                [REDACTED], and that Warner's agreement to the [REDACTED] was
                [REDACTED].
                 Additionally, the fact that Spotify refused to [REDACTED] Warner
                does not reflect any pricing power possessed by Spotify. Rather, it
                reflects the power of[REDACTED] to [REDACTED], thus undermining price
                competition.
                 Finally, the Warner [REDACTED] document on which SoundExchange
                relies is unpersuasive. Not only does it consist of double-hearsay--as
                the Services note, it also fails to identify the speakers and their
                business affiliations [REDACTED] (which also are not provided in
                hearing testimony)--but rather, the email reflects [REDACTED] regarding
                the pending Spotify-Warner 2017 Agreement. In that regard, it contains
                [REDACTED], allegedly voiced by the unidentified participants. As the
                Judges noted supra, corporate documents, including [REDACTED] are often
                likely to fail to shed light on the economic factors relevant to a
                proceeding. See William Inglis & Sons Baking, 688 F.2d at 1028.
                 Here, the Warner [REDACTED] document is even more problematic, as
                it merely recites [REDACTED]. The problem with this document--
                emblematic of the problem with all of these hearsay documents--was
                highlighted in a fruitless attempt by SoundExchange's counsel to cross-
                examine Professor Shapiro regarding the meaning of a double hearsay
                declaration in this Warner [REDACTED] document, Trial Ex. 4025.
                Presented with language in this exhibit stating: ``[REDACTED]''
                Professor Shapiro responded by stating: ``I'm not sure what this
                [REDACTED] means,'' and adding: ``I don't know what it means
                [REDACTED].'' 8/20/20 Tr. 3076-77 (Shapiro). The witness then asks
                SoundExchange's counsel: ``Could you help me out on that?,'' to which
                SoundExchange's counsel then had no choice but figuratively to throw up
                his hands and lament: ``Well, . . . let's just leave it since we don't
                have the fact witness here.'' 8/20/20 Tr. 3077 (Shapiro) (emphasis
                added). The Judges share that frustration.
                iii. The Sony-Spotify Negotiations
                 According to Sony, at the outset of negotiations, Spotify sought
                [REDACTED]. 9/2/20 Tr. 5218 (Piibe). However, Sony was [REDACTED]
                particularly because Sony believed the proposed [REDACTED]. Piibe WDT ]
                20; 9/2/20 Tr. 5195-96 (Piibe); Trial Ex. 4018 at 1. The Services find
                this opening salvo--made about a year before the parties ultimately
                executed their 2017 Agreement--to be wholly unremarkable. Professor
                Shapiro characterizes this start to negotiations as merely
                ``[REDACTED]'' 8/20/20 Tr. 3082 (Shapiro).
                 When [REDACTED] appeared [REDACTED] Sony decided that,
                ``[REDACTED],'' \46\ it would offer to [REDACTED]. Trial Ex. 5461 at 7,
                35 (offering increasing [REDACTED]); \47\ see also Trial Ex. 4026 at 1,
                4 (offering a more general framework for [REDACTED]); Piibe WDT ] 22
                (the thinking behind the [REDACTED] was simply that, [REDACTED]).
                ---------------------------------------------------------------------------
                 \46\ The relevancy of Spotify's ``importance'' to Sony and the
                other Majors, in terms of the subscription royalty rate [REDACTED],
                is discussed infra.
                 \47\ To put this proposal in context, Sony's market share for
                interactive subscription plays in 2018 was [REDACTED]%. Orszag WDT,
                tbl.2.
                ---------------------------------------------------------------------------
                 The Services' rejoinder to this assertion is consistent with their
                explanation of the problem regarding the [REDACTED]: As long as Spotify
                remained [REDACTED], Spotify was [REDACTED] Services RPFFCL ] 442 (and
                record citations therein).
                 Because Sony understood that Spotify had the [REDACTED], Piibe WDT
                ] 25, Sony recognized that a consequence of [REDACTED]. As Mr. Piibe
                explained, in [REDACTED]. Piibe WDT ] 26. Moreover, Sony asserted that
                it [REDACTED]--because it believed that Spotify could [REDACTED] Piibe
                WDT ] 26 (emphasis added).
                 More particularly, Sony asserts that it was concerned about
                Spotify's [REDACTED]. See Trial Ex. 5451 at 1 (noting that Spotify
                [REDACTED]); Trial Ex. 5461 at 40 (noting that [REDACTED]); Trial Ex.
                5514 at 3 (noting that [REDACTED] and identifying [REDACTED]); Trial
                Ex. 4017 at 4 (noting that [REDACTED]). Sony was concerned because it
                believed its [REDACTED] Trial Ex. 5461 at 40; accord Trial Ex. 5514 at
                3 (asserting that Sony's [REDACTED]). Trial Ex. 5468 at 2.
                 The Services aver that these purported [REDACTED] reflect mere
                possibilities, which Sony [REDACTED] in contract negotiations. First,
                regarding [REDACTED], the 2017 Agreement included a [REDACTED] More
                particularly, the Services note the dynamics of the negotiations that
                led to [REDACTED]. In Spotify's initial contract proposal, Trial Ex.
                5461, it sought a [REDACTED] However, in the final 2017 Agreement,
                Trial Ex. 5011, the [REDACTED] was [REDACTED] to Sony.
                 Moreover, the Services point to what they consider to be a blatant
                inconsistency between Mr. Piibe's WDT regarding this [REDACTED] and Mr.
                Piibe's deposition testimony in this proceeding, with which he was
                confronted at the hearing, as set forth below:
                 [Hearing Question]: [L]et me ask you to take a look at . . . your
                deposition. . . .
                 [Deposition Question]:
                 [REDACTED]?
                * * * * *
                 [Deposition Answer]
                 [REDACTED].
                 [Hearing Question]
                 [W]as that answer correct at the time?
                 [Hearing Answer]
                 Yes.
                9/2/20 Tr. 5339-40 (Piibe) (emphasis and bolding added).
                 Further, the Services note (as discussed supra) that the [REDACTED]
                in the Sony-Spotify 2017 Agreement contained a [REDACTED] Trial Ex.
                5011 at 36. There is no basis in the record, the Services maintain, to
                conclude that this [REDACTED] would [REDACTED], two areas regarding
                which Sony claimed to be concerned.
                 SoundExchange also finds a [REDACTED] in a statement supposedly
                made by Spotify (contained in an internal Sony email), [REDACTED]
                There, Mr. Piibe recounted what he heard from a Sony employee regarding
                a statement allegedly made by a Spotify negotiator, to the effect that,
                [REDACTED]. Trial Ex. 5469 at 1. Mr. Piibe asserts that, in response to
                that and [REDACTED], Sony ``determined that [REDACTED]'' Piibe WDT ]]
                24, 26.
                 The Services respond by noting that this [REDACTED]--of
                questionable veracity given the double-hearsay nature of its
                representations--[REDACTED]. Further, the Services contrast what they
                characterize as [REDACTED] with what they indicate to be Mr. Orszag's
                [REDACTED] characterization of the statement in his oral testimony as a
                ``[REDACTED]'' in which Spotify said, ``[REDACTED].'' 8/12/20 Tr. 1743
                (Orszag). Ultimately, Sony determined that it was [REDACTED] that,
                according to its testifying witness Mr. Piibe, caused a ``[REDACTED].''
                Piibe WDT ] 23. According to Mr. Piibe, Sony, in fact, [REDACTED].
                Piibe WDT ] 36. And, during the hearing, he elaborated, testifying:
                 [REDACTED].
                9/2/20 Tr. 5228 (Piibe) (emphasis added). Moreover, on behalf of Sony,
                [[Page 59469]]
                Mr. Piibe speculated that Spotify was [REDACTED]. 9/2/20 Tr. 5228, 5368
                (Piibe). Consequently, Sony negotiators, according to an internal Sony
                email, concluded that [REDACTED]. Trial Ex. 5467 at 1.
                 The Judges find, for several reasons, that the evidence proffered
                by SoundExchange regarding the Sony-Spotify negotiations does not
                support the assertion that Spotify's supposed new pricing power was
                [REDACTED]. First, Spotify's [REDACTED] was simply consistent with the
                [REDACTED]. Thus, such [REDACTED] was not [REDACTED].
                 Next, SoundExchange's assertion that Sony alternatively sought
                [REDACTED] in order to [REDACTED] was unambiguously refuted by Mr.
                Piibe's deposition testimony. As noted above, in that testimony, he
                admitted that [REDACTED]. His testimony in this regard also neutralizes
                the claim by SoundExchange that [REDACTED].
                 Finally, the Judges take note of Mr. Piibe's exaggerated hearing
                testimony regarding Sony's decision [REDACTED]. In that testimony, Mr.
                Piibe indicated that the very [REDACTED] was ``[REDACTED]'' to the
                point that he was ``stuttering'' in an attempt to ``process'' the idea.
                The Judges find this over-the-top testimony not only lacking in
                credibility, but also a fine example of the adage ``the lady doth
                protest too much.'' \48\ Mr. Piibe was a polished witness who spoke
                carefully and with fluidity. The question that he was asked that led to
                his ``stuttering'' response was the following: ``[REDACTED]?'' 9/2/20
                Tr. 5228 (Piibe).
                ---------------------------------------------------------------------------
                 \48\ William Shakespeare, Hamlet act III, sc. 2.
                ---------------------------------------------------------------------------
                 This question was straightforward, simple, and posed to him on
                direct examination, thus unlikely to have caught him by surprise.
                Moreover, the [REDACTED] is the [REDACTED]. The Judges cannot fathom
                that a Major, a sophisticated corporation, would not [REDACTED] when it
                is undisputed in the present record, and supported by the economic
                analysis discussed in this Determination, that [REDACTED]. Indeed, a
                substantial component of SoundExchange's case-in-chief (presented in
                the testimony of Professor Willig) turns on the contributions each
                party makes to the value of a music service and their fallback
                values.\49\ What the Judges find inconceivable is Mr. Piibe's claim
                that [REDACTED]. Thus, the Judges find this exaggerated testimony to
                lack credibility, indicating that there must have been another reason
                for [REDACTED].
                ---------------------------------------------------------------------------
                 \49\ Professor Willig refers to the opportunity cost of a Major
                that is a complementary oligopolist when negotiating with a
                potential licensee as the [REDACTED] opportunity cost. [REDACTED]
                ---------------------------------------------------------------------------
                e. Other Record Evidence and Testimony Contradict SoundExchange's Claim
                That Spotify's Pricing Power Had Neutralized the Majors' Complementary
                Oligopoly Power
                 If Spotify, in fact, had become so powerful by virtue of its market
                size, ability to [REDACTED] and ability to [REDACTED], as a Sony
                executive wrote, to [REDACTED]. Trial Ex. 2137. However, the evidence
                indicates that the Majors were [REDACTED]. The Judges find telling the
                following colloquy between the bench and Michael Sherwood, a senior
                Warner executive:
                 [THE JUDGES]
                 [REDACTED]?
                 [MR. SHERWOOD]
                 [REDACTED]. . . .
                 [THE JUDGES]
                 Why [REDACTED]?
                 [THE WITNESS]
                 [REDACTED].
                 [THE JUDGES]
                 Okay. Did you have an understanding as to why [REDACTED]?
                 [MR. SHERWOOD]
                 I [REDACTED].
                 [THE JUDGES]
                 When you say [REDACTED], you mean [REDACTED], so to speak?
                 [MR. SHERWOOD]
                 Correct. That was my impression of it.
                 [THE JUDGES]
                 Okay. And how did you come to that impression?
                 [MR. SHERWOOD]
                 Through conversations with our business development team at Warner
                Music Group.
                 [THE JUDGES]
                 Okay. Who, in particular, do you recall, by name?
                 [MR. SHERWOOD]
                 I don't, unfortunately. That team has had some turnover since that
                time.
                 [THE JUDGES]
                 I see. Who was the head of the team at the time you came to that
                conclusion?
                 [MR. SHERWOOD]
                 [REDACTED].
                * * * * *
                 [THE JUDGES]
                 Okay. And at a more general level, separate and apart from this
                particular negotiation and [REDACTED], how would you [REDACTED]?
                 [MR. SHERWOOD]
                 Well, if that circumstance were to come to light, [REDACTED].
                9/9/20 Tr. 5930-32 (Sherwood) (emphasis added).
                 The Judges find Mr. Sherwood's testimony, quoted at length above,
                to be highly informative, and the Judges found him to be a highly
                credible witness. He has been a Warner employee for 21 years, and he is
                currently the Senior Vice President of Streaming and Revenue,
                responsible for overseeing all of the revenue-generating commercial
                accounts, which include digital service providers, including Spotify.
                9/9/20 Tr. 5912-13 (Sherwood). Moreover, he was one of the few Major
                employees that SoundExchange chose to testify in this proceeding, out
                of the numerous individuals who had duties related to the streaming
                services or who wrote or received emails regarding the issues raised in
                the present proceeding.
                 His testimony indicates that [REDACTED] what the Services have
                argued repeatedly--that Spotify [REDACTED] when it [REDACTED]. Not only
                did Mr. Sherwood agree with that [REDACTED], but he also identified the
                negotiating team within Warner itself as having informed him that
                [REDACTED] This testimony supports the Services' characterization of
                Spotify's weak pricing power and overall bargaining position, further
                confirming the dubiousness of SoundExchange's claim that the Majors did
                not [REDACTED] that [REDACTED] continued into the negotiations over the
                2017 Agreements.
                 Perhaps even more importantly, Mr. Sherwood's testimony regarding
                [REDACTED] speaks even more persuasively than his words. Warner was
                [REDACTED], as he testified he would do if a [REDACTED].
                 Mr. Sherwood's testimony also underscores the problem created by
                SoundExchange's decision not to call witnesses with first-hand
                experience negotiating with Spotify, such as [REDACTED], who could have
                shed direct light on the Majors' analysis of Spotify's [REDACTED] in
                the 2016-2017 period.\50\
                ---------------------------------------------------------------------------
                 \50\ This portion of Mr. Sherwood's testimony does not contain
                inadmissible hearsay, as it is in the nature of testimony regarding
                an admission and/or declaration against interest by Warner.
                Moreover, no objection was lodged by SoundExchange (which would have
                been awkward, given that he was its own witness and the testimony
                had been elicited by the Judges) and, even if the testimony
                constitutes hearsay, the Judges invoke their discretion to allow
                hearsay testimony pursuant to 37 CFR 351.10(a).
                ---------------------------------------------------------------------------
                 Finally, Mr. Sherwood's testimony [REDACTED] gives real-world
                evidence of the substitutability and cross-elasticity of these various
                downstream services addressed by the Services' economic expert
                witnesses. Likewise, this testimony shows [REDACTED], consistent with
                SoundExchange's direct case criticisms of Pandora's Label Suppression
                Experiments for their failure to address how the industry
                [[Page 59470]]
                would respond to such a going-dark scenario.
                 One of SoundExchange's internal Major documents from an executive
                who actually negotiated with Spotify took a [REDACTED] than
                SoundExchange regarding Spotify's pricing power--[REDACTED] consistent
                with the Judges' findings herein that Spotify had not acquired pricing
                power sufficient to [REDACTED]. The document was an email written by
                [REDACTED] 9/2/20 Tr. 5247 (Piibe). Mr. [REDACTED] wrote the following
                in a December 13, 2016 email--REDACTED] in a response to [REDACTED]:
                 [REDACTED]
                 [REDACTED]
                 [REDACTED]
                 [REDACTED].
                Trial Ex. 5467 (emphasis and bolding added).
                 In the succinct, colloquial, and mildly vulgar statement emphasized
                above, Mr. [REDACTED] concisely summed up [REDACTED] The Judges find
                Mr. [REDACTED] observation consistent with the economic analysis on
                which the Judges have relied in this Determination, supporting the
                finding that Spotify lacked the pricing power to mitigate or offset the
                complementary oligopoly power of the Majors.
                 But, as the quoted document--indeed, the quoted sentence--also
                reveals, Mr. [REDACTED] took note of [REDACTED], stating that he
                ``[REDACTED]'' Trial Ex. 5467. Thus, Mr. [REDACTED], in one sentence,
                also summed up a conundrum that is at the heart of the question: Why
                did three complementary oligopolists decline to exercise their market
                power [REDACTED]?
                 The Judges consider that conundrum below.\51\
                ---------------------------------------------------------------------------
                 \51\ SoundExchange notes that Apple has [REDACTED]. Moreover, it
                notes that Apple [REDACTED] [REDACTED]. 9/3/20 Tr. 5681-82
                (Harrison); Harrison WDT ] 31. Subsequently, Apple also [REDACTED].
                Piibe WDT ] 46. See generally 8/13/20 Tr. 1899-1900 (Orszag); 8/11/
                20 Tr. 1367 (Orszag). According to SoundExchange, these facts
                indicate that Apple, [REDACTED] was able to [REDACTED]. See SX PFFCL
                ] 468 (and record citations therein).
                 However, the Judges are struck by the fact that the record
                regarding Apple's relationship with the Majors is barren, even in
                comparison to the meager and disjointed proofs SoundExchange
                proffered regarding Spotify's negotiations with the Majors. There
                are no internal documents from the Majors describing their
                relationship with Apple, including [REDACTED], nor is there any
                evidence that Apple [REDACTED]. Accord, Services' Response to SX
                PFFCL ] 466 (noting the [REDACTED] the setting and level of its
                rates). Moreover, as the Services note, Mr. Orszag did not use the
                Apple rate as a benchmark in this proceeding. Id. ] 465. In fact,
                Mr. Orszag did not identify in the materials upon which he relied in
                preparing his WDT any documents memorializing any aspect of Apple's
                negotiations with any of the Majors, and he could not recall with
                any certainty having reviewed such documents prior to preparing that
                written testimony. 8/12/20 Tr. 1646-48 (Orszag).
                 The Judges also note that the fact that Apple [REDACTED] is
                consistent with the Judges' understanding of the Majors' [REDACTED].
                That is, the Majors negotiated [REDACTED], so to speak.
                 For these reasons, the Judges find that there is insufficient
                evidence that Apple's [REDACTED] is supportive of SoundExchange's
                argument that an interactive service's mere market share [REDACTED].
                (The Judges note that this is not the first time the Judges have
                declined to give weight to SoundExchange's underdeveloped record as
                it related to an Apple agreement. See Web IV, 81 FR at 26352
                (declining to rely on ``SoundExchange's analysis and use of [an]
                Apple agreement'' because ``there is insufficient evidence in the
                record'')).
                ---------------------------------------------------------------------------
                2. The Majors' Action to [REDACTED]
                a. Introduction
                 The record discussed supra reflects an apparent disconnect between
                the facts discussed above and the relevant economic principles. The
                Majors agreed to [REDACTED]. Why did that occur? The upstream benchmark
                agreements at issue were consummated in a market where the licensors,
                the Majors, are complementary oligopolists with ``Must Have''
                repertoires, and the licensee, Spotify--despite being arguably the
                largest interactive service--lacked long-term bargaining power and
                pricing power sufficient to affect, let alone dictate, the terms of
                trade.\52\
                ---------------------------------------------------------------------------
                 \52\ To better appreciate the Judges' discussion of this
                conundrum, they note here a distinction among different types of
                economic power as used in this analysis.
                 The Judges use the phrase ``pricing power'' to reflect the
                ability of a seller or buyer (or licensor or licensee) to influence
                price (royalty rates) because of its own ``market power,'' arising
                from strengths, such as monopoly, monopsony, oligopoly, or
                oligopsony positions, as derived from whatever source. Here, the
                Majors have ``pricing power'' derived from their status as
                complementary oligopolists; Spotify lacked ``pricing power,'' for
                the reasons discussed supra.
                 The Judges use the phrase ``countervailing power,'' as discussed
                supra, to reflect a contracting party's power, again from whatever
                source, that offsets, in whole or in part, the pricing power of a
                counterparty. (Thus, it is a power defined in relative terms
                compared to the opposing commercial power.).
                 These two types of power collide in the negotiation process,
                allowing each party to exert a measure of ``bargaining power.'' See
                Orszag WDT ] 110 (and citations therein) (``Bargaining power can be
                defined as the advantage one player has over another in establishing
                desired terms [and] can arise from a number of sources, including
                market power, better information (e.g., knowledge of the true value
                of what is being negotiated), and credible threats to retaliate or
                steer business away from the other player. A player with enhanced
                bargaining power tends to extract greater surplus through better
                terms.'').
                ---------------------------------------------------------------------------
                 The further factual record though, when analyzed through the lens
                of economics, provides the answer to this facial conundrum; the Majors
                were intent on surviving as powerful licensors vis-[agrave]-vis their
                licensees.\53\ As discussed below, the Majors were [REDACTED], enabling
                them to [REDACTED].\54\ One way the Majors could attempt to avoid this
                development and survive as economically powerful licensors was to
                [REDACTED] that were rapidly expanding in the interactive market.
                ---------------------------------------------------------------------------
                 \53\ See Manne & Williamson, supra at 620 (``In the end,
                whatever business people think they are maximizing, whatever they do
                or wish to do, survival is ultimately an economic matter.'')
                (emphasis added).
                 \54\ Despite their complementary oligopoly power, the [REDACTED]
                is a contemporary example of the literary adage: ``Uneasy lies the
                head that wears a crown.'' William Shakespeare, King Henry IV, act
                III, sc. 1. From the drier economic perspective, the [REDACTED].
                ---------------------------------------------------------------------------
                 Accordingly, as the record (discussed below) reveals, [REDACTED],
                the Majors [REDACTED] in order to [REDACTED].\55\
                ---------------------------------------------------------------------------
                 \55\ An IPO is a process offering shares of a private
                corporation to the public in a new stock issuance that allows the
                corporation to raise capital from public investors. See
                Investopedia.com (search term ``Initial Public Offering'') (last
                accessed May 12, 2021). Ultimately, Spotify decided to forego an IPO
                and instead engaged in a ``Direct Placement'' (a/k/a ``Direct Public
                Offering'' or ``Direct Listing'') by which the corporation does not
                raise new capital, but rather enables its existing shareholders to
                sell their stock to the public. See Spotify's Wall Street Debut is a
                Success, New York Times (Apr. 3, 2018); See generally
                Corporatefinanceinstitute.com (search term ``Direct Placement'')
                (last accessed May 14, 2021).
                ---------------------------------------------------------------------------
                 The Judges' evidence-based analysis in this section is not the
                story that SoundExchange chooses to emphasize. SoundExchange prefers
                the story in which the Majors are the [REDACTED]. It is not immediately
                obvious why SoundExchange prefers that story to the facts that actually
                match economic theory to reality--that the Majors perceived themselves
                as [REDACTED].\56\
                ---------------------------------------------------------------------------
                 \56\ It may be that SoundExchange was reluctant to emphasize a
                countervailing power argument that was not based on a licensee's
                pricing power because pricing power (through steering) was the
                rationale applied in Web IV.
                ---------------------------------------------------------------------------
                 The forgoing analysis is also not the story told by the Services.
                Although they discuss the same record facts as relied upon by the
                Judges (discussed infra), they aver that these facts demonstrate merely
                that the Majors were behaving as complementary oligopolists always
                behave--[REDACTED], without regard for the bargaining power of their
                counterparties. As explained in more detail infra, the Services'
                understanding of the facts is neither supported by the record nor
                relevant to the Judges' task of identifying an effectively competitive
                rate.
                b. The Majors' [REDACTED]
                 Nested within its assertions of Spotify's pricing power, discussed
                supra, SoundExchange presented witness testimony and advanced
                [[Page 59471]]
                arguments that the [REDACTED]--in the interactive service market.\57\
                Some of the most compelling testimony in this regard was provided by
                Aaron Harrison, Universal's Senior Vice President, Business & Legal
                Affairs, responsible for overseeing the teams that negotiate licensing
                agreements with digital music services. Harrison WDT ] 1.
                ---------------------------------------------------------------------------
                 \57\ The rapid rise of the tech firms in the interactive market
                is undisputed. The record reveals that [REDACTED], account for
                [REDACTED] of U.S. interactive subscribers respectively, and
                [REDACTED] has already [REDACTED]. Orszag WDT, tbl.4.
                 In his written direct testimony, Mr. Harrison emphasized the
                [REDACTED]:
                 [S]ome on-demand services are part of companies that dwarf
                [Universal] and dominate digital markets. Amazon, Apple and Google,
                for example, can rely on their size to absorb any losses from their
                streaming services and [REDACTED].
                Id. ] 41 (emphasis added); see also Orszag WDT ] 39 n.56 (relying on a
                2019 trade publication article stating that Amazon Music is reportedly
                growing faster than Spotify and Apple Music).\58\ At the hearing, Mr.
                Harrison elaborated on this [REDACTED]. 9/3/20 Tr. 5752 (Harrison)
                (acknowledging that Universal's [REDACTED]).
                ---------------------------------------------------------------------------
                 \58\ As noted above, SoundExchange does not emphasize this
                argument. In this regard, Mr. Harrison buries this [REDACTED] in a
                section of his WDT entitled, ``[REDACTED],'' Harrison WDT at 12,
                where he notes there are ``several reasons'' why [REDACTED]. But the
                fourth (and final) reason he provides, the one addressed in the
                accompanying text, see id. ] 41, pertains only [REDACTED]. Thus,
                this final reason resides as something of a non sequitur within a
                section explaining why Mr. Harrison believed [REDACTED].
                ---------------------------------------------------------------------------
                 The relevance of the size of the tech firms must be distinguished
                from the market power of a Must Have Major. The latter has what
                Professor Willig aptly describes as ``walk away'' market power, see
                Trial Ex. 5600 ] 14 (CWDT of Robert Willig) (Willig WDT), in that a
                service cannot operate when it lacks a license for the sound recordings
                from each of the three Majors. Therein lies the power of ownership and
                control over essential inputs possessed by complementary oligopolists.
                The tech firms, however, possess a different type of power. Their
                advantage is based on sheer size, affording them the potential to
                dominate a market they decide to enter.\59\ Thus, if they were to
                control the downstream interactive streaming market [REDACTED], they
                would be well-positioned to threaten blacking out one (or more) Majors
                and to follow through on that threat by, as Mr. Harrison testified,
                [REDACTED]. See SX PFFCL ] 336 (``the music business is a rounding
                error for these big-tech services.'').\60\
                ---------------------------------------------------------------------------
                 \59\ This distinction between market power and power derived
                from sheer corporate size is a specific example of a broader
                contemporary issue in competition law, especially with regard to
                these tech firms. Compare Tim Wu, The Curse of Bigness 15, 21 (2018)
                (asserting that the power of ``just a handful of giants . . .
                Amazon, Google and Apple . . . transcend[s] the narrowly economic'')
                with J. Wright et al., Requiem for a Paradox: The Dubious Rise and
                Inevitable Fall of Hipster Antitrust, 51 Az. St. L.J. 293, 362
                (2019) (criticizing the new emphasis on sheer corporate size as
                ``call[ing] for nothing less than the complete dismantling of the
                consumer welfare standard and the consensus . . . among antitrust
                practitioners, enforcers and academics . . . about how to promote
                competition.'').
                 \60\ The ability of tech firms to dominate markets, including
                music markets, and the implications of that power has been noted by
                economists who have studied the issue. See Alan B. Krueger,
                Rockonomics at 103, 200-201 (2019) (``Superstar firms, including
                Google, Apple and Amazon, have probably benefited from . . .
                deploying the technological innovations that enable them to take
                advantage of enormous economies of scale [b]ut there is also a
                concern that such firms use their dominant position to stifle
                competition. . . . Spotify's long-run existential challenge is
                exacerbated by the fact that [tech firms] can sustain losses . . .
                rais[ing] the question of whether Spotify can be sustainable as a
                stand-alone company.'') (emphasis added).
                ---------------------------------------------------------------------------
                 Accordingly, [REDACTED]. As Mr. Harrison further acknowledged on
                cross-examination, it was his view that ``[REDACTED]'' 9/3/20 Tr. 5721
                (Harrison). Moreover, Mr. Harrison agreed that the economic [REDACTED]
                would not only [REDACTED], but also would ``[REDACTED].'' 9/3/20 Tr.
                5721 (Harrison).
                 The Services do not dispute that the Majors [REDACTED]. In fact,
                relying on Mr. Harrison's testimony, the Services argue that the Majors
                [REDACTED]
                 [to] [REDACTED] . . . .
                 Services PFFCL ] 147.\61\ The Services argue that this testimony
                reveals that ``[t]he unmistakable implication of Mr. Harrison's
                testimony [is that Universal] [REDACTED] Services PFFCL ] 147.
                ---------------------------------------------------------------------------
                 \61\ The idea that [REDACTED]. In Web II, 72 FR 24084 (2007),
                the Judges set rates for all noninteractive services at $0.0008 for
                2006, rising annually to $0.0019 in 2010, after a hearing that
                included the large tech services of that era--Yahoo, Microsoft, and
                AOL. After the passage of the Webcaster Settlement Acts of 2008 and
                2009, SoundExchange negotiated a substantially lower per-play
                royalty rate regime for the pureplay noninteractive services--
                beginning at the same $0.0008 for 2006, but then lower in every
                subsequent year until reaching a 2010 rate of $0.00097, only 51% of
                the Web II rate. (The pureplay rate was part of a greater-of
                structure including a 25%- of-revenue prong, but that prong was not
                triggered.). In addition, the pureplay settlement rates continued
                through 2015 and were substantially lower than the Web III rates.
                For example, in the final year of the Web III rate period (2015),
                the pureplay rate was $0.0014, only 61% of the Web III rate of
                $0.0023 (with similar disparities in the prior years of the Web III
                rate period). The Webcaster Settlement Acts prohibited a party from
                using the settlement rates as precedent or evidence in subsequent
                proceedings. See generally Jeffrey A. Eisenach, The Sound Recording
                Performance Right at a Crossroads: Will Market Rates Prevail?, 22
                CommLaw Conspectus 1 (2014).
                ---------------------------------------------------------------------------
                 The Judges find that the Services misconstrue the import of this
                aspect of Mr. Harrison's testimony. His point is [REDACTED]. (In fact,
                [REDACTED] make that apparent. See Orszag WDT tbls.15 & 16.). Rather,
                the point is that the [REDACTED] would [REDACTED] would [REDACTED]. For
                example, [REDACTED]. See generally J. Baker & J. Farrell, Oligopoly
                Coordination, Economic Analysis, and the Prophylactic Role of
                Horizontal Merger Enforcement, 168 U. Pa. L. Rev. 1985 (1986). Thus,
                [REDACTED].\62\
                ---------------------------------------------------------------------------
                 \62\ The Services also construe Mr. Harrison's testimony as
                [REDACTED] at ``market segmentation.'' Services PFFCL ] 147.
                However, market segmentation in the music streaming markets is
                typically undertaken to effectuate price discrimination. There is no
                sufficient evidence that is occurring here. The record does not
                indicate that Apple, Amazon, Google, and Spotify compete among
                themselves by each appealing principally to different segments of
                the listening public based on the varying willingness-to-pay among
                listeners (although each has tiers and products intended to appeal
                to categories of listeners varying based on willingness-to-pay).
                ---------------------------------------------------------------------------
                 Whether [REDACTED] generates an effectively competitive rate in the
                interactive benchmark market is of no consequence in this proceeding
                regarding the noninteractive market.\63\ Rather, the important issue
                for the present benchmarking purposes is whether the royalty rate the
                Majors agree to accept from Spotify is less influenced, on balance, by
                the complementary oligopoly power of the Majors [REDACTED].
                ---------------------------------------------------------------------------
                 \63\ [REDACTED]). See generally David T. Scheffman & Richard S.
                Higgins, Twenty Years of Raising Rivals' Costs: History Assessment,
                and Future, 12 Geo. Mason L. Rev. 371, 375 (2003). An economist who
                specializes in the analysis of music markets has noted that
                licensees and licensors have the power to strategically manipulate
                relative streaming royalty rates. Kristelia A. Garcia, Facilitating
                Competition by Remedial Regulation, 31 Berkeley Tech. L.J. 183, 221
                (2016) (``the owners of popular songs . . . acting alone or in tacit
                collusion with similarly situated entities [can] act
                anticompetitively by . . . offering favorable rates to one service
                over another.'').
                ---------------------------------------------------------------------------
                 Mr. Harrison's testimony clearly shows that [REDACTED]. This is the
                economic reality that spawned Spotify's bargaining power--a reality
                created by Spotify's successful 2011 entry into the U.S. market. That
                is, it is a power that Spotify created, not merely a marketplace factor
                that the Majors, as complementary oligopolists, chose to exploit.
                Further, this particular bargaining power cannot be characterized and
                explained away like SoundExchange's other attempts to explain Spotify's
                bargaining power--
                [[Page 59472]]
                [REDACTED]. Quite the contrary: [REDACTED] \64\ [REDACTED]
                ---------------------------------------------------------------------------
                 \64\ Tech firm dominance would not necessarily be limited to the
                exertion of their power in vertical negotiations with the Majors.
                The tech firms could integrate upstream and develop their own record
                companies and poach artists from the Majors, Such an event is not
                unlikely, given that (1) Amazon has already integrated upstream to
                create or purchase television and film content through Amazon
                Studios, (2) Apple has already integrated upstream with original
                content television shows, movies and documentaries available via
                Apple TV, and 3) Google has made a similar foray, through YouTube
                Originals. See generally https://www.fastcompany.com/3058507/apple-facebook-google-and-alibaba-take-hollywood (accessed June 2, 2021).
                Further, there is historical precedent for downstream distributors
                integrating upstream to compete with licensors, such as in 1939,
                when the NAB, representing radio station licensees, created
                Broadcast Music, Inc. (BMI) in the mid-20th century to compete with
                ASCAP, the dominant musical works licensor, after the latter sought
                a substantial increase in royalty payments. See, https://www.bmi.com/about/history (accessed June 2, 2021).
                ---------------------------------------------------------------------------
                 Mr. Harrison's testimony as considered above was echoed by Mr.
                Piibe, Sony's principal witness. Relying on Mr. Piibe's written
                testimony, SoundExchange argues as follows:
                 If Spotify was out of the market, record companies would have
                faced a material reduction in their relative bargaining power with
                other services. . . . [REDACTED].
                SX PFFCL ] 333 (quoting Piibe WDT ] 48) (emphasis added).\65\
                ---------------------------------------------------------------------------
                 \65\ [REDACTED] Mr. Piibe's testimony, repeated by
                SoundExchange, [REDACTED], the Judges do not credit other portions
                of that testimony. Specifically, the Judges do not agree that, in
                the context of vertical negotiations involving complementary
                oligopolists, [REDACTED], complementary oligopolists prefer multiple
                downstream licensees whose competition, inter se, allows the
                complementary oligopolists to avoid ``double marginalization''
                (oligopolistic profits shared by upstream licensors and downstream
                sellers) and thus to capture for themselves the entirety of the
                supranormal profits generated by their market structure. See Web IV,
                81 FR at 26342 & n.98 (Professor Katz testifying that ``actually,
                the more intense the competition downstream, the greater the
                incentive to charge a high price upstream because you don't have to
                worry about so-called double marginalization) (emphasis added).
                Also, Mr. Piibe oddly omits from his list of benefits arising from a
                better Sony bargaining position its ability to increase its own
                profits--listing only artist income and investment recoupment as the
                benefits of a more advantageous bargaining environment. It is
                curious when a businessman fails to identify his company's own
                ability to increase profits as a worthy goal, as if acknowledging a
                desire to maximize profits is somehow inappropriate, so it is better
                to be disingenuous than disreputable. And, in that vein, Mr. Piibe
                joins in the Orwellian language of several of the Majors' other fact
                witnesses--identifying their streaming service counterparties as
                their ``partners.'' Parties seeking to promote their own interests
                at the expense of their counterparties is a fundament of negotiation
                to be anticipated and welcomed, but the counterparties are hardly
                ``partners.'' (Although in the context of [REDACTED] the Judges find
                it appropriate to note that the [REDACTED]).
                ---------------------------------------------------------------------------
                 SoundExchange also makes this bargaining point, in the form of a
                response to Professor Shapiro's argument that the Majors should have
                instead gone on offense, using their complementary oligopoly power
                ``[REDACTED].'' 8/20/20 Tr. 3102-04 (Shapiro). In response to this
                argument, SoundExchange convincingly stated:
                 Had record companies leveraged their must-have status to walk
                away from Spotify, as Professor Shapiro suggests they were willing
                to do, Spotify's exit would have strengthen[ed] Apple Music
                significantly, and also strengthen[ed] Amazon and Google.
                [REDACTED].
                SX PFFCL ] 335 (citing 8/11/20 Tr. 1273-75 (Orszag); Orszag WDT ] 33,
                tbl.4; 9/3/20 Tr. 5733 (Harrison) (emphasis added)).
                 To illuminate further how Spotify's role as a bulwark against the
                tech firms influenced the Majors' bargaining position with Spotify,
                SoundExchange states:
                 Put simply, leveraging must-have status to put Spotify out of
                business would risk making Apple Music dominant in the market.
                [REDACTED], the result would be a material increase in their
                relative bargaining power. The outcome would put the record
                companies in a precarious position, given that the music business is
                a rounding error for these big-tech services.
                SX PFFCL ] 336 (citing 8/11/20 Tr. 1273-75 (Orszag); 9/3/20 5733
                (Harrison) (emphasis added)). See also 8/11/20 Tr. 1274-75 (Orszag)
                (noting that the absence of Spotify would increase the market shares of
                the tech firms).\66\ SoundExchange's point is reasonable. Indeed, given
                that the record makes it clear [REDACTED].
                ---------------------------------------------------------------------------
                 \66\ More precisely, using Mr. Orszag's subscriber data, if
                Spotify left the market and its subscriber share was distributed
                proportionately among its existing competitors, [REDACTED] See
                Orszag WDT, tbl 4. Alternatively, if Spotify were to be acquired by
                another large tech firm (e.g., Facebook) and no longer be
                ``independent,'' then adding Spotify's share to the existing tech
                firm shares would place [REDACTED]% of the interactive subscription
                in the hands of the large tech firms.
                ---------------------------------------------------------------------------
                c. The Majors Demonstrated [REDACTED]
                 Early in the negotiations, the [REDACTED]. Mr. Harrison's further
                testimony on behalf of SoundExchange and Universal, in colloquy with
                the Judges, made that clear:
                 The Judges: [W]as it your understanding that [REDACTED]?
                 Mr. Harrison: [REDACTED]
                9/3/20 Tr. 5748 (Harrison) (emphasis added).
                 The documentary evidence regarding the negotiations between Spotify
                and the Majors, relied on by SoundExchange, is consistent with the
                testimony considered above. More particularly, this evidence also
                reveals that [REDACTED].\67\
                ---------------------------------------------------------------------------
                 \67\ [REDACTED] Spotify with a countervailing power that
                generated a more level bargaining table, in contrast to the one-
                sided bargaining where a ``Must Have'' Major could threaten--in
                Professor Willig's terminology--to ``walk away'' from the
                negotiations. This change explains why the [REDACTED] other terms
                resulted in [REDACTED], as discussed infra.
                ---------------------------------------------------------------------------
                 In an email to Stefan Blom, Spotify's then Chief Strategy Officer,
                dated December 7, 2016--approximately one-half year prior to the
                execution of the Spotify-Sony 2017 Agreement--Sony's President, Global
                Digital Business & U.S. Sales, Dennis Kooker, wrote:
                 [REDACTED].
                Trial Ex. 4026 (emphasis added).\68\ See also SX PFFCL ] 441
                (acknowledging that Trial Ex. 4026 [REDACTED].\69\ And, as testified to
                by Mr. Piibe (who reported to Mr. Kooker), Spotify requested
                [REDACTED]s. 9/3/20 Tr. 5323 (Piibe). Thus, from the [REDACTED] that
                the former [REDACTED] through, inter alia, [REDACTED].
                ---------------------------------------------------------------------------
                 \68\ Mr. Kooker testified in Web IV. SoundExchange did not call
                him as a witness in this Web V proceeding.
                 \69\ The Judges understand the Majors' expressed interest in a
                [REDACTED] to be a specific example of how the Majors' could
                [REDACTED]. It is also true, as the Services point out, the record
                reflects that the [REDACTED] (and the ultimate Direct Placement
                [REDACTED]. See https://seekingalpha.com/article/4408328-direct-listing-explained (accessed June 2, 2021). However, there is no
                record evidence regarding the cost (including opportunity cost)
                incurred by the Majors to [REDACTED], so the Judges cannot find
                sufficient evidence that the Majors' [REDACTED] was an independent
                or material motive for [REDACTED]. See also Services PFFCL ] 144
                (the Services acknowledging that Spotify's [REDACTED] (emphasis
                added).
                ---------------------------------------------------------------------------
                 As generally acknowledged by Mr. Harrison's testimony, discussed
                supra, Universal's internal documents [REDACTED]. Eight months before
                the parties concluded negotiations and entered into the April 2017
                Agreement, Johnathan Dworkin, Universal's Senior Vice President of
                Digital Strategy and Business Development, wrote the following in an
                internal email to other Universal executives dated August 27, 2016:
                 [REDACTED]Trial Ex. 4023. See also SX PFFCL ] 473 (SoundExchange
                conceding that in Trial Ex. 4023 [REDACTED].'').
                 In a subsequent internal email to other Universal executives dated
                September 4, 2016, Jeffrey Harleston, Esq., Universal's General Counsel
                and Executive Vice President of Business & Legal Affairs, wrote the
                following--still seven month prior to the execution of Universal's 2017
                Agreement with Spotify:
                 [REDACTED].
                [[Page 59473]]
                Trial Ex. 5421 (emphasis added).\70\ In this exhibit, Mr. Harleston
                added that the [REDACTED] Trial Ex. 5421. As discussed further infra,
                the Judges find Spotify's [REDACTED] to be consistent with [REDACTED].
                ---------------------------------------------------------------------------
                 \70\ Mr. Harleston, also, testified in Web IV, but SoundExchange
                did not proffer him as a witness in this proceeding.
                ---------------------------------------------------------------------------
                 Rounding out the early documentary evidence, the third Major,
                Warner, in internal notes written by its chief Spotify negotiator,
                Tracey Gardner, dated October 12, 2016--eight months out from the
                eventual Warner-Spotify 2017 Agreement--recorded Spotify's [REDACTED] .
                . . .'' Trial Ex. 4022 (emphasis added). According to these notes,
                Warner conveyed [REDACTED] Trial Ex. 4022 (emphasis added). Thus,
                Warner, [REDACTED], had indicated to Spotify early in the negotiations
                that [REDACTED].\71\
                ---------------------------------------------------------------------------
                 \71\ As the quoted language provides, Warner indicated that
                there was [REDACTED]. Although that point is self-evident and
                economically rational, stating so in negotiations is obviously
                strategically prudent. But the salient point here is that
                [REDACTED]--thus allowing Spotify to negotiate on a more level
                playing field than would otherwise exist when it lacked such
                countervailing power in negotiations with a Must Have Major.
                ---------------------------------------------------------------------------
                 As negotiations proceeded, [REDACTED] remained an important element
                [REDACTED]. Specifically, in a December 13, 2016 internal Universal
                email, Trial Ex. 4052, written [REDACTED] of the Universal-Spotify 2017
                Agreement, Universal's Michael Nash, Executive Vice President of
                Digital Strategy, included a draft \72\ letter to Spotify that stated
                the following:
                ---------------------------------------------------------------------------
                 \72\ Although the letter is identified in the email as a draft,
                SoundExchange does not claim that correspondence containing this or
                substantively similar language was not in fact transmitted to
                Spotify. See SX RPFFCL (to Services) at 83 n.35 (noting the
                correspondence within Trial Ex. 4052 is identified as a draft but
                not denying it was sent to Spotify). Clearly, SoundExchange and
                Universal could have provided documentary evidence and/or testimony
                in an attempt to demonstrate the draft correspondence (or its sum
                and substance) had not been transmitted to Spotify. Because
                SoundExchange did not present such evidence or testimony, the Judges
                find that this correspondence, or a substantively similar version,
                was transmitted by Universal to Spotify.) In any event, this draft
                email demonstrates Mr. Nash's state of mind regarding the importance
                to Universal of [REDACTED].
                ---------------------------------------------------------------------------
                 [REDACTED].
                Trial Ex. 4052 (emphasis added). This language not only re-affirms
                Universal's [REDACTED], it also strongly emphasizes the importance to
                Universal of [REDACTED].
                 In sum, the Judges find that the negotiation-related documents and
                testimony \73\ show [REDACTED].\74\
                ---------------------------------------------------------------------------
                 \73\ These business documents are probative because they provide
                facts relating to the parties' state of mind during negotiations
                that are [REDACTED]. See Manne & Williamson, supra at 626-627
                (``business documents can be useful in demonstrating `economic
                realities' [that are] relevant . . . [and] it is ``permissible to .
                . . consider evidence of intent, belief, or motivation to
                demonstrate that the act intended did, in fact, happen.).
                 \74\ In an attempt to explain away the statements made by the
                Major's executives contained in the documents discussed above--
                [REDACTED]--SoundExchange asserts that these statements are
                [REDACTED] For example, [REDACTED] testified that [REDACTED].''
                [REDACTED] instead [REDACTED] 9/2/20 Tr. 5265 (Piibe);
                SoundExchange's Corrected Replies to the Services' Joint Proposed
                Findings of Fact and Conclusions of Law ] 145 (SX RPFFCL (to
                Services)). See also SX RPFFCL (to Services) at 81 nn.30, 33, 35; SX
                PFFCL at 147 n.17, ] 441 (multiple assertions by hearing witnesses
                that [REDACTED]). This argument highlights the serious defect in
                SoundExchange's failure to call as witnesses the negotiators and
                executives identified in the Majors' documents, who are the
                individuals who could testify as to their own state of mind when
                making those statements. Moreover, if these declarants [REDACTED]
                For these reasons, the Judges afford no weight to any testimony by
                SoundExchange witnesses who offer hearsay or opinion testimony
                regarding the so-called ``true meaning'' of statements made by
                declarants contained in the documentary record.
                ---------------------------------------------------------------------------
                d. The Services' Contrary Explanation of the [REDACTED] as Based Solely
                on the Majors' Complementary Oligopoly Is Unavailing
                 The Services do not acknowledge this countervailing power argument.
                Rather, they attempt to explain away Spotify's value and power--
                [REDACTED]--by treating that phenomenon as purely the consequence of
                the Majors' complementary oligopoly power.
                 In this regard, the Services assert that the [REDACTED] was merely
                the [REDACTED]--telltale behavior of a complementary oligopolist rather
                than a price competitor. They rely on testimony by Messrs. Harrison and
                Orszag that Universal [REDACTED] not to [REDACTED], but rather
                [REDACTED]. Services PFFCL ] 148 (and record citations therein). The
                Services also cite testimony by Professor Shapiro in which he opines
                that when licensors are [REDACTED] 8/19/20 Tr. 2881 (Shapiro) (emphasis
                added). This basic principle, according to the Services, explains why
                ``[REDACTED]'' Services PFFCL ] 149 (citing 8/19/20 Tr. 2864, 2870,
                2880 (Shapiro)) (emphasis added).
                 SoundExchange asserts there is a serious flaw in this reasoning,
                which undermines the Services' assertion that the Majors' complementary
                oligopoly status explains the sum and substance of the relative
                bargaining power of the Majors and Spotify. Specifically, SoundExchange
                avers that if the Majors were [REDACTED] they would have [REDACTED].
                However, the record indicates that the Majors only negotiated
                [REDACTED].\75\ In support of this point, SoundExchange refers to
                particular testimony by Professor Shapiro in a colloquy with the
                Judges. When asked by the Judges why the Majors [REDACTED]--given that
                [REDACTED]--Professor Shapiro responded, [REDACTED] 8/19/20 Tr. 2880
                (Shapiro) (emphasis added).
                ---------------------------------------------------------------------------
                 \75\ Apparently, [REDACTED], 9/3/2020 Tr. 5681-82 (Harrison),
                but that is not the same as a Major [REDACTED] as complementary
                oligopolists, in accordance with the Services' theory of the case.
                The Judges address the paucity of the record relating to this
                [REDACTED], supra note 51.
                ---------------------------------------------------------------------------
                 The Judges agree with SoundExchange and find Professor Shapiro's
                response unpersuasive. His theory of complementary oligopoly as the
                single cause of the [REDACTED] is premised on the idea that it was
                [REDACTED]--at monopoly rates rather than complementary oligopoly
                rates. 8/19/20 Tr. 2880-81 (Shapiro). But, if it was [REDACTED], there
                would have been no need [REDACTED]; rather, in their own interest the
                Majors would have [REDACTED]. Moreover, SoundExchange is persuasive in
                its argument that because the Majors [REDACTED], a fact acknowledged by
                Professor Shapiro, see Shapiro WRT at 23, fig. 1; 8/20/20 Tr. 3108-09
                (Shapiro), the [REDACTED].
                 Alternatively, Professor Shapiro noted that Spotify may have
                [REDACTED] because it was the ``leader'' among interactive services.
                But the Judges find the record to demonstrate, as discussed above, that
                Spotify's ``leader'' status was important because it was the leader
                among [REDACTED]. Google's economic expert witness, Dr. Peterson,
                though, did acknowledge the importance of [REDACTED], testifying that
                [REDACTED] 8/25/20 Tr. 3723 (Peterson).\76\
                ---------------------------------------------------------------------------
                 \76\ By contrast, it is not clear that Professor Shapiro had
                recognized, acknowledged or recalled the importance of Spotify's
                [REDACTED], until the Judges brought the issue to his attention.
                Compare 8/19/20 Tr. 2882 (Shapiro) (stating in response to the
                Judges' inquiry that he did not recall reviewing correspondence
                indicating that [REDACTED]) with 8/20/20 Tr. 3080 (Shapiro)
                (Professor Shapiro testifying the next hearing day that it was his
                ``sense'' that because Spotify was [REDACTED]the Majors
                ``[REDACTED].'') and Shapiro WRT at 18 n.58 (Professor Shapiro
                quoting from Sony's December 7, 2016 internal document (later marked
                in evidence as Trial Ex. 4026 and discussed supra) stating that
                [REDACTED] (emphasis added). Additionally, it is noteworthy that
                Professor Shapiro did not specifically address the point in Harrison
                WDT ] 41 where Mr. Harrison identified [REDACTED] because he
                identified the Harrison WDT as a document upon which he relied in
                preparing his rebuttal testimony. Shapiro WRT app. A.
                ---------------------------------------------------------------------------
                [[Page 59474]]
                 Indeed, were it not for [REDACTED], its position [REDACTED] would
                make it [REDACTED], because [REDACTED]. That is, the Majors, as
                complementary oligopolists, would prefer to keep downstream competition
                roiling to avoid a downstream extraction of monopoly profits (double
                marginalization) that would reduce the Majors' revenues, as discussed
                in Web IV and noted earlier in this Determination.
                 The Judges note that, ultimately, in their post-hearing briefing,
                the Services do appear to acknowledge that the Majors [REDACTED]
                Services RPFFCL ] 477 (emphasis added). The Services assert, though,
                that this reflects only that Spotify has ``[REDACTED], which, they
                contend, would explain why the Majors [REDACTED]. Services RPFFCL ] 477
                (emphasis added). But, the Judges find this assertion to be fully
                consistent with their finding that Spotify's much different
                circumstances explain why it had countervailing power--generated by the
                confluence of (1) [REDACTED] and (2) its own status as the
                [REDACTED].\77\
                ---------------------------------------------------------------------------
                 \77\ As the Judges have explained in other circumstances,
                licensors will also charge different licensees different royalties
                to promote price discrimination and in recognition of a licensee's
                lower willingness-to-pay (often as a function of its lower ability-
                to-pay). But, a licensor will not offer a licensee a lower rate if
                that licensee's presence serves to cannibalize the business of
                services paying higher royalties (as Professor Willig explains well
                in this proceeding). Here, after the [REDACTED] [REDACTED]. Thus,
                providing [REDACTED]. There was; and that particular attribute--as
                the record demonstrates--was [REDACTED].
                ---------------------------------------------------------------------------
                 Finally, according to the Services, the Majors' [REDACTED] ``does
                not inform the demonstrated reasons why they [REDACTED] Services RPFFCL
                ] 477. The Judges partially agree: the Majors' decision [REDACTED] is
                not informative--standing alone--to explain why they did [REDACTED].
                However, the Services are simply in error when they say the Majors'
                [REDACTED] was disconnected from [REDACTED]. As the record discussed
                above reveals, the connection is clear: SoundExchange provided ample
                evidence that the Majors [REDACTED]. And, to reiterate, Spotify came to
                possess that power because it had developed a market-leading business
                while [REDACTED].\78\
                ---------------------------------------------------------------------------
                 \78\ Additionally, the Judges reject the Services' argument as
                reductive. That is, the Services treat the complementary oligopoly
                structure of the licensor side of the market as wholly explanatory
                of the [REDACTED]. In other words, they essentially assert that
                because the licensors are complementary oligopolists any [REDACTED]
                must be a matter of pure self-interest. But, that structural
                explanation ignores the dynamic and strategic competitive effects
                revealed by the present record: [REDACTED]; [REDACTED]; and the
                interplay of those two forces that provides Spotify with a
                countervailing power [REDACTED]. The Services' argument also is
                inconsistent with the fundamental economic concept of ``Pareto
                Optimality,'' which posits that any consensual transaction between
                private actors is efficient, in the sense that it benefits each
                party (or else it would not enter into the transaction). To be sure,
                if a party is not a willing buyer or seller, whether because of a
                counterparty's excessive market power or otherwise, this optimality
                is not realized, but here the Majors and Spotify found it in their
                interest, through the exercise of their countervailing power, to
                enter into agreements containing [REDACTED]. Accordingly, it is
                incorrect to state, as the Services do, that the negotiated
                [REDACTED] cannot be in the mutual interest of Spotify and the
                Majors.
                ---------------------------------------------------------------------------
                e. There Is Agreement That Spotify's Subscription Royalty Rate Is
                [REDACTED] Set Through the Exercise of Complementary Oligopoly Power
                Alone
                 Notwithstanding the foregoing analytical disputes, Professor
                Shapiro acknowledges that Spotify's subscription royalty rate equates
                with a rate he identifies as set without the anticompetitive effect of
                complementary oligopoly power. As SoundExchange explains--relying on
                Professor Shapiro's own testimony--in the course of developing his
                proposed competition adjustment, he calculates [REDACTED]'s effective
                per-play interactive royalty rate at $[REDACTED]. Ex. 4094 at 40 &
                tbl.10 (SCWDT of Carl Shapiro) (Shapiro WDT). Then, he characterizes
                this $[REDACTED] rate as an effectively competitive rate (as a base for
                comparison with other rates he identifies as not effectively
                competitive). Id. at 40; 8/19/20 Tr. 2850 (Shapiro).\79\
                ---------------------------------------------------------------------------
                 \79\ Professor Shapiro reaches this opinion based on the limited
                repertoire available on [REDACTED], which he understands to
                demonstrate that customers ``do not expect to find all their
                favorite artists and recordings on the service.'' Shapiro WDT at 40.
                Thus, he opines that, for [REDACTED], no record company is a Must
                Have, making the rate effectively competitive. 8/20/20 Tr. 3110-11,
                3117-19 (Shapiro).
                ---------------------------------------------------------------------------
                 SoundExchange notes that, according to Professor Shapiro's own
                calculations, Spotify's effective subscription per-play rate is
                $[REDACTED], Shapiro WDT at 40, tbl.10, [REDACTED] to the [REDACTED]
                rate he characterizes as free of the complementary oligopoly effect. 8/
                20/20 Tr. 3112-13 (Shapiro); see also 8/10/20 Tr. 1170 (Orszag).
                SoundExchange further notes that Professor Shapiro acknowledges, as he
                must, that these two rates are [REDACTED] 8/20/20 Tr. 3113 (Shapiro).
                Given this [REDACTED], Mr. Orszag opines that, at most, a competition
                adjustment should measure the difference between the Spotify effective
                rate ($[REDACTED]) and the [REDACTED] effective rate ($[REDACTED]).
                Orszag WDT ] 114. This difference would lead to a [REDACTED]% effective
                competition adjustment.\80\
                ---------------------------------------------------------------------------
                 \80\ [REDACTED]/[REDACTED] = [REDACTED]
                 [REDACTED]-[REDACTED] = [REDACTED]%.
                ---------------------------------------------------------------------------
                 After first conceding [REDACTED] the Services attempt to dismiss
                the importance of this equivalency--in a reply, quoted below--that is
                off-point and unconvincing:
                 In an attempted ``gotcha,'' Mr. Orszag argues that if
                [REDACTED]'s per-play rate of $[REDACTED] reflects the lack of must-
                have power, and if [REDACTED] pay $[REDACTED] per performances (see
                Shapiro WRT at 30 fig. 3), then the record companies must not be
                must-have for those services either--in which case there is no need
                to adjust the Spotify rates any further for effective competition
                (or to make an adjustment of only [REDACTED] \81\ ([REDACTED])).
                Orszag WRT ] 114. . . . Mr. Orszag is resorting to sleight-of-hand.
                Because he artificially excludes all the discounted plans from his
                calculations, the effective per-play rate of Spotify plans on which
                he actually relies for his benchmark is $[REDACTED], not
                $[REDACTED]. Moreover, as explained at length above, he does not use
                the per-play rate at all, but rather alters the Web IV methodology
                by starting from Spotify's percent-of-revenue royalty. . . .
                ---------------------------------------------------------------------------
                 \81\ This [REDACTED]% calculation appears to be a computational
                error, as indicated by the math in the immediately preceding
                footnote.
                ---------------------------------------------------------------------------
                 Were Mr. Orszag actually working from a $[REDACTED] per
                performance benchmark and following the Web IV methodology [by] . .
                . drop[ping] his industry-wide interactive per-play benchmark . . .
                he might have a point--but he does not.
                Services PFFCL ] 160.
                 This criticism is off-the-mark because it explains why the Services
                believe that Mr. Orszag improperly ignored Spotify's $[REDACTED]
                effective per-play subscription rate. But the point here is not what
                Mr. Orszag did or did not do with this data point, but rather that
                Professor Shapiro identified two [REDACTED] royalty rates as
                simultaneously satisfying and not satisfying the effective competition
                requirement (inconsistent with the principle of transitivity). The
                Services' response fails to address that point.
                 The Judges find that the [REDACTED] is generally confirmatory of
                the fact that Spotify's [REDACTED] is not--as the Services maintain--a
                product solely of the Majors' complementary oligopoly power.\82\
                ---------------------------------------------------------------------------
                 \82\ However, the Judges do not find that the [REDACTED] of
                Spotify's effective per play rate with [REDACTED]'s per play rate
                limits the effective competition adjustment to the [REDACTED] in
                those rates. Rather, as discussed elsewhere in this Determination,
                the Judges agree with Dr. Peterson (Google's expert economic
                witness) that the 12% steering adjustment from Web IV remains
                applicable here. But, as also described elsewhere herein, that 12%
                downward adjustment must be offset by use of the [REDACTED]), as
                applied to the segments of the Spotify market for which the
                [REDACTED] applied. See Peterson WDT fig. 5 ([REDACTED]). Further,
                by limiting the application of the [REDACTED]'' adjustment only to
                Spotify market segments to which that rate actually applied, the
                Judges have allayed a final argument by the Services, viz., that the
                evidentiary value of the Spotify and [REDACTED] should not apply
                beyond the subscription tier. See Services PFFCL ] 161.
                ---------------------------------------------------------------------------
                [[Page 59475]]
                f. The Majors' [REDACTED] Explains the [REDACTED] of the Ongoing
                Negotiations
                 The Majors' [REDACTED] explains the flow of the ongoing
                negotiations between the Majors and Spotify. Unlike a negotiation in
                which the complementary oligopolists' ``Must Have'' status allows them
                to dictate terms, they [REDACTED].
                 In this regard the Services describe these negotiations as follows:
                 [W]hat is apparent from the evidentiary record is [REDACTED] . .
                . par for the course in a deal negotiation . . . .
                Services RPFFCL ]] 426-427 (and record citations therein).
                 But, the point of complementary oligopoly power is that a ``Must
                Have'' supplier/licensor [REDACTED] to its buyers/licensees. And yet,
                here the Services acknowledge that the Spotify-Major negotiations were
                marked by a [REDACTED], as happens in any negotiation. Clearly, given
                that the Majors remained ``Must Have'' licensors, something else
                [REDACTED], and, as discussed above, that ``something else'' is
                Spotify's countervailing power flowing from its status as the
                [REDACTED].\83\
                ---------------------------------------------------------------------------
                 \83\ The Services maintain that, as a general rule,
                complementary oligopolists, like monopolists, negotiate with their
                counterparties, but that does not demonstrate the existence of
                effective competition. Shapiro WRT at 1; see also Web IV, 81 FR at
                26344 (monopolists and complementary oligopolists bargain with their
                customers to establish discriminatory prices that increase the
                sellers' profits). That is certainly true, but it is insufficient
                for the Services simply to maintain, ipse dixit, that any ``give-
                up'' by a Major in negotiations represents the foregoing elements of
                negotiation rather than a ``give-up'' generated by identifiable
                countervailing power.
                ---------------------------------------------------------------------------
                 The [REDACTED] is clear in the record. Among the provisions that
                the Majors prevailed on (and, thus reciprocally, as to which [REDACTED]
                were four important items: (1) [REDACTED], (2) [REDACTED], (3)
                [REDACTED], and (4) [REDACTED]. Services PFFCL ] ] 146, 157-158 (and
                record citations therein).
                 And, on the other side of the ledger, among the provisions as to
                which [REDACTED] in negotiations (and, thus reciprocally, as to which
                [REDACTED]) were the following important items: (1) [REDACTED], (2)
                [REDACTED], (3) [REDACTED] [REDACTED], and (4) [REDACTED] [REDACTED].
                SX PFFCL ] ] 293, 413, 431-432, 444; SoundExchange's Corrected Replies
                to the Services' Joint Proposed Findings of Fact and Conclusions of Law
                ] 158 (and record citations therein) (SX RPFFCL (to Services)). This
                [REDACTED]led the Services to describe that process as typical of an
                ordinary bargaining process when each counterparty has bargaining
                leverage. See Services RPFFCL ]] 413; 424, 426-427 (and record
                citations therein) (it is ``unsurprising'' that ``each party to the
                negotiation [REDACTED]; it is ``inevitable [that] not all [REDACTED]
                will form part of the . . . agreement''; and ``what the [Warner-Spotify
                negotiation] record shows is [REDACTED] (emphasis added). These
                descriptions are not consistent with the one-sided negotiations between
                complementary oligopolists and their relatively powerless
                counterparties, belying the Services' assertion that these negotiations
                reflected the one-sided power of the Majors' complementary oligopoly
                status.\84\
                ---------------------------------------------------------------------------
                 \84\ By contrast, SoundExchange, in its zeal to portray Spotify
                as [REDACTED] in these negotiations, studiously ignores the fact
                that Spotify [REDACTED]. The Judges see this as ``hyperbole-by-
                omission.'' The Judges reject any notion that Spotify had acquired
                unilateral power to dictate terms; rather, its [REDACTED] provided
                it with a power to countervail the Majors' Must Have power.
                ---------------------------------------------------------------------------
                 Finally, consistent with the idea that the Majors would continue to
                bargain ([REDACTED]--is the following succinct colloquy (referred to
                supra) between Spotify and Warner negotiators in October 2016, as
                recounted in one of Warner's internal documents:
                 [REDACTED]
                 [REDACTED]
                Trial Ex. 4022 (emphasis added). As noted supra, Warner was making a
                basic economic point: It understood that Spotify, as a [REDACTED]. The
                [REDACTED] realized by the Majors reflect [REDACTED] to incur for this
                benefit, and the Majors' [REDACTED] reflect [REDACTED] to incur.
                 In sum, the Judges find that the negotiation documents on which
                SoundExchange relies reflect bargaining that is consistent with: (1)
                The testimony of the Majors' witnesses regarding [REDACTED] and (2) the
                economic principle of countervailing power that, as discussed supra,
                could and did blunt some of the Majors' complementary oligopoly power,
                [REDACTED] toward an effectively competitive rate, even in the absence
                of horizontal price competition.\85\
                ---------------------------------------------------------------------------
                 \85\ The Majors' [REDACTED]. As noted supra, in an internal Sony
                email from a Sony line negotiator, Andre Stapleton, to Mr. Piibe,
                Trial Ex. 5467, discussed supra, the [REDACTED]. By contrast, Mr.
                Sherwood, a Warner witness, [REDACTED], testifying, as noted supra,
                that [REDACTED]. 9/9/20 Tr. 5931 (Sherwood).
                ---------------------------------------------------------------------------
                C. The Price Competition Adjustment Necessary To Set an Effectively
                Competitive Rate
                 In the exercise of their statutory duty to ``to decide whether the
                rates proposed adequately provide for an effective level of
                competition,'' SoundExchange, Inc. v. Copyright Royalty. Bd., 401 F.2d
                41, 57 (D.C. Cir. 2018), the Judges find that the 12% effective
                competition adjustment that they set in Web IV remains an appropriate
                measure for an effective competition adjustment (before any necessary
                adjustment to reflect Spotify's countervailing power). To recap, the
                12% effective competition adjustment was based on a factual record that
                included Pandora Steering Experiments, a steering-based agreement
                between Pandora and Merlin,\86\ and a steering-based agreement between
                iHeart and Warner. The Web IV Judges defined steering in the same
                manner as defined by the parties in this proceeding, i.e., as a
                licensee's ``ability to control the mix of music that's played on the
                service in response to differences in royalty rates charged by
                different record companies.'' Web IV, 81 FR at 26356.
                ---------------------------------------------------------------------------
                 \86\ Merlin is referred to in the music industry as ``the fourth
                major.'' See, e.g., https://theindustryobserver.thebrag.com/heres-to-ten-years-of-merlin/ (accessed June 7, 2021).
                ---------------------------------------------------------------------------
                 The Judges in Web IV construed the economics of steering in the
                following manner:
                [S]teering in the hypothetical noninteractive market would serve to
                mitigate the effect of complementary oligopoly on the prices paid by
                the noninteractive services and therefore move the market toward
                effective, or workable, competition. Steering is synonymous with
                price competition in this market, and the nature of price
                competition is to cause prices to be lower than in the absence of
                competition, through the ever-present ``threat'' that competing
                sellers will undercut each other in order to sell more goods or
                services.
                Web IV, 81 FR at 26366 (emphasis added). Moreover, the Web IV Judges
                noted that the steering evidence was especially probative because it
                consisted of ``a combination of benchmarks, experiments and expert
                economic theorizing using fundamental principles of profit maximization
                and opportunity cost . . . [a] combination of proofs and arguments
                [that] is actually more
                [[Page 59476]]
                persuasive to the Judges than a mere benchmark standing alone.'' Web
                IV, 81 FR at 26367 n.141. Relying on all the steering evidence
                presented, the Web IV Judges determined that benchmark rates that were
                inflated by the complementary oligopoly effect needed to be adjusted
                downward by 12%, in order to establish an effectively competitive rate.
                Web IV, 81 FR at 26404-05.
                 Additionally, crucial evidence that supported the Judges' Web IV
                finding of a 12% adjustment is part of the present record, having been
                designated as such by Pandora. Specifically, Pandora designated as part
                of the Web V record the Web IV Written Direct Testimony and hearing
                testimony of Stephan McBride, Pandora' Senior Scientist responsible for
                the Pandora Steering Experiments on which the Judges relied. See Trial
                Exs. 4104 & 4105; see generally 37 CFR 351.4(b)(2) (permitting a party
                to designate ``past records and testimony'' for inclusion in its
                Written Direct Statement).
                 The Judges in Web IV described the Pandora Steering Experiments as
                follows:
                 Pandora's . . . steering experiments . . . consist of
                comparisons between randomly selected groups of listeners, one group
                receiving a manipulated experience (the ``treated'' group) and the
                other group receiving the standard Pandora experience (the
                ``control'' group). . . . These experiments are randomized,
                controlled, and blind . . . .
                 Pandora initiated the steering experiments because . . . it
                recognized that, as a noninteractive service it has the economic
                incentive to ``steer'' its performances toward music owned by a
                particular record company if that music is available at a lower
                royalty rate. . . . Therefore, Pandora decided to determine through
                its steering experiments whether and to what extent it could use
                this technological ability to steer performances without negatively
                affecting listenership.
                 . . .
                 The Steering Experiments consisted of a group of 12 experiments.
                Each experiment involved a combination of one of three target
                ownership groups (UMG, Sony or WMG) and a target ``deflection'' in
                share of spins (treatment group) as compared to spins that would
                occur according to the standard Pandora music recommendation results
                (control group
                 The experiments demonstrated that Pandora was able to steer +15%
                or -15% for all three Majors without causing a statistically
                significant change in listening behavior. McBride WDT 21.
                However, Pandora was unable to steer +30% or -30% for Universal or
                Sony without creating a statistically significant change in
                listening behavior.
                Web IV, 81 FR at 26357-58 (emphasis added).
                 As noted above, the Judges also relied on provisions in two
                agreements. First, Web IV noted that ``the central piece'' of the
                agreement between Pandora and Merlin was a ``reduced per-play rate in
                exchange for increased plays''--the very essence of steering. Web IV,
                81 FR at 26357. The second agreement the Judges relied on in Web IV was
                the iHeart/Warner agreement which the Web IV Judges described as
                ``incorporat[ing] the same economic steering logic as the Pandora/
                Merlin Agreement [by] [c]reat[ing] an incentive for iHeart to increase
                Warner's share of performances substantially.'' Web IV, 81 FR at 26375.
                As with the Pandora/Merlin Agreement, the Web IV Judges described this
                ``steering aspect'' of the contract as reflective of ``price
                competition--an increase in quantity (more performances) in exchange
                for a lower price (a lower rate).'' Web IV, 81 FR at 26383.
                 SoundExchange argues that this evidence of steering is now
                ``stale,'' because the experiments are outdated, as are the two cited
                agreements, SX PFFCL ]] 490-91.\87\ But the dates of the experiment and
                those agreements are insufficient to wash away the importance of
                steering as a price competition mechanism applicable to the
                noninteractive market. The Judges note that SoundExchange could have
                called a witness from Merlin in Web V (as it did in Web IV) to present
                testimony that may have shed light on why its [REDACTED] but elected
                not to.\88\ By contrast, Pandora presented testimony from Professor
                Shapiro explaining that Merlin (and the Majors) had refused to agree to
                continue steering. Specifically, Professor Shapiro testified:
                ---------------------------------------------------------------------------
                 \87\ The Pandora/Merlin agreement was executed on June 16, 2014,
                the iHeart/Warner agreement was entered into on October 1, 2013, and
                the Pandora Steering Experiments were conducted between June 4 and
                September 3, 2014. Web IV, 81 FR at 26355, 26357, 26375.
                 \88\ The [REDACTED]. See SX PFFCL ] 1168 (and record citations
                therein).
                 Following the Web IV Determination, as a condition for obtaining
                the additional rights necessary to offer its non-statutory services,
                [REDACTED]. These provisions appear to be the result of the
                complementary oligopoly power held by certain record companies in
                the market for licensing recorded music to interactive services.
                Given these provisions, Pandora has been unable to offer to steer
                toward other labels in exchange for a discounted royalty rate from
                them, lest it jeopardize the share of other labels in violation of
                their anti-steering provisions. As a result, competition for
                incremental performances on Pandora in the form of steering has been
                ---------------------------------------------------------------------------
                snuffed out.
                Shapiro WDT at 9-10 (emphasis added); see also Trial Ex. 4090 ] 24 (WDT
                of Christopher Phillips) (Phillips WDT) (noting the existence of the
                [REDACTED]).
                 In response, SoundExchange asserted that: (1) Pandora had not
                offered any further evidence or testimony beyond the testimony cited
                above; (2) it was not clear that [REDACTED]; (3) Pandora had
                ``considerable leverage in negotiations'' because it could default to
                the statutory rate. SoundExchange's Corrected Replies to Pandora and
                Sirius XM's Corrected Proposed Findings of Fact and Conclusions of Law
                ] 21 (SX RPFFCL (to Pandora/Sirius XM)).
                 The Judges find SoundExchange's arguments unavailing. As already
                noted, SoundExchange could have attempted to rebut Pandora's testimony
                by calling a Merlin representative, as it had in Web IV, yet it
                declined to do so. When a party is in a position to proffer testimony
                or evidence that would elucidate a point, or rebut an adverse point,
                but declines to do so, a finder of fact may determine that the
                testimony would not have been supportive of that party's position. See
                Huthnance v. District of Columbia, 722 F.3d 371, (D.C. Cir. 2013)
                (Under the ``missing evidence rule, when a party has relevant evidence
                [which includes testimonial evidence] within his control which he fails
                to produce, that failure gives rise to an inference that the evidence
                is unfavorable to him . . . .''). The Judges infer that the absence of
                a Merlin witness indicates that the testimony of a Merlin witness would
                not have been favorable to SoundExchange's argument on this steering
                issue. Moreover, there is simply no evidence to contradict the
                testimony of Professor Shapiro in this regard.
                 In the present case, the absence of a Merlin witness is
                particularly noteworthy. As Dr. Peterson recounted in his testimony,
                SoundExchange had in the recent past--after Web IV--cautioned Indies
                that entering into direct agreements with services, even though they
                appear advantageous to the Indies, may ultimately be used in rate
                proceeding as evidence to support a lowering of statutory royalty
                rates. 8/25/20 Tr. 3673 (Peterson); Trial Ex. 2113 (SoundExchange's
                2015 notice informing labels they ``should . . . keep in mind that any
                direct deals might be used against artists and record companies as
                evidence,'' and that because ``[d]igital radio services are intensely
                focused on how market evidence will be used in their case, . . . you
                should be as well.''). Although there is no evidence that SoundExchange
                repeated that cautionary communication in the run-up to Web V, there is
                also no evidence that it has ever retracted this warning. Thus, in this
                context, the
                [[Page 59477]]
                absence of a Merlin witness to explain the [REDACTED] is of even
                greater importance.
                 Further, SoundExchange's assertion that steering beneficial to
                Pandora may have remained possible under its agreement with Merlin--and
                yet Pandora nonetheless acted against its self-interest and
                [REDACTED]--is simply bewildering; the Judges do not assume that
                sophisticated commercial entities engage in economically irrational
                conduct. Also, SoundExchange's assertion that Pandora enjoyed
                ``considerable leverage in the negotiations'' with Merlin is purely
                speculative (given the absence of record evidence demonstrating such
                leverage) and also runs counter to an essential premise of
                SoundExchange's case-in-chief, presented through Professor Willig, that
                as a matter of bargaining strategy and modeling, the record companies
                would not engage in steering because it would thwart the maximization
                of their ``Must Have'' value. See 8/10/20 Tr. 1077-78 (Willig).
                 Additionally, [REDACTED] was one of the very devices SoundExchange
                claimed in Web IV that record companies would use to defeat steering-
                based price competition. Web IV, 81 FR at 26364. In response, the
                Judges found such a contract term would constitute an exertion of the
                licensors' complementary oligopoly power, frustrating the setting of an
                effectively competitive rate. Web IV, 81 FR at 26373-74 (``the
                hypothetical use by the majors of anti-steering clauses in response to
                the threat of price competition-via-steering would thwart `effective
                competition.' ''). Here too, it would be anomalous (in the nature of a
                Catch-22) for the Judges to disregard the capacity of price-competitive
                steering to offset a complementary oligopoly effect because a record
                company had used such power to thwart the continuation of such
                steering.
                 Further, the Judges' task is to set a rate that equates with an
                effectively competitive rate that would have been agreed to by willing
                buyers and sellers in a hypothetical market. The Pandora/Merlin and
                iHeart/Warner agreements demonstrate that actual steering has occurred
                in the market. A fortiori, steering is clearly an element of the
                hypothetical market (as shown by the Pandora Steering Experiments) that
                the Judges must construct.
                 The Judges also note that in the present case, Dr. Leonard, the
                economic expert for the NAB, adopts the 12% steering adjustment applied
                by the Judges in Web IV in order to establish an effectively
                competitive rate. Trial Ex. 2150 ] 115 (CWDT of Gregory Leonard)
                (Leonard WDT). In his oral testimony, Dr. Leonard testified that any
                initial reluctance he may have had to ``reuse'' this 12% adjustment was
                outweighed by the fact that this adjustment: (1) Is based contractual
                agreements; (2) is the product of agreements entered into ``not that
                long ago''; and (3) is ``conservative'' and ``small'' relative to the
                complementary oligopoly effect in the present circumstances. 8/24/10
                Tr. 3410 (Leonard).
                 In addition, Google's economic expert, Dr. Peterson, testified in
                favor of utilizing this same economic evidence to support the steering
                adjustment in the present case. Dr. Peterson's testimony in this regard
                is well worth quoting:
                 In a hypothetical effectively competitive market, statutory
                streaming services, such as custom radio services, have the
                potential to steer the music they use toward or away from particular
                labels [because] [m]usical recordings are differentiated but
                substitutable products. . . . [T]he service can reduce the number or
                share of plays for a given label's recordings if the license rate is
                too high. This response to rate differences is called steering. . .
                . [I]it is appropriate that the hypothetical negotiation between
                statutory streaming services and licensors reflect some degree of
                competition from steering or the ability of the streaming services
                to substitute one label's recordings for another's relative to the
                rates that the labels charge acting as Cournot oligopolists.
                 The evidence available to me in this proceeding does not include
                recent licenses with steering adjustments built into them as was the
                case in the Web IV proceeding. However, I am aware of no evidence
                that a stand-alone statutory webcaster would not be able to steer
                toward or away from labels, which would lead to their competing at
                the margin for additional plays on the service.
                 In the absence of new benchmarks, it can be appropriate to use
                previous benchmarks. In the Web IV proceedings, there was ample
                evidence of the ability of statutory streaming services to steer
                toward or away from record labels. Thus, the evidence indicates that
                listener behavior permits statutory webcasters to engage in
                substantial steering without negatively affecting their user base.
                In the hypothetical effectively competitive marketplace for
                licensing statutory webcasters, licensors would not be in the
                position of Cournot oligopolists because their high license fees
                would affect the spins of their works directly.
                Trial Ex. 1103 ]] 37, 58-61, 64 (emphasis added) (CWDT of Steven
                Peterson) (Peterson WDT). Relying on this analysis, and also
                considering other evidence, Dr. Peterson opined that a reasonable range
                for the steering-based effective competition adjustment was between 11%
                and 23% (which includes the Judges' 12% adjustment). Peterson WDT ] 65.
                 The Judges agree with Dr. Peterson. They emphasize that basic
                economic principles do not change with the mere passage of a few years.
                Although new probative factual evidence or advances in economic theory
                or modeling presented by an expert witness could show either that the
                principle is factually inapplicable or needs to be revisited, no such
                record has been presented in this proceeding. Accordingly, the Judges
                find that the economic experts cited above \89\ have properly relied on
                the evidence supporting the Web IV steering adjustment to establish the
                appropriate steering adjustment in this proceeding.\90\
                ---------------------------------------------------------------------------
                 \89\ Pandora's economic expert, Professor Shapiro, although
                presenting in this proceeding a ``carriage competition'' model
                relying on the Label Suppression Experiments, rather than a
                steering-based adjustment, nonetheless has acknowledged previously
                that ``a streaming service that possesses an ability to ``steer''
                towards certain recordings, and away from others, will have `much
                more bargaining power and be able to negotiate a lower royalty
                rate,'' reflecting ``price competition at work,'' and the workings
                of an ``effectively competitive market.'' Web IV, 81 FR at 26356-57.
                Thus, experts for all the commercial services are on record as
                supporting the use of a steering adjustment to generate an
                effectively competitive rate.
                 \90\ The Judges have also not hesitated to apply evidence from a
                prior proceeding when they have found the prior evidence to be
                superior to the evidence presented in the new proceeding. SDARS II,
                78 FR at 23063 (``The Judges rely [inter alia] . . . on . . . the
                unadjusted upper bound in SDARS-I to guide the determination of what
                the upper bound should be in this proceeding.'').
                ---------------------------------------------------------------------------
                 A final aspect of the Web IV and Web V proceedings adds to the
                ample evidence supporting the use of a steering adjustment to establish
                an effectively competitive rate. In this Web V proceeding, Professor
                Willig, a SoundExchange economic witness, while testifying in support
                of his Shapley Value Model, emphasized repeatedly that Majors were
                ``Must Haves'' in the noninteractive market because their repertoires
                included the bulk of sound recording ``hits'' that listeners wanted to
                hear. See, e.g., 8/5/20 Tr. 400 (Willig) (``Must Have'' status is
                ``really about the hits''); 8/5/20 Tr. 440 (Willig) (the hits are
                ``terribly important'' to the overall value of listening); 8/5/20 Tr.
                448 (Willig) (the Majors' collection of hits is what makes them ``Must
                Haves''); 8/6/20 Tr. 807 (Willig) (the level of spin rates on
                noninteractive services is a function of the plays of current hits);
                Trial Ex. 5601 ] 28 & n.46 (WRT of Robert Willig) (Willig WRT)
                (Universal has a [REDACTED]% share of the streams but accounts for
                [REDACTED]% of the top 100 hits according to 2019 Billboard data relied
                on by Professor Willig).
                 Similarly, in Web IV, the Judges took note of the importance of
                hits (``top spins'') to a noninteractive service. Web
                [[Page 59478]]
                IV, 81 FR at 26373 n.155 (`` `top spin' figures are indicative of the
                `must have' aspect of the Majors' repertoire . . . suggest[ing] to the
                Judges that the popularity of the Majors' spins is the reason why
                steering away from their repertoires cannot be pursued beyond a certain
                level, and why [Professor] Shapiro candidly declined to reject the idea
                that the Majors' repertoires were `must haves' . . . .'').
                 Professor Willig's emphasis in this proceeding on the Majors'
                possession of many of the ``hits'' puts a fine point on the steering
                issue. The noninteractive services need to play the ``hits'' (at
                intervals consistent with the sound recording performance complement)
                in order to remain attractive to their listeners and subscribers. That
                necessity renders the Majors ``Must Have'' licensors. However, the
                flip-side of this appropriate emphasis on the ``hits'' is a de-emphasis
                on less popular sound recordings, and therein lies the ability of the
                noninteractive services to engage in price competition by embedding
                steering into their algorithmic or human curation system.
                 That is, noninteractive services can (and, in the case of
                [REDACTED], did) steer curated songs that were not necessarily the
                hits/top spins, in a manner that [REDACTED]. See Web IV, 81 FR at
                26368-69 (explaining why substituting a curated song with a [REDACTED]
                did not impact listeners but improved the bottom lines of the services
                and labels that engaged in steering). When the Judges consider this
                point together with Professor Willig's testimony regarding the need of
                noninteractive services to obtain licenses necessary to play all the
                hits, the economic coexistence of the noninteractives' steering ability
                and the Majors' ``Must Have'' status remains clear.
                 Finally, the Judges note that none of SoundExchange's arguments
                indicates that the fundamental economics of noninteractive services
                have changed in any manner that would make steering by such services a
                less useful tool for applying an appropriate steering adjustment.
                Rather, as Dr. Peterson testified, ``the ability to steer for a non-
                interactive statutory service is pretty much bred right into the nature
                of the service where it's choosing the songs.'' 8/25/20 Tr. 3668
                (Peterson).
                 In sum, the Judges find it appropriate --for the reasons discussed
                above--to apply a 12% steering adjustment (prior to the offsets
                discussed below) in order to generate a competitive rate.
                D. The Countervailing Power Offset to the Price Competition Adjustment
                 As discussed more fully elsewhere in this Determination, the Judges
                find that Spotify, through its success as a market leader among
                interactive services and as the dominant independent pureplay
                interactive service, has acquired a significant measure of bargaining
                power in its licensing negotiations with the Majors. To summarize very
                briefly, the evidence demonstrates that Spotify's [REDACTED]--in the
                interactive market. See supra, section III.B.2.
                 Spotify's bargaining power allowed it to bargain for
                [REDACTED].\91\ This reduction is a function of the countervailing
                power discussed supra, which can serve as a means for reducing prices
                (and rates) toward a level indicated by the processes of price
                competition that are the hallmark of traditional neoclassical
                microeconomics.
                ---------------------------------------------------------------------------
                 \91\ [REDACTED]%-[REDACTED]% = [REDACTED]%. [REDACTED]%/
                [REDACTED]% = [REDACTED]%.
                ---------------------------------------------------------------------------
                 In this regard, it is noteworthy that one of SoundExchange's
                economic expert witnesses, Mr. Orszag, acknowledges that the 12%
                effective competition adjustment can be applied, if [REDACTED]. 8/25/20
                3837 (Orszag) (``[REDACTED]'').\92\
                ---------------------------------------------------------------------------
                 \92\ The Judges do not agree with Mr. Orszag's levels of
                adjustment to reduce the 12% factor, but his concept is the one the
                Judges are applying in this proceeding.
                ---------------------------------------------------------------------------
                 Here, [REDACTED]. A 12% price competition adjustment is warranted.
                But [REDACTED]. Thus, an appropriate adjustment for rates using this
                benchmark is 12%--[REDACTED], or [REDACTED]%.
                 However, as explained infra, that [REDACTED]% adjustment applies
                only to a headline rate that serves as a benchmark in this proceeding
                and that is consistent with [REDACTED] in the effective per-play rate.
                To the extent the [REDACTED]% adjustment does not apply to discounted
                subscriptions, such as student plan subscriptions, or to ad-supported
                plans, then the [REDACTED]% reduction is not applicable. Rather, in
                such instances, the full 12% competition adjustment applies.\93\
                ---------------------------------------------------------------------------
                 \93\ The Judges recognize, as they did in Web IV, that
                estimating a rate that reflects effective competition is not an
                exact science. See Web IV, 81 FR at 26334 (``The very essence of a
                competitive standard is that it suggests a continuum and differences
                in degree rather than in kind.''). However, the quality of the
                steering evidence in Web IV allowed the Judges to identify with some
                precision the ``range of potential steering adjustments,
                notwithstanding the otherwise inherently `fuzzy' nature of the
                `bright line' . . . between effectively competitive and
                noncompetitive rates.'' Web IV, 81 FR at 26344. Here, applying that
                steering evidence together with the offset indicated by the Web V
                record represents another application of specific evidence to put
                into focus the necessary size of the effective competition
                adjustment. Mr. Orszag likewise acknowledges that identifying the
                impact of market developments on the ascertainment of an effective
                competition adjustment cannot be determined with absolute precision.
                8/11/20 Tr.1276 (Orszag) (``[T]hese are areas of gray. . . .
                [M]arkets can be less workably competitive or less effectively
                competitive and more effectively competitive.''). And, to compare
                markets over time to identify the change to the level of an
                effective competition adjustment, Mr. Orszag opines that ``[f]rom an
                economic perspective, what one can do is utilize calibration or
                empirical evidence to understand how markets have changed. 8/12/20
                Tr. 1653 (Orszag). The Judges quite agree, and that is what they
                have undertaken in this Determination--to use the empirical data and
                related evidence to calibrate the extent to which an effective
                competition adjustment is required in the noninteractive
                subscription and ad-supported markets.
                ---------------------------------------------------------------------------
                IV. Commercial Webcasting Rates
                A. Evaluation of Survey Evidence
                1. Zauberman Music-Listening Behavior Survey
                a. Description of the Zauberman Survey
                 Professor Willig's opportunity cost approach is dependent upon the
                results of the consumer behavior surveys.\94\ The Judges, therefore,
                test the underlying survey data on which he relied to assess their
                reliability or their strength in supporting Professor Willig's
                conclusions.
                ---------------------------------------------------------------------------
                 \94\ One input in calculating a record company's opportunity
                cost of licensing its repertoire to a statutory webcaster is a
                diversion ratio, which measures how listening is spread across a
                range of alternative listening sources in the event that listeners
                stop listening to a statutory webcaster because a label's repertoire
                is no longer available.
                 The Judges discuss Professor Willig's economic modeling infra,
                section IV.C.1.
                ---------------------------------------------------------------------------
                 SoundExchange engaged Professor Gal Zauberman to measure the music-
                listening behavior of listeners to streaming radio services.\95\ Trial
                Ex. 5606 ]] 1, 4(WDT of Gal Zauberman) (Zauberman WDT). Professor
                Zauberman conducted an internet-based survey with the assistance of the
                Brattle Group, an economic consulting firm, and Dynata, a marketing
                research company with extensive experience in conducting surveys.
                Zauberman WDT ] 28. Specifically, the survey explored how consumers of
                streaming radio services that are eligible for the webcasting statutory
                license would listen to music if those streaming radio services were
                not available. Zauberman WDT ] 12. The survey respondents were asked
                about their listening behavior in a hypothetical world in which either
                [[Page 59479]]
                free or paid streaming radio services were no longer available.
                Zauberman WDT ] 13.
                ---------------------------------------------------------------------------
                 \95\ Professor Gal Zauberman, is the Joseph F. Cullman 3rd
                Professor of Marketing at the Yale School of Management, who
                specializes in consumer judgment and decision-making, financial
                decision-making, and survey methodology. Zauberman WDT ]] 1, 4.
                ---------------------------------------------------------------------------
                 The Zauberman Survey consisted of three key types of questions:
                Respondents were asked about which music-listening options they have
                used in the past 30 days, either a free or paid streaming radio service
                (Q1), which replacement music-listening options they would choose
                instead of the free or paid streaming radio service set forth in their
                assigned hypothetical scenario (Q2), and (in some cases) how they would
                allocate their replacement time music-listening options (Q3, 3A) among
                replacement options. Zauberman WDT ] 51.\96\
                ---------------------------------------------------------------------------
                 \96\ A total of 21,335 respondents entered the survey: 6,146
                respondents answered Q1 and 2,151 respondents answered Q2. Of these,
                1,552 qualified respondents completed the survey without being
                excluded for selecting ``Unsure'' for any of the options in Q1 or
                Q2. These 1,552 respondents did not include 88 respondents who were
                excluded for completing the survey in what was judged to be too
                little time or too much time. Zauberman WDT ] 53.
                ---------------------------------------------------------------------------
                 Among the 6,146 respondents who were asked which type of music-
                listening options they had used in the prior 30 days (Q1), 66 percent
                (4,029 respondents) responded that they had used a free streaming radio
                service in the past 30 days, and 21 percent (1,278 respondents)
                responded that they had used a paid streaming radio service in the past
                30 days. Altogether, 71 percent (4,369 respondents) said they had used
                either free or paid streaming radio (or both), and 15 percent (938
                respondents) said they had used both free and paid streaming radio
                services in the past 30 days. Zauberman WDT ] 68.
                 Out of the 1,552 respondents who were not excluded and completed
                the survey, a total of 989 respondents were assigned to the scenario in
                which free streaming radio services are no longer available (Q2). The
                survey assigned 563 respondents to the scenario in which paid streaming
                radio services are no longer available. Zauberman WDT ] 56. After being
                provided with the respective scenario in which free or paid streaming
                radio services were no longer available, respondents were asked a
                series of questions about how they would replace the time they
                currently spent listening to music on their free or paid streaming
                radio services. Respondents were then presented a variety of music-
                listening options with the exception of the streaming radio option that
                was no longer available in their given scenario. Zauberman WDT ] 57.
                 Out of 989 respondents who completed the survey and were told that
                free streaming radio services were no longer available, the (Q2)
                responses indicated that 33 percent of current listeners of free
                streaming radio services would instead listen to paid streaming radio
                services, 80 percent would instead listen to free On-Demand streaming
                services, 39 percent would instead listen to paid On-Demand streaming
                services, 31 percent would instead listen to Sirius XM satellite radio
                services on a satellite receiver, 85 percent would instead listen to
                AM/FM radio on a traditional radio receiver, 69 percent would instead
                listen to CDs, vinyl records, or MP3 files they currently own or would
                purchase, and 48 percent would instead do something other than listen
                to music.\97\ Zauberman WDT ] 24, 72, fig. 8.
                ---------------------------------------------------------------------------
                 \97\ The percentages add up to more than 100% because
                respondents were permitted to select multiple replacement options.
                See Zauberman WDT app. D.
                ---------------------------------------------------------------------------
                 Out of 563 respondents who completed the survey and were told that
                paid streaming radio services were no longer available, the (Q2)
                responses indicated that 84 percent of current listeners of paid
                streaming radio services would instead listen to free streaming radio
                services, 83 percent would instead listen to free On-Demand streaming
                services, 71 percent would instead listen to paid On-Demand streaming
                services, 52 percent would instead listen to Sirius XM satellite radio
                services on a satellite receiver, 79 percent would instead listen to
                AM/FM radio on a traditional radio receiver, 67 percent would instead
                listen to CDs, vinyl records, or MP3 files they currently own or would
                purchase, and 50 percent would instead do something other than listen
                to music. Zauberman WDT ] 25, 74, fig. 9.
                 The respondents who answered the (Q2), saying that they would
                replace their streaming radio service that is no longer available with
                either (a) a free On-Demand service or (b) a free streaming radio
                service (if their paid streaming radio service were no longer
                available), and who chose at least one other music-listening option (or
                ``[d]o something other than listen to music'') as a replacement for
                their streaming radio service that is no longer available, were asked
                (in Q3) if they would expect to listen to their streaming radio service
                one week from the day on which the respondent was taking the survey, if
                it were available.\98\ Zauberman WDT ] 75.
                ---------------------------------------------------------------------------
                 \98\ For example, respondents who took the survey on a Wednesday
                would be asked if they would expect to listen to their streaming
                radio service on the following Wednesday.
                ---------------------------------------------------------------------------
                 This form of questioning was designed to account for the
                possibility that time spent listening to music may vary from day to day
                for different people and across the respondents' allowed measurement of
                listening time across all days of the week. The day of week question
                format was also designed to be as specific as possible about the
                occasion that they are estimating and to have the estimation day not
                too far into the future. Zauberman WDT ] 61-62.
                 The respondents who answered ``Yes'' to Q3 were then asked to
                allocate their time among replacement options they chose in the
                replacement question, Q2. They were asked (in Q3A) to allocate any
                number from 0 through 100 to reflect the percentage of time they would
                listen to each particular option. Respondents were shown all of the
                services they said they would use to replace free or paid streaming
                radio in response to Q2. Zauberman WDT ] 64, 76.\99\
                ---------------------------------------------------------------------------
                 \99\ The ``day of week'' variable was designed to function in
                the same manner as in Q3.
                ---------------------------------------------------------------------------
                 The responses to Q3A indicated that current listeners of free
                streaming radio services who were asked to allocate their time
                indicated that they would replace 16 percent of the time they would
                have spent listening to their free streaming radio services by
                listening to paid streaming radio services, 32 percent of that time by
                listening to free On-Demand streaming services, 25 percent of that time
                by listening to paid On-Demand streaming services, 19 percent of that
                time by listening to Sirius XM satellite radio services on a satellite
                receiver, 27 percent of that time by listening to AM/FM radio on a
                traditional radio receiver, 18 percent of that time by listening to
                CDs, vinyl records, or MP3 files they currently own or would purchase,
                and 16 percent of that time by doing something other than listen to
                music. Zauberman WDT ] 26, 77, fig. 10.
                 The responses to Q3A also indicated that current listeners of paid
                streaming radio services who were asked to allocate their time
                indicated that they would replace 24 percent of the time they would
                have spent listening to their paid streaming radio services by
                listening to free streaming radio services, 20 percent by listening to
                free On-Demand streaming services, 24 percent by listening to paid On-
                Demand streaming services, 21 percent by listening to Sirius XM
                satellite radio services on a satellite receiver, 18 percent by
                listening to AM/FM radio on a traditional radio receiver, 14 percent by
                listening to CDs, vinyl records, or MP3 files they currently own or
                would purchase, and 10 percent by doing something other than listen to
                music. Zauberman WDT ] 27, 78, fig. 11.
                [[Page 59480]]
                b. Services' Criticisms of the Zauberman Survey
                 The Services offer a number of critiques of Professor Zauberman's
                surveys, including those noted below. Services PFFCL ]] 288-302.
                 The Services assert that the survey erroneously toggles between an
                initial definition of ``free streaming radio service'' and an incorrect
                definition that described ``on-line streams of AM/FM radio stations''
                as services that ``allow you to listen to customized radio stations
                with advertisements,'' like Pandora. Services PFFCL]] 288-290, Proposed
                Findings of Fact and Conclusions of Law of the National Association of
                Broadcasters ]] 190-191 (NAB PFFCL), 8/27/20 Tr. 4245-51
                (Zauberman).\100\ The Services point out that in his hearing testimony,
                Professor Zauberman conceded that, contrary to the language of his
                erroneous definition, simulcasts are not customizable, and that
                including different definitions for the exact same term in a survey is
                not a best practice in his field. Services PFFCL]] 288-290; 8/27/20 Tr.
                4246-47, 4253.
                ---------------------------------------------------------------------------
                 \100\ Q1: ``A free streaming radio service, such as personalized
                radio services like free Pandora and free iHeart Radio, and on-line
                streams of AM/FM radio stations, where you cannot choose a specific
                song, and must listen to advertisements.''
                 Q2: ``Free streaming radio services--services, such as
                personalized radio services like free Pandora and free iHeart Radio,
                and on-line streams of AM/FM radio stations, allow you to listen to
                customized radio stations with advertisements, but you cannot choose
                a specific song.''
                ---------------------------------------------------------------------------
                 The Services also suggest Professor Zauberman's survey suffers from
                ``cheap-talk'' or hypothetical-bias problems. Services PFFCL ]] 291-
                294. These concepts are described by Professor Hauser and Dr. Leonard
                as problems arising where respondents are allowed to choose multiple
                options, in which case they are more likely to select paid options that
                they would not in fact pay for in the real world, or otherwise do not
                really consider how much things cost or their budget constraint.
                Services PFFCL ] 291; 8/27/20 Tr. 4346-48 (Hauser); 8/24/20 Tr. 3421-23
                (Leonard). Dr. Leonard also referenced academic literature addressing
                issues with the hypothetical nature of the ``payment'' in surveys,
                which can lead respondents to overstate their true willingness to pay.
                See Leonard WRT ]] 19-21 & n.37 (citing Franziska Voelckner, An
                Empirical Comparison of Methods for Measuring Consumers' Willingness to
                Pay, 17 Marketing Letters 137 (2006); James J. Murphy et al., A Meta-
                analysis of Hypothetical Bias in Stated Preference Valuation, 30 Envtl.
                Resource Econ. 313 (2005).). Dr. Leonard's testimony suggests that
                aspects of responses to Q3, the time allocation question, indicate that
                respondents would not actually pay for their survey selections in the
                real world. Services PFFCL ] 291; Leonard WRT ] 21; 8/24/20 Tr. 3447-48
                (Leonard) (addressing instances in which a service option was selected
                but no listening time was allocated to the option, a concept known in
                the economics literature as ``hypothetical bias'').
                 The Services, through their expert witness Professor Hauser,
                suggest that the Zauberman Survey's instruction to focus on music-
                listening options is biased and could suggest to respondents that the
                researcher was interested only in respondents switching to music-
                listening options, which could prompt respondents to favor the music-
                listening options rather than the stated option to do something other
                than listen to music. Professor Hauser points out the absence of
                specificity about what ``do something other than listen to music''
                might entail and offers that respondents may not have immediately
                known, recalled, or considered alternatives that were available to them
                if they were not listening to music, leading them to select music-
                listening options instead. Services PFFCL ] 295; 8/27/20 Tr. 4364-65;
                Trial Ex. 2161 ]] 7, 28-30 (WRT of John Hauser) (Hauser WRT).
                 The Services point to the Zauberman Survey's inability to
                distinguish between a respondent who did not have an existing paid
                subscription and a respondent who had an existing paid subscription but
                did not use it in the past thirty days. This concern was highlighted by
                the testimony of Dr. Leonard and Mr. Harrison who both address the
                occurrence of consumers having inactive paid subscriptions. Services
                PFFCL ]] 297-298; Leonard WRT ] 18; 9/3/20 Tr. 5732 (Harrison)
                (explaining how users who bill subscriptions through a credit card
                might have a service for months without realizing they were still a
                subscriber). Professor Hauser also criticizes the survey's inability to
                distinguish between a respondent who did not have an existing paid
                subscription and a respondent who had an existing paid subscription but
                did not remember using it in the past thirty days. Services PFFCL ]
                299. Professor Hauser stated that both academic research and his own
                survey pretest indicate that thirty days is too long for respondents to
                remember their own listening behavior accurately. The inability to
                distinguish between respondents who did not have an existing paid
                subscription, or who had one but did not use it or remember using it in
                the past thirty days, likely resulted in an upward bias in estimated
                switching to new, paid subscriptions. Hauser WRT ]] 24-27; see also 8/
                27/20 Tr. 4360.
                 The Services find fault with the Zauberman Survey's failure to
                allow respondents to distinguish between their listening to CDs, vinyl,
                or digital music files they owned already, and listening to CDs, vinyl,
                or digital files they would purchase. They point to Professor Zauberman
                conceding that a respondent who had a large existing collection of
                downloads or CDs would have no way of indicating that she would listen
                to her existing collection, rather than purchasing new CDs. Services
                PFFCL ] 300; 8/27/20 Tr. 4240. The Services point out that Professor
                Willig described the effect of this on the Zauberman Survey results as
                an ``inaccuracy.'' Services PFFCL ] 300; 8/6/20 Tr. 843-47. The
                Services also note that both the Hauser and Hanssens surveys and
                industry data suggest that far more people would listen to existing
                collections than purchase new CDs or digital music files, suggesting
                that Professor Zauberman's survey likely would have demonstrated the
                same if he had given respondents the opportunity to make this
                distinction. See Hauser WRT ]] 47-48; Trial Ex. 4095 tbls.4, 8 (CWDT of
                Dominique Hanssens) (Hanssens WDT); Leonard WRT ] 19; 8/24/20 Tr. 3448
                (Leonard); Trial Exs. 2037, 2038, 2041 at 6 (showing declining sales
                and use of CDs and digital downloads).
                 The Services contend that the Zauberman Survey contained a
                fundamental error of failing to include attention checks to confirm
                respondents were sufficiently engaged in the survey and were providing
                reliable responses. See Hauser WRT ]] 31-34. Professor Hauser explained
                that attention checks represent best practices in survey research, and
                not including them could have exacerbated the asserted flaws in the
                Zauberman Survey. See id. ]] 8, 31-32; 8/27/20 Tr. 4334-35.
                 The Services suggest that some respondents in the Zauberman Survey
                who indicated they would listen to physical or digital recordings of
                music may in fact obtain pirated copies of recordings, thus calling
                into question the results. See 8/6/20 Tr. 799 (Willig); 8/10/20 Tr.
                1089-92 (Willig). And, NAB takes issue with the Zauberman Surveys for
                not taking into account properly respondents who listened to zero hours
                of simulcasts. See NAB PFFCL ] 126.
                c. Responses to Criticisms of the Zauberman Survey
                 In response to criticism of the Zauberman Survey, SoundExchange
                [[Page 59481]]
                characterizes the altered definitional language as a ``slight
                discrepancy,'' noting that the word ``customized'' appeared only in
                introductory language, and not in any survey response option.
                SoundExchange offers that the Services provide no basis to conclude
                that the difference in definitions had any effect on Professor
                Zauberman's data or that respondents were ever confused or noticed the
                discrepancy. SoundExchange suggests that the word ``customized'' in Q2
                would not signal to respondents that AM/FM streaming was not a free
                streaming radio service because every time the survey describes free
                streaming radio services, it provides examples of services that fall
                into this category, including the example ``on-line streams of AM/FM
                radio stations.'' SoundExchange argues that if respondents had noticed
                and been confused by the variation in language, the survey results
                would have shown an increase of ``unsure'' responses with respect to
                free streaming radio services once alternate language was introduced,
                and that no such evidence of confusion exists. SX RPFFCL (to Services)
                ]] 288-290.
                 SoundExchange also suggests that Professor Zauberman adequately
                clarified in his testimony that simulcast listeners do have some
                ability to customize their experiences. Professor Zauberman testified
                that ``there are multiple ways in which we customize our experiences or
                select the world around us'' and that, with regard to opportunities to
                personalize on-line streams of AM/FM radio stations, station choice is
                one aspect of customization. 8/27/20 Tr. 4271. SoundExchange then
                offers that other experts in this proceeding have a shared
                understanding of the functionality available through simulcasts. SX
                RPFFCL (to Services) ] 288; 8/26/20 Tr. 4121-25 (Hanssens) (simulcasts
                of AM/FM broadcasts and free streaming radio services like Pandora are
                ``very comparable mediums'' that ``share key attributes'' and compete
                with one another).\101\
                ---------------------------------------------------------------------------
                 \101\ SoundExchange also references Orszag WRT ] 35 (given that
                users can choose to listen to a particular genre of music for both
                simulcast and custom radio, the user experience is not necessarily
                much different).
                ---------------------------------------------------------------------------
                 SoundExchange adds that Professor Zauberman's testimony regarding
                variations in definitional language not constituting a best practice
                was not his ultimate conclusion. SX RPFFCL (to Services) ] 290; 8/27/20
                Tr. 4217 (Zauberman) (the suggested ultimate conclusion being that the
                Zauberman Survey provides the most reliable data of any survey or
                experiment in the proceeding and that its findings are highly
                consistent with the Hanssens and Simonson Surveys).
                 SoundExchange offers that Professor Hauser's trial testimony
                regarding ``cheap talk'' is beyond the scope of his written testimony
                and unsupported by the academic literature he mischaracterized at
                trial. SX RPFFCL (to Services) ] 291; SX PFFCL ]] 1259-1261.
                SoundExchange adds that even if the asserted ``cheap talk'' effect did
                exist, the Services have not attempted to quantify it, with regard to
                Professor Zauberman's survey or any other survey in this proceeding. SX
                RPFFCL (to Services) ] 291. SoundExchange also offers that the critique
                of Q3 is misplaced, as a zero time allocation on one specific day in
                the following week is not unreasonable nor does it indicate that
                respondents would not actually pay for their survey selections in the
                real world. SX RPFFCL (to Services) ] 292.
                 SoundExchange submits that Professor Zauberman's focus on music
                listening was entirely appropriate in light of the focus and scope of
                this proceeding. It adds that Professor Zauberman's approach struck an
                appropriate balance between providing a comprehensive list of options
                (including ``do something other than listen to music'') and the risk of
                making his survey unwieldy and confusing. SoundExchange points out that
                the Services offer no evidence that survey respondents actually had
                difficulty remembering what non-music options are available to them in
                the world. SX RPFFCL (to Services) ]] 295-296.
                 SoundExchange notes that Professor Zauberman's testimony indicates
                why he chose the survey format. With regard to respondents who may have
                had an existing paid subscription but did not use it in the past thirty
                days, Professor Zauberman designed the survey order to avoid ambiguity
                or complicating the survey and creating non-uniformity that risked
                privileging some options over others. SX RPFFCL (to Services) ] 297; 8/
                27/20 Tr. 4181-82, 4184-85, 4239 (Zauberman). SoundExchange offers that
                Dr. Leonard's testimony that inactive subscriptions are ``not
                uncommon'' is poorly supported by the record. SoundExchange also
                criticizes, as conflicting, the NAB's argument that thirty days is too
                long for respondents to remember their own listening behavior
                accurately, and that thirty days is not long enough because a
                respondent may not have used his or her subscription service in the
                past 30 days SX RPFFCL (to Services) ]] 297-299. SoundExchange posits
                that the Services' critique regarding new versus existing physical
                copies of recordings flows from an unwarranted assumption: That
                respondents who would go back to their existing CD collections and
                start listening to them again would not also make new purchases in
                order to supplement their collections with new music. SX PFFCL ] 780;
                8/6/20 Tr. 843-47 (Willig). It also points out that the Hanssens and
                Simonson Surveys, which do distinguish between new purchases and
                existing collections, find over twice the amount of diversion to new
                purchases of physical copies as the Zauberman Survey does. SX PFFCL ]
                781, Compare Willig WDT ] 47, fig.6 (14.8% diversion to new CDs, vinyl
                records, and MP3s based on Zauberman Survey), with Trial Ex. 5608 app.
                F at tbl.4B (CWRT of Itamar Simonson) (Simonson WRT) (comparing data
                from the Hanssens Pandora Survey, Simonson's Modified Hanssens Survey,
                and Hanssens Replication, reflecting a range of 27.8% to 29.9%
                diversion to new physical or digital recordings of music).
                 SoundExchange offers that all of the survey experts acknowledged
                that tools other than attention checks can be used to ensure that
                respondents are engaged in a survey and that such tools were used in
                the Zauberman Survey. SX PFFCL ]] 766, 716-717. SoundExchange also
                points to Professor Hauser's testimony on attention checks, which
                according to SoundExchange, indicates that attention checks are not
                currently viewed as required under best practices, noting his statement
                that attention checks are now ``becoming widely used.'' SX PFFCL ] 766;
                8/27/20 Tr. 4334-35 (Hauser).
                 Addressing criticism of the Zauberman Survey's failure to address
                the possibility that some respondents would in fact pirate sound
                recordings, SoundExchange observes that none of the surveys in the
                proceeding asks respondents whether they might obtain music through
                piracy. 8/10/20 Tr. 1118-19 (Willig). SoundExchange offers that there
                is no reason to think respondents would truthfully answer that they
                would engage in illegal activity. 8/26/20 Tr. 4143-44 (Hanssens).
                Moreover, Professor Hanssens made clear that he would not expect
                respondents to interpret the term ``own'' to encompass theft. Id. at
                4142-43 (Hanssens). He also noted that the survey gave respondents
                options such as diverting listening to ``other'' sources, through which
                respondents could express their intent to steal recordings. Id. at 4143
                (Hanssens).
                 SoundExchange suggests that while a number of respondents to the
                Zauberman Survey allocated zero time to a replacement option they had
                [[Page 59482]]
                previously selected, any attempt to convert this observation into a
                critique misunderstands the structure of Professor Zauberman's time
                allocation questions. It offers that there is no inconsistency in
                respondents indicating that they would replace a noninteractive
                streaming service with a particular music-listening option and also
                indicating that they do not expect to listen to that option on one
                specific day of the following week. SX PFFCL ] 784-785; 8/27/20 Tr.
                4197-98 (Zauberman); 8/6/20 Tr. 848-50 (Willig). SoundExchange goes on
                to offer that the Services cite to no evidence to support the
                insinuation of inconsistency in the survey results. SX PFFCL ] 787.
                d. Judges' Conclusions on the Zauberman Survey
                 Upon consideration of the entirety of the record, including the
                facts and arguments indicated above, on balance, the Judges find the
                Zauberman Survey to be reasonably reliable evidence. There is some
                validity to the criticisms regarding definitional inconsistency and
                diversion related to existing/owned physical recordings. However,
                viewed in light of the results of the other surveys, these criticisms
                of the Zauberman Survey seems to have had a minimal effect. At most,
                the criticisms go to the weight assigned to the Zauberman Survey
                results.
                2. Share of Ear Report
                 Professor Willig used data from Edison Research's quarterly ``Share
                of Ear'' study as a secondary data source as a basis for fallback
                values inputted into his theoretical models, and as a sensitivity check
                to the Zauberman Survey. The Services assert that the Share of Ear data
                contain troublesome ambiguities. Services PFFCL ]] 265-268; Leonard WRT
                ]] 23-29.
                 SoundExchange responds to the criticism of the Share of Ear data by
                pointing out that such concerns have essentially been mooted. Professor
                Willig acknowledged at trial that, for purposes of computing diversion
                ratios and calculating opportunity cost, Share of Ear is ``is not
                nearly as well founded . . . as making use of the Hanssens Survey or
                the modified Hanssens Survey or the Zauberman Survey.'' SX RPFFCL (to
                Services) ] 265.
                3. Hanssens Pandora Survey and Sirius XM Survey
                a. Description of the Hanssens Surveys
                i. Purpose and Design
                 Several experts relied, in part, on the results of the Hanssens
                Surveys. See, e.g., Shapiro WDT at 16; 20-21, tbl.2; 28, tbl.5; Willig
                WRT ]] 30-35. The Judges, therefore, test the underlying survey data on
                which he relied to assess their reliability or their strength in
                supporting various modeling conclusions.
                 Sirius XM and Pandora retained Professor Dominique Hanssens to
                conduct two consumer surveys--the ``Pandora Survey'' and the ``Sirius
                XM Survey. The Hanssens Surveys measured how consumers would respond if
                their noninteractive streaming services changed by the loss of access
                to any given record company's repertoire, including what alternative
                sources of music, if any, listeners of free internet radio services
                music on Sirius XM over the internet would change their listening to as
                a result of hypothetical loss of music options. Hanssens WDT ]] 13, 33,
                39-40 & app. 6. The Pandora Survey addressed listeners of free internet
                radio and his Sirius XM Survey addressed listeners of Sirius XM's
                subscription webcasting service. Id. ] 20. The two surveys pose
                comparable hypotheticals and proceed in parallel. Id. ]] 33, 66 & Apps.
                6 & 12.
                 Professor Hanssens sought to answer the following questions: (a)
                Whether listeners would change their listening if they were
                dissatisfied because music selection across the category was
                ``degraded'' as described in the hypothetical given to
                respondents,\102\ (b) whether listeners would change their listening to
                alternative sources of music (as opposed to non-music) in that
                instance, (c) which alternative sources of music they would increase
                listening to, if any, and (d) how listeners would allocate increased
                listening, if any, across the alternative music sources they
                identified).\103\ Id. ]] 21-22.
                ---------------------------------------------------------------------------
                 \102\ The study considered the hypothetical that services were
                limited by the loss of access to any given record company's
                repertoire, which was addressed in the survey by asking respondents
                what they would do in the event that they noticed all relevant
                services stopped streaming songs by some popular artists and some
                newly released music. Hanssens WDT ]] 13, 21-22. This approach was
                intended for the focus to be on cases where that change in music
                availability is noticed and therefore generates responses to that
                specific scenario, as opposed to the more general scenario of simple
                label suppression. 8/26/20 Tr. 4091 (Hanssens).
                 \103\ The Hanssens survey thus posits a degradation of a
                listening option (i.e., loss of repertoire), as distinguished from
                the Zauberman survey, which posited the unavailability of a
                listening option.
                ---------------------------------------------------------------------------
                 The Pandora Survey indicated that 60.1 percent of the sample of
                listeners of free internet radio services would decrease listening to
                free internet radio services in the event that the music selection
                across all free internet radio services were degraded. Of the
                respondents who indicated that they would decrease listening to free
                internet radio services or listen to free internet radio about the same
                amount, 63.5 percent would increase listening to alternative sources of
                music under this scenario. When forced to make a tradeoff between
                multiple options of alternative sources of music, the sample of
                listeners indicated that they would increase their watching or
                listening to music in videos on YouTube or social media the most (11.6
                points on average), followed by listening to live radio broadcasts of
                music through a radio (9.8 points on average), and then followed by
                listening to music on a new free On-Demand music streaming service (7.7
                points on average). Hanssens WDT ] 18.\104\
                ---------------------------------------------------------------------------
                 \104\ Respondents were asked to allocate 100 points across the
                alternative music sources they previously selected based on how much
                they would listen to these different sources. Hanssens WDT app. 12.
                ---------------------------------------------------------------------------
                 The Sirius XM Survey indicated that 36 percent of the sample of
                listeners of music on Sirius XM over the internet would decrease their
                listening to that service in the event that the music selection
                available on that service were degraded. Of the respondents who
                indicated that they would decrease listening to music on Sirius XM over
                the internet or listen to about the same amount of music on that
                service, 58.9 percent would increase listening to alternative sources
                of music under this scenario. When forced to make a tradeoff between
                multiple options of alternative sources of music, by an allocation of
                points on average, the sample of listeners indicated that most of their
                increased listening would be on an existing Sirius XM satellite radio
                subscription. Hanssens WDT ] 19.
                 Professor Hanssens's surveys were conducted by respondents on a
                traditional desktop computer, laptop notebook computer, or tablet
                computer. The surveys included several screening questions. Qualified
                respondents had to pass several standard attention check questions and
                satisfy certain demographic quotas to ensure the survey respondents
                were not statistically different from the typical demographics of
                Pandora or Sirius XM on the internet users, depending on the particular
                survey. The survey response rate, completion rate, and incidence rate
                were all within the typical range for internet surveys, and the sample
                size was large enough to draw conclusions regarding the key questions
                posed in the survey. Additionally, the survey was extensively
                pretested. Id. ]] 26-29, 36-37, 56-59, 65-67.
                [[Page 59483]]
                 Professor Hanssens applied other quality assurance measures
                designed to ensure that respondents provided informed and reliable
                responses. In the Pandora Survey, prior to the first substantive
                question (P20), Professor Hanssens provided respondents with
                descriptions and well-known examples of free internet radio, On-Demand
                Music Streaming, and Paid internet Radio categories. Id. ] 32.
                Additional preliminary questions helped identify the target population
                for the Pandora Survey and were designed to provide respondents with an
                accurate set of alternative music options in the main questionnaire, in
                which they were asked to identify services they would listen to more if
                the music selection on free internet radio services were degraded. Id.
                ] 30.
                ii. Pandora Survey Results
                 In order to assess which alternative sources of music respondents
                would choose in the event that a webcaster lost access to a particular
                record company's repertoire, Professor Hanssens instructed respondents,
                ``Imagine you were not satisfied with [a free internet radio service
                the respondent indicated listening to in a typical week] because you
                noticed that it had stopped streaming songs by some of your favorite
                artists and some newly released music. Imagine that all other free
                internet radio services stopped streaming those same songs as well.''
                Hanssens WDT ] 33; 8/26/20 Tr. 4091 (Hanssens) (explaining that this
                language is intended for the focus to be on cases where that change in
                music availability is noticed and therefore generates responses to that
                specific scenario, as opposed to the more general scenario of simple
                label suppression).
                 The Hanssens Pandora survey then proceeded as follows.
                 Respondents were asked (in question P20), ``Which of the following
                actions, if any, would you consider taking in the event that you were
                not satisfied with free internet radio services because their selection
                of songs changed in this way?'' The survey offered the following answer
                choices: ``I would use free internet radio services less; I would use
                free internet radio services about the same amount; I would use free
                internet radio services more; Don't know/unsure.'' Id. ]] 34, 39;
                Appendix 7 at 120; 8/26/20 Tr. 4097 (Hanssens).
                 Among the 506 respondents to question P20, 60.1 percent responded
                that they would use free internet radio services less, 35.8 percent
                responded that they would use free internet radio services about the
                same, and 4.2 percent responded that they did not know or were unsure
                about how their listening habits would change. Hanssens WDT ] 40.\105\
                Those who indicated that they did not know or were unsure about how
                their listening habits would change were not included in subsequent
                calculations as it is not possible to know what they would do if the
                music selection across all free internet radio services were degraded.
                Hanssens WDT ] 40 n.46.
                ---------------------------------------------------------------------------
                 \105\ The results of P20 are reported in Table 1.
                ---------------------------------------------------------------------------
                 Respondents who indicated that they would listen to free internet
                radio services less or about the same amount were asked question P30:
                ``Which other actions from the following, if any, would you consider
                taking in the event that you were not satisfied with free internet
                radio services because their selection of songs changed in this way?''
                Those respondents were provided the following two categories: ``Consume
                non-music entertainment content'' and ``Listen to music using ways
                other than free internet radio'' and, for each, were asked whether they
                would ``increase doing this, make no changes to how much I do this,
                decrease doing this, don't know/unsure.'' Id. ]] 34, 42, Appendix 7 at
                121.
                 In hearing testimony Professor Hanssens noted that, while the non-
                music options (and descriptive examples) were presented ``for
                completeness reasons,'' the results were not used as they are ``not the
                focus of [the] work.'' 8/26/20 4097-98 (Hanssens).
                 The results of P30 are reported in Table 2, below.
                BILLING CODE 1410-72-P
                [GRAPHIC] [TIFF OMITTED] TR27OC21.000
                [[Page 59484]]
                Id. ] 42.
                 In the analyses that followed question P30, the 53 respondents who
                indicated in that they would listen to alternative sources of music
                less (35) or who did not know or were unsure about whether they would
                change their music consumption (15) were excluded. Hanssens WDT ] 43
                n.50.
                 Respondents who indicated that they would increase listening to
                alternative sources of music were asked question P40: ``In which of the
                following ways, if any, would you increase listening to music in place
                of free internet radio in a typical week?'' Respondents were then
                provided specific alternative music sources to which they would
                consider increasing their listening, including the types of services
                the respondents had previously responded they were already using in
                their responses to the screening questions. Hanssens WDT ]] 34. 46-48,
                Appendix 7 at 122; 8/26/20 Tr. 4098 (Hanssens).
                 The results of P40 are reported in Table 3, below.
                 [GRAPHIC] [TIFF OMITTED] TR27OC21.001
                
                Hanssens WDT ] 49.
                 The final substantive question, P50, presented respondents who had
                responded to question P40 that they would increase listening to
                multiple alternative music sources with the alternative music sources
                they selected in P40 and instructed them to ``Please divide 100 points
                across the different ways of listening to music based on how much you
                think you would use each alternative in a typical week.'' Id. ]] 34,
                52, Appendix at 123. This question was designed to allow the individual
                listener to rank the relative importance of answer options. 8/26/20 Tr.
                4098 (Hanssens). Professor Hanssens explained that he asked this
                question in terms of point allocations rather than in absolute time or
                percentages of time in order to avoid the cognitively difficult
                ``quantification of time,'' and to better assess relative importance,
                which may be obscured by absolute expressions of time. 8/26/20 Tr. 4099
                (Hanssens).
                 The results of P50 are reported in Table 4, below.
                [[Page 59485]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.002
                Hanssens WDT ] 53.
                4. Simonson's Replicated and Modified Hanssens Surveys
                a. Description of the Simonson Surveys
                 SoundExchange also engaged Professor Simonson to assess the
                testimony of several witnesses, including Professor Hanssens. As part
                of that task, Professor Simonson ran a replication of the Hanssens
                Pandora Survey (Hanssens Replication survey), as well as a modified
                version of that survey (Modified Hanssens survey). Simonson WRT ] 12.
                 Professor Simonson adopted the same methodology and screening
                criteria that Professor Hanssens used in the Hanssens Pandora Survey.
                Id. ]] 88; 8/27/20 Tr. 4282-83 (Simonson). The Modified Hanssens survey
                retained all aspects of the original Pandora survey, except it omitted
                any mention of user dissatisfaction. The Modified Hanssens survey
                modified the instructions given to respondents, which Professor
                Hanssens had intended to focus on cases where listeners noticed the
                change in music availability. Professor Simonson made the change out of
                concern that one may assume that the Hanssens Surveys' results apply
                only to those listeners who would have been dissatisfied by the change
                in repertoire, perhaps relying on the Reiley Label Suppression
                Experiments to support assumptions that very few users would in fact be
                dissatisfied and change their listening. Therefore, the scenario
                changed from:
                 Imagine that you were not satisfied with this service because
                you noticed that it had stopped streaming songs by some of your
                favorite artists and some newly released music. Imagine that all
                other free internet radio services stopped streaming those same
                songs as well.
                to
                 Imagine that this service stopped streaming songs by some of
                your favorite artists and some newly released music. Imagine that
                all other free internet radio services stopped streaming those same
                songs as well.
                Simonson WRT ]] 94-95. The Modified Hanssens survey also removed the
                instruction that ``you were not satisfied'' in other places throughout
                the survey. Id. ]] 94-96.
                 Additionally, in the Modified Hanssens survey, for those
                respondents who indicated that they ``would use free internet radio
                services less'' in the hypothetical scenario, respondents were asked an
                additional question, intended to allow analysis of the magnitude of
                these respondents' likely change in listening:
                 You indicated that you would use free internet radio services
                less in the event that all free internet radio services had stopped
                streaming songs by some of your favorite artists and some newly
                released music. In that case, how much less time would you spend
                listening to free internet radio services in a typical week?
                 Select one only.
                 1. 1-9% less
                 2. 10-24% less
                 3. 25-49% less
                 4. 50-74% less
                 5. 75-99% less
                 6. 100% less
                 7. Don't know/unsure
                Simonson WRT ] 89.
                 Professor Simonson indicated at trial that the results of the
                Replication survey and Modified Hanssens survey indicate that the
                Hanssens Pandora Survey is reliable because it can be replicated with a
                different panel and at a different time of year. 8/27/20 Tr. 4283
                (Simonson). Additionally, Professor Simonson stated that ``removing the
                `you are unsatisfied' instruction from the Modified Hanssens Survey did
                not generally result in large alterations to the data, relative to
                either the original Pandora Survey or the Replication Survey. This
                similarity indicates that the survey data largely applies to all
                relevant listeners, not only to the subgroup who would be dissatisfied
                with a change in repertoire.'' Simonson WRT ] 99 (footnote omitted).
                 The results of the respective surveys regarding the actions
                respondents would take if free internet radio services were degraded
                (Hanssens question P20) are reflected below.\106\
                ---------------------------------------------------------------------------
                 \106\ Professor Simonson's analysis of the Hanssens survey data
                only included the respondents who were not excluded by reason of
                their responses to the screening questions and P20 and P30, as
                described above, the number of such respondents totaling 432. The
                total number of qualifying respondents in the Replication survey was
                424. The total number of qualifying respondents in the Modified
                Hanssens survey was 372.
                ---------------------------------------------------------------------------
                [[Page 59486]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.003
                Simonson WRT ] 98.
                 The results of the respective surveys regarding other actions, if
                any, respondents would consider taking in the event that free internet
                radio services were degraded (original Hanssens question P30) are
                reported below. Simonson WRT 244.
                [[Page 59487]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.004
                 The results of the respective surveys regarding which of the
                following ways, if any, respondents would increase listening to music
                in place of free internet radio in a typical week (original Hanssens
                question P40) are reflected below.
                [[Page 59488]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.005
                Simonson WRT ] 98.
                 The Modified Hanssens survey results for regarding the magnitude of
                respondents' likely change in listening (Q225) are reflected below.
                [[Page 59489]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.006
                BILLING CODE 1410-72-C
                Simonson WRT 243.
                b. Criticisms of the Hanssens Surveys
                 SoundExchange engaged Professor Itamar Simonson to examine whether
                the Hanssens surveys were likely to produce unbiased, reasonably
                accurate estimates regarding the impact of a loss of access to any
                given record company's repertoire on listening to the free internet
                radio services at issue and on switching to alternative sources of
                music. Simonson WRT ] 66. While Professor Simonson found the Hanssens
                surveys relatively reliable, he asserted the surveys contained several
                flaws. Simonson WRT ]] 64-65. SoundExchange also engaged Professor
                Zauberman to examine the Hanssens Surveys calculation. Trial Ex. 5607
                ]] 1-2 (WRT of Gal Zauberman) (Zauberman WRT).
                 Professor Simonson criticized the Hanssens survey questions for
                mixing music with unrelated categories, such as videogames and movies,
                leading to a ``diversification bias,'' which allegedly encouraged
                respondents to select to non-music switching options and an
                underestimation of switching from one music service to another. He
                pointed to research, demonstrating that the mere fact that respondents
                are presented simultaneously with multiple options causes them to
                spread their choices among the options instead of choosing only the
                option they like most. He indicated that a survey designer can decrease
                the percentage of respondents who indicate they will switch from one
                music service to another by presenting respondents with options from a
                wide range of options and that the Hanssens Surveys do just that by
                leading respondents to consider a wide set of switching options,
                including options that are unrelated to music. Simonson WRT ]] 67-74
                (citing Itamar Simonson, The Effect of Purchase Quantity and Timing on
                Variety Seeking Behavior, 27 J. Marketing Research 150 (1990); Daniel
                Read & George Loewenstein, Diversification Bias: Explaining the
                Discrepancy in Variety Seeking Between Combined and Separated Choices,
                1 J. Experimental Psychol.: Applied 34 (1995); and Schlomo Benartzi &
                Richard H. Thaler, Naive Diversification Strategies in Defined
                Contribution Saving Plans, 91 Am. Econ. Rev. 79 (2001); and Craig R.
                Fox, David Bardolet & Daniel Lieb, How Subjective Grouping of Options
                Influences Choice and Allocation: Diversification Bias and the
                Phenomenon of Partition Dependence, 134 J. Experimental Psychology:
                Gen. 538 (2005); Craig R. Fox, David Bardolet & Daniel Lieb, Partition
                Dependence in Decision Analysis, Resource Allocation, and Consumer
                Choice, 3 Experimental Bus. Research 229 (2005)).
                 Professor Simonson also took issue with the sequence of Hanssens
                survey questions. He criticized the surveys for asking about the
                various options the respondents may consider before asking them to
                select among those options. In Professor Simonson's opinion, informed
                by published research, asking respondents to consider a long list of
                options biases the respondents' subsequent responses. He opined that
                while offering such ``consideration set'' options may be appropriate in
                scenarios involving costly and often relatively irreversible decisions,
                it is not appropriate in the context of selecting a music service,
                which involves low cost, low risk, and easily changed purchase
                decisions. Relatedly, Professor Simonson suggested that research
                suggests that an unrealistic consideration set can also create bias in
                follow-up questions such that the list of considered options is likely
                to influence subsequent choices made by respondents. Simonson WRT ]]
                75-81 (citing Barbara E. Kahn & Donald R. Lehmann, Modeling Choice
                Among Assortments, 67 J. Retailing 274 (1991); Itamar Simonson, The
                Effect of Product Assortment on Consumer Preferences, 75 J. Retailing
                347 (1999); Armin Falk & Florian Zimmermann, A Taste for Consistency
                and Survey Response Behavior, 59 CESifo Econ. Studies, no.1, 181
                (2012); and Itamar Simonson, The Effect of Buying Decisions on
                Consumers' Assessments of Their Tastes, 2 Marketing Letters 5 (1991)).
                 Professor Simonson indicated that the Hanssens Surveys ignored the
                impact that a change in repertoire would have on services' ability to
                attract new users. He noted that while Hanssens Surveys attempted to
                measure whether existing service users might change their listening
                behavior, the surveys did not examine or attempt to quantify the impact
                of offering a more limited music
                [[Page 59490]]
                repertoire on a services' ability to attract new users. Professor
                Simonson posited that ignoring the impact on potential users, Professor
                Hanssens understated the impact that the loss of a label's content
                would have on the relevant services. Simonson WRT ]] 82-84.
                SoundExchange also notes that this focus on existing customers
                indicates that the surveys at most measure only part of the impact that
                losing a record label would have on these services. SX PFFCL ] 788.
                 Professor Zauberman faulted the Hanssens surveys for not allowing
                respondents to respond on their smartphones, despite the fact that a
                large proportion of users stream music via smartphone. Zauberman WRT ]]
                82-88. He noted that other relevant surveys could be completed on
                smartphones and suggested that those surveys tended to have younger
                participants who are likely to listen to more music, and to replace
                Free Streaming Radio with Paid streaming services at higher rates than
                those who took the survey on other devices. Zauberman WRT ]] 86-88.
                SoundExchange alleges that this may cause any calculation of diversion
                ratios based on the Hanssens surveys to be conservative. SX PFFCL ]
                758.
                 Professor Zauberman asserted that the Hanssens surveys were
                confusing for respondents, offering that survey practices dictate that
                hypotheticals should be posed simply, not as instructions about how
                respondents should feel. He added that the surveys contained too many
                response options that are overly wordy, making it difficult for a
                respondent to keep track of all relevant information. Professor
                Zauberman alleged that respondents were presented with too many
                response options that were zero-royalty options causing the responses
                to be biased towards such zero-royalty options. He also faulted the
                surveys for use of the typical week as a timeframe for respondents as
                being contrary to best survey design practices, and suggested that a
                time frame described as ``a typical week'' may be ambiguous to some
                respondents. Zauberman WRT ]] 88-95.
                c. Responses to Criticisms of the Hanssens Surveys
                 In response to criticism of the Hanssens surveys, Pandora/Sirius XM
                offers, in part, that Professor Simonson demonstrated convincingly that
                the Hanssens surveys were reliable by replicating them using an
                entirely new sample, and obtaining very similar results. Pandora and
                Sirius XM's Corrected Proposed Findings of Fact and Conclusions of Law
                ] 111 (Pandora/Sirius XM PFFCL). Pandora/Sirius XM offers that the
                Hanssens surveys actually overestimate diversion, in that his scenario
                contemplates the loss of consumers' favorite artists, which does not
                necessarily simulate real-world conditions given that the loss of a
                label may not be coincident with the loss of all of the works of an
                artist and may not be coincident with the loss of a favorite artist.
                Pandora/Sirius XM PFFCL ] 112; 8/26/20 Tr. 4091-96, 4099-4101
                (Hanssens). Pandora/Sirius XM adds that the Hanssens surveys reflect
                only the subset of Pandora users who would actually be affected by the
                degradation in the sense that they noticed it and were dissatisfied as
                a result, not simply any Pandora user subject to the suppression. 8/26/
                20 Tr. 4093, 4101, 4154-56.
                 Pandora/Sirius XM notes that Professor Hanssens did not actually
                use the non-music data but, rather, included it merely for completeness
                reasons. Pandora/Sirius XM PFFCL ] 115. Pandora/Sirius XM also states
                that no empirical analysis of alleged diversification bias was offered.
                Instead, they indicate, Professor Simonson only offered citations to
                academic articles discussing the phenomenon. Pandora/Sirius XM PFFCL ]
                114. Similarly, Pandora/Sirius XM indicates that Professor Simonson did
                not offer any empirical evidence to support his critique that the
                sequence of Professor Hanssens's questions, requiring respondents to
                consider options before choosing them, could have biased his results.
                Pandora/Sirius XM PFFCL ] 116. Pandora/Sirius XM adds that the survey
                was designed to minimize any confusion, including instructing
                respondents to take their time reviewing the questions and providing a
                link to the descriptions and examples in every subsequent question.
                Pandora/Sirius XM PFFCL ] 110. Additionally, Pandora/Sirius XM
                clarifies that the intent of the Hanssens survey was to evaluate the
                behavior of listeners, not potential listeners. Pandora/Sirius XM PFFCL
                ] 117. The Services also observe a lack of empirical evidence that a
                failure to conduct the surveys on smartphones had any effect on the
                results. Services RPFFCL ] 760.
                d. Criticism of Professor Simonson's Modified Hanssens Surveys
                 Pandora Sirius XM offers that Professor Simonson conceded that his
                modified surveys, designed to test the impact of including language of
                explicit dissatisfaction, did not, generally, result in large
                alterations to the data relative to either the original Pandora Survey
                or the Replication Survey. Pandora/Sirius XM PFFCL ] 118; Simonson WRT
                ] 99; 8/27/20 Tr. 4285 (Simonson); id. at 4315-16; 8/26/20 Tr. 4094
                (Hanssens) (noting same). Pandora Sirius XM points out that both
                Professor Simonson and Professor Hanssens agreed that this lack of
                impact on Professor Hanssens's survey is likely due to the fact that
                dissatisfaction is implicit in a hypothetical referencing the loss of
                some of respondents' favorite artists and some newly released music.
                Pandora/Sirius XM PFFCL ] 119.
                 Pandora Sirius XM indicates that Professor Simonson's question 225,
                intended to allow analysis of the magnitude of respondents' likely
                change in listening, is flawed and unreliable. Pandora/Sirius XM PFFCL
                ] 122. Professor Hanssens posited that the question does not accurately
                measure the likely change in listening. He asserts that the loss of a
                particular label fundamentally differs from the loss of favored artists
                or newly released music because artists are presented on more than one
                label, and many people do not know which labels represent which
                artists. 8/26/20 Tr. 4092-96 (Hanssens). He adds that the question is
                limited to people who actually notice the change and are negatively
                affected by it, which he notes is not coincident with all Pandora
                listeners. And, he offers that, without a proper basis for a
                respondent's volume of listening, it is not possible for a respondent
                to generate a reliable response on the amount that would be lost. 8/26/
                20 Tr. 4096 (Hanssens). Finally, Professor Hanssens criticizes the
                answer ranges offered in Question 225, asserting that they are so wide
                and unequal that they are imprecise, biased, and unreliable. 8/26/20
                4096 (Hanssens).
                e. Responses to Criticisms of Professor Simonson's Modified Hanssens
                Surveys
                 SoundExchange counters that the criticism of the language of
                explicit dissatisfaction is essentially an acknowledgment that there is
                no need to instruct respondents to imagine they are dissatisfied by
                label blackout because dissatisfaction follows naturally from the loss
                of content. SX RPFFCL (to Pandora/Sirius XM) ] 119.
                 SoundExchange indicates that any notion that the loss of a label
                differs fundamentally from loss of favored artists or newly released
                music is unsupported by the evidence and contrary to Professor
                Hanssens's own testimony, including his describing the loss of access
                to any given record company's repertoire. SX RPFFCL (to Pandora/Sirius
                XM) ] 122, 112. SoundExchange rejects the notion that
                [[Page 59491]]
                the survey is limited to a subset of users, instead asserting that it
                addresses aggregate consumer reaction in the event consumers are aware
                of label blackout, as they would be in any real world circumstance. SX
                PFFCL (to Pandora/Sirius XM) ] 122. Finally, SoundExchange offers that
                the suggestion that respondents should have been asked to report their
                current listening time is undermined by the fact that allocations of
                absolute time are notoriously difficult for respondents to answer. SX
                RPFFCL (to Pandora/Sirius XM) ] 122.
                f. Judges' Conclusions Regarding the Hanssens and Simonson Surveys
                 Upon consideration of the entirety of the record, including the
                facts and arguments indicated above, on balance, the Judges find the
                Hanssens Pandora Survey as well as the Simonson's Replicated and
                Modified Hanssens Surveys to be probative as to diversion behaviors of
                listeners of noninteractive streaming services regarding a loss of
                content and on switching to alternative sources of music.
                Notwithstanding the criticisms of the surveys, the Judges find the
                overall conduct of the surveys to have been rigorous and generally
                faithful to applicable best practices. Further, the replication and
                modification of the surveys, with generally consistent results,
                reinforce the Judges' finding that the collective results are probative
                in this proceeding. The Judges find that Professor Simonson's
                modifications (removing indications of dissatisfaction) ultimately had
                little impact on the results. Additionally, the Judges are persuaded
                that the issues raised regarding question 225 in the modified Hanssens
                survey, especially the criticism of the response ranges and
                interpretation of them, while not completely discounting of the
                results, do have merit. Therefore, the Judges rely more heavily on the
                results of the two consistent and replicated surveys.
                 The overall structure of the Sirius XM survey was the same as the
                structure of the Pandora survey, and Professor Hanssens simply
                substituted ``Sirius XM over the Internet'' for ``free Internet radio
                services'' where necessary. Hanssens WDT ] 59. It included 150
                respondents, with only 131 non-excluded respondents. Hanssens WDT ] 70
                n.93. SoundExchange alleges that the sample size of Professor
                Hanssens's Sirius XM Survey was very small, making the results
                imprecise. Zauberman WRT ] 96. Professor Zauberman's analysis of
                Professor Hanssens's Sirius XM Survey indicated confidence intervals
                that are extremely wide. Professor Zauberman testified that the level
                of imprecision is problematic, especially when the estimates are then
                used for subsequent analyses. Id., citing Table 6. Pandora/Sirius XM
                asserts that the sample size of the Sirius XM survey was sufficient to
                draw statistically valid conclusions. Pandora/Sirius XM PFFCL ] 109.
                The Judges agree with the critique of the sample size of the
                unreplicated survey. Therefore, the Judges do not find sufficient basis
                to rely on the Sirius XM Survey.
                B. Evaluation of Benchmark Evidence
                1. The Subscription Benchmark/Ratio-Equivalency Models
                 A SoundExchange economic expert witness, Mr. Orszag, presents a
                benchmark analysis to estimate the statutory royalty rate to be paid by
                noninteractive subscription services. Orszag WDT ]] 76-86. On behalf of
                Pandora, Professor Shapiro presents his benchmark analysis for this
                subscription royalty rate. Shapiro WDT at 39-40; see also id. at 30-38
                (Professor Shapiro's ad-supported benchmark analysis containing
                elements also applicable to his subscription benchmark analysis).
                 Mr. Orszag and Professor Shapiro each claims that his benchmarking
                model faithfully applies the Judges' ``ratio equivalency'' benchmarking
                model applied in Web IV. Unsurprisingly, therefore, each of them
                criticizes the other's model as failing to follow that Web IV model.
                The Judges first set forth the essential elements of Mr. Orszag's
                adaptation of the Web IV ``ratio equivalency'' model and the criticisms
                of that approach. The Judges then engage in the same approach with
                regard to Professor Shapiro's model--identifying its essential
                elements--followed by Mr. Orszag's critiques. The Judges then proceed
                to a more granular analysis of the dueling positions of these
                economists and set forth factual findings in these regards. Finally,
                the Judges set forth the benchmark rates that follow from their
                analysis and findings regarding the models proffered by these two
                experts.
                a. Mr. Orszag's Ratio-Equivalency Model
                 As noted above, Mr. Orszag engages in a benchmark analysis to
                estimate an appropriate statutory royalty to be paid to record
                companies by noninteractive services for subscription services. Orszag
                WDT ] 9. Mr. Orszag concludes that rates set in the interactive
                subscription service market are reasonable and appropriate benchmark
                rates, subject only to a downward adjustment to reflect the added value
                of interactivity in that proposed benchmark market. Id. ]] 9, 11. By
                his approach, Mr. Orszag estimates a $0.0033 per-play royalty rate for
                performances on subscription services. Orszag WDT ]] 9, 86 & tbls.6,7.
                He proposes that the Judges adjust the rates to reflect annual changes
                in the Consumer Price Index, in a manner similar to the approach
                adopted in Web IV. Orszag WDT ] 8.
                 Mr. Orszag finds the subscription interactive market to be an
                appropriate benchmark for the target noninteractive subscription market
                because (1) the sellers/licensors (record companies) are identical; (2)
                the buyers/licensees, although not identical, are sufficiently similar;
                and (3) the right being sold/licensed is identical in both markets,
                i.e., the right to play a sound recording. Id. ]] 54-56.
                 In his benchmark comparison, Mr. Orszag avers that he is following
                the ``ratio equivalency'' approach undertaken by the Judges in Web IV.
                Orszag WDT ] 74. In Web IV, the Judges set forth the ``ratio
                equivalency'' formula as follows:
                A/B = C/D
                 In this Web IV ratio equivalency approach:
                [A] = Avg. Retail Interactive Subscription Price
                [B] = Interactive Subscriber Royalty Rate
                [C] = Avg. Retail Noninteractive Subscription Price
                [D] = Noninteractive Subscriber Royalty Rate
                Web IV, 81 FR at 26337-38.\107\
                ---------------------------------------------------------------------------
                 \107\ The ``ratio equivalency'' adopted by the Judges had been
                proffered by SoundExchange's economic expert witness, Professor
                Daniel Rubinfeld. Web IV, 81 FR at 26337. The Judges' reliance on
                Professor Rubinfeld's rationale for the use of the ratio equivalency
                approach is relevant in the present proceeding, as discussed infra.
                ---------------------------------------------------------------------------
                 However, Mr. Orszag does not define inputs [A], [B], and [C] as
                they had been identified in Web IV. Instead, he defines these four
                inputs as follows:
                [A] = Total Benchmark Subscription Revenue
                [B] = Total Benchmark Subscription Royalty Payments
                [C] = Total Noninteractive Subscription Revenue
                [D] = Noninteractive Subscriber Royalty Rate
                8/11/20 Tr. 1224-1226 (Orszag).\108\
                ---------------------------------------------------------------------------
                 \108\ Input [C] is identified above as revenue from
                ``noninteractive'' services. However, Mr. Orszag used three mid-tier
                services with limited interactivity--Pandora, iHeart and Napster
                (Rhapsody)--as his proxies for statutory noninteractive services.
                Mr. Orszag's use of these proxy services creates a dispute separate
                from the overarching modeling dispute considered here, and that
                dispute is addressed infra when the Judges examine the more granular
                issues relating to these two benchmarking models. Also, note that
                item [D] in the Web IV formula and Mr. Orszag's model are identical
                because [D] is not a modeling input but rather the output generated
                by the formula (i.e., the proposed statutory royalty rate).
                ---------------------------------------------------------------------------
                [[Page 59492]]
                 Mr. Orszag testifies that he departs from the Judges' Web IV
                definitions of inputs [A], [B], and [C] for two reasons, neither of
                which, he asserts, contradicts the Judges' rationale for using the
                ``ratio equivalency'' approach in Web IV. Quite the contrary, he
                testifies that these departures were required, in order to make the Web
                IV approach meaningful in the present proceeding. First, Mr. Orszag
                notes that in Web IV, the Judges used per play rates as input [B]
                because ``none of the percentage-of-revenue prongs in the greater-of
                agreements in the record has been triggered, which may suggest that the
                parties to those agreements viewed the per-play rate as the rate term
                that would most likely apply for the length of the agreement.'' Web IV,
                81 FR at 26325. In other words, in Web IV the per-play rates were the
                effective rates.
                 Second, Mr. Orszag testifies that this Web IV factual basis for
                using a stated per-play rate is no longer applicable because royalty
                payments under current interactive agreements are predominantly made
                pursuant to ``percentage of revenue'' prongs'' rather than per-play
                prongs, which are included ``only occasionally'' in current interactive
                agreements. Instead, according to Mr. Orszag, most current interactive
                agreements in the market instead contain a ``greater of'' rate
                formulation that includes a ``per-subscriber'' prong together with the
                ``percent-of-revenue'' prong. Orszag WDT ] 77.
                 As the value for his conception of [A], Mr. Orszag uses the gross
                revenues generated by Spotify from the performance of sound recordings
                from the three Majors and the Merlin-affiliated Indies over the most
                recent twelve-month period, April 2018-March 2019. Orszag WDT ]] 76,
                83-84, 86, tbl.7.\109\
                ---------------------------------------------------------------------------
                 \109\ Mr. Orszag also analyzes data from Apple Music, Pandora,
                Amazon Music Unlimited, iHeart, Google, and Rhapsody, in addition to
                Spotify. He also obtains revenue data for the calendar year 2018.
                Orszag WDT tbls.6-7. However, he only uses the Spotify revenue data
                for the more recent of the two periods. Mr. Orszag also relies
                solely on Spotify royalty data from the same time period. Relying on
                the Spotify data for the most recent period ultimately yields
                [REDACTED] royalty rates in terms of percent-of-revenue and per-play
                rates [REDACTED] interactive services across each time period, id.,
                which is [REDACTED] for the noninteractive services within Mr.
                Orszag's data set.
                 Mr. Orszag states that he utilizes this lower royalty rate
                because he believes that [REDACTED]--a factor that weighs against
                any downward adjustment for the Majors' complementary oligopoly
                market power. Orszag WDT ] 86. This market power issue is discussed
                at length elsewhere in this Determination.
                ---------------------------------------------------------------------------
                 For his version of [B], Mr. Orszag uses the royalties paid by
                Spotify to the Majors and the Indies. Again, he selected Spotify data
                over the same period, April 2018-March 2019, out of the seven total
                interactive services he considered. See supra note 109.
                 To identify a percent-of-revenue rate from inputs [A] and [B], Mr.
                Orszag calculates the reciprocal of ([A])/([B]), which is the percent
                of revenue paid as royalties (i.e., ([B])/([A])). The A/B ratio of
                these data for Spotify over the relevant period is set forth below:
                Revenues [A] = $[REDACTED]
                Royalties [B] = $[REDACTED]
                 The ([A])/([B]) ratio of the above figures equals [REDACTED]:1.
                Expressing this ratio factor as a reciprocal ([B])/([A])--thus
                expressing a percent of revenue royalty--results in a royalty rate
                calculation of [REDACTED]% (rounded). Orszag WDT ]] 84-85 & tbl.7.\110\
                ---------------------------------------------------------------------------
                 \110\ In calculating the benchmark revenue and royalty totals
                (i.e., [A] and [B]) Mr. Orszag excludes all plans which Spotify
                offered at discounts off full retail prices, e.g., Spotify's family,
                student, employee, and trial plans, as well as its promotional
                offerings. Orszag WDT ] 85 tbl.7. Pandora criticizes his decision to
                omit from his analysis the revenues, royalties and play counts
                generated by these discount plans, as discussed infra.
                ---------------------------------------------------------------------------
                 In order to obtain a value for [C] in his model, Mr. Orszag selects
                Pandora, iHeart, and Rhapsody as his mid-tier proxies for the
                noninteractive service sector. Orszag WDT tbl.6. He testifies that he
                chose these three services because they had entered into direct
                licenses with record companies, thereby allowing him access to royalty
                statements containing reliable and necessary information. Orszag WDT ]
                85 & tbl.7.
                 Having obtained values for [A], [B], and [C], Mr. Orszag can
                calculate a value for [D], his proposed statutory royalty rate for
                subscription services. He begins by multiplying the percent-of-revenue
                rate he derives from the left side of his model ([REDACTED]%) by the
                total revenues ([C]), $[REDACTED], for his three noninteractive
                proxies. Orszag WDT ] 85 & tbl.7.
                 Despite computing a percent-of-revenue rate in the benchmark market
                SoundExchange does not propose a percent-of-revenue statutory royalty
                rate; rather, it proposes a per-play rate. According to Mr. Orszag, a
                per-play rate is preferable in order to avoid difficulties arising out
                of (1) defining revenue across business models; (2) separating out the
                sound recording revenue royalty base when music is bundled downstream
                with the sale of other items; and (3) accounting for a service's
                potential business practice of strategically lowering downstream
                prices. Orszag WDT ] 82. Accordingly, Mr. Orszag needs to apply his
                [REDACTED]% royalty percentage--derived from the left-hand/interactive
                benchmark market--so as to calculate a per play royalty rate for the
                right-hand/noninteractive target market.
                 To effect this conversion to a per play metric, Mr. Orszag divides
                the foregoing revenue figure by the number of plays on Pandora, iHeart,
                and Rhapsody over the relevant period (May 2018-April 2019), which is
                [REDACTED] plays. The quotient of that division equals $0.0033 per
                play, which is the value for [D] in Mr. Orszag's model and therefore
                his recommended per play rate for noninteractive subscription services.
                Orszag WDT ]] 85-86 & tbl.7.\111\
                ---------------------------------------------------------------------------
                 \111\ Determining this per-play rate from the same Figure 7 data
                in another manner, Mr. Orszag notes that his three proxies for
                noninteractive subscription services had a combined average revenue
                per play of $[REDACTED] ($[REDACTED] [REDACTED] divided by
                [REDACTED] billion plays) in the May 2018-April 2019 period.
                Multiplying this average revenue per play by the [REDACTED]% royalty
                rate for interactive subscription services results in the per-play
                royalty of $0.0033. Orszag WDT ] 85 & tbl.7.
                ---------------------------------------------------------------------------
                b. Pandora's Criticisms of Mr. Orszag's Application of the ``Ratio
                Equivalency'' Model
                 The Services claim that the ``first and foremost error'' in Mr.
                Orszag's subscription benchmark analysis is his failure to correctly
                apply the Web IV ``ratio equivalency model.'' Shapiro WRT at 24-27.
                This alleged error supposedly begins with Mr. Orszag's insertion of
                different inputs into that Web IV model.
                 More specifically, the Services point out that Mr. Orszag's
                benchmark royalty input [B] is not a contractual per-performance
                royalty rate as in Web IV but rather the total royalties paid by his
                benchmark service, Spotify. 8/19/20 Tr. 2892-93 (Shapiro). Similarly,
                the Services note that Mr. Orszag did not use in the two numerators of
                his ``ratio equivalency'' formula (i.e., [A] and [C]), respectively)
                the ``average monthly retail subscription prices'' that were used in
                the Web IV formulation of the model. Rather, Mr. Orszag substituted for
                [A] Spotify's total subscription revenue and for [C] the total
                subscription revenue earned by Pandora, iHeart, and Rhapsody, his
                ``mid-tier'' (i.e., limited interactive) proxies for a noninteractive
                subscription services. See Services PFFCL ] 163 (and record citations
                therein).
                 The Services take issue with Mr. Orszag's method of solving for
                [D], total
                [[Page 59493]]
                royalties to be paid. Again, Mr. Orszag multiplies his calculated
                [REDACTED]% interactive (benchmark) royalty rate by the total
                noninteractive revenue and (in the final step of his analysis) divides
                the total target [noninteractive] royalties [D] by the total plays on
                the three mid-tier services. See Services PFFCL ] 163 (citing Orszag
                WDT ] 85, tbls.6-7.)
                 According to the Services, the effect of Mr. Orszag's foregoing
                ``ratio equivalency'' approach is as follows:
                [R]ather than charging the target statutory services the same per-
                play rate as the benchmark services [before any adjustments], as in
                Web IV, his model is set up to compute a rate where the target
                market services . . . based on their prior revenues and play counts
                . . . instead pay the same percentage of revenue as the benchmark
                services.
                Services PFFCL ] 164 (citing Shapiro WRT at 25); 8/19/20 Tr. 2897
                (Shapiro).
                 The Services criticize the foregoing approach by Mr. Orszag on
                several grounds. First, the Services find his modeling to be
                irreconcilable with the Web IV Determination in which, they claim, the
                Judges affirmatively rejected a percentage-of-revenue royalty metric
                for the statutory license. Services PFFCL ] 24 (citing Web IV, 81 FR at
                26325-26).\112\
                ---------------------------------------------------------------------------
                 \112\ To be clear, in Web IV, the Judges did not reject the use
                of ``percent-of-revenue'' royalties because they were legally or
                economically inappropriate. Rather, the Judges there expressly
                rejected SoundExchange's proposed ``greater-of'' rate proposal and
                chose to utilize only the per play rates within such benchmarks
                because the evidence demonstrated that ``none of the percentage-of-
                revenue prongs in the greater-of agreements in the record has been
                triggered.'' Web IV, 81 FR at 26325. Thus, the Judges did not reject
                the concept of using a percent-of-revenue based royalty rate as a
                benchmark for noninteractive services for legal or economic reasons
                but rather for factual reasons particular to the Web IV record. Cf.
                SDARS III, 83 FR at 65221-22, 65229, and Phonorecords III, 84 FR at
                1934 (both adopting percent-of-revenue royalty rates).
                ---------------------------------------------------------------------------
                 Second, the Services find Mr. Orszag's approach to be
                ``unjustified'' (as well as ``roundabout'' and ``unnecessary'') because
                SoundExchange is not actually advocating for a percent-of-revenue
                royalty but rather for a per-play rate. 8/19/20 Tr. 2893 (Shapiro);
                Shapiro WRT at 27-28. Alternately stated, the Services claim that
                because the royalty being set is a per-play royalty and not a
                percentage-of-revenue rate, the appropriate starting point for the
                benchmarking exercise is a per-play rate derived in the benchmark
                market and then subjected to any adjustments necessary to correct for
                potential differences between the benchmark and target markets. Shapiro
                WRT at 24-25; Peterson WDT ]] 13, 15.
                 As stated supra, before the Judges analyze Mr. Orszag's benchmark
                ratio equivalency approach and the objections thereto, they find it
                beneficial to next consider Professor Shapiro's benchmark ratio
                equivalency model and Mr. Orszag's objections thereto. Thereafter, the
                Judges can better compare and contrast these two benchmark models. The
                Judges proceed in that manner below.
                c. Professor Shapiro's Subscription Model
                 Professor Shapiro also uses the interactive market as his
                benchmark, relying on direct licenses between eleven interactive
                services \113\ and the three Majors (Sony, Universal, and Warner).
                Shapiro WDT at 41; 8/19/20 Tr. 2826 (Shapiro). He compares the
                interactive benchmark market to the noninteractive target market by
                purporting to use the Web IV framework. More particularly, Professor
                Shapiro asserts that he is using the same definitions as used in Web IV
                for inputs [A], [B], and [C] in his ``ratio'' equivalency model in
                order to generate output [D] as a per-play rate.
                ---------------------------------------------------------------------------
                 \113\ The eleven interactive services are Amazon Prime, Amazon
                Unlimited, Apple, Deezer, Google Music, Napster, Pandora, Slacker,
                SoundCloud, Spotify, and Tidal. Shapiro WDT at 40 tbl.10.
                ---------------------------------------------------------------------------
                 By his approach, Professor Shapiro proposes that the statutory rate
                for subscription services fall within a range between $[REDACTED] and
                $[REDACTED] per play. He also proposes that the range should be indexed
                to for inflation, using 2019 as the base year (i.e., the same year from
                which he obtained data), over the 2021-2025 rate period. Shapiro WDT at
                2.
                 To compute a value for [A] in his ratio equivalency model,
                Professor Shapiro utilizes the same category of values as used by
                Professor Rubinfeld in Web IV--the monthly retail price for
                undiscounted subscription plans--which is $9.99 per month. 8/19/20 Tr.
                2828 (Shapiro) (``I'm following very closely what was done in Web IV by
                Professor Rubinfeld, actually, and then adopted by the Judges . . .
                based on the . . . retail prices for these plans, and that's [$]9.99 .
                . . .'').
                 To calculate input [B], Professor Shapiro analyzes the most recent
                12-month period for which data was available, May 2018 through April
                2019. He calculates the average ``effective'' per-performance royalty
                rates paid by ten of the eleven services (weighted by each service's
                percentage of total performances).\114\ The plays by the largest
                interactive services, [REDACTED] and [REDACTED], account for
                [REDACTED]% and [REDACTED]% of total plays, respectively, thus
                dominating the weighted average. Shapiro WDT at 40 tbl.10. Professor
                Shapiro then divides (i) the total royalties paid by the ten
                interactive services in his model\115\ by (ii) the number of
                interactive plays, to obtain a value for [B], $[REDACTED], his
                effective per-play rate in the interactive benchmark market. Id.\116\
                ---------------------------------------------------------------------------
                 \114\ Professor Shapiro excludes [REDACTED] from the calculation
                ``due to insufficient data,'' but the exclusion has de minimis
                impact, he asserts, because [REDACTED] accounted for only
                [REDACTED]% of the 358.7 billion plays in Professor Shapiro's
                benchmark grouping. Shapiro WDT at 40.
                 \115\ Unlike Mr. Orszag, Professor Shapiro calculates [B]
                (effective per-play rate) by utilizing the revenue and royalties
                generated by all interactive plans, including discounted interactive
                plans such as student, family and military plans, in addition to the
                revenue from undiscounted plans. And (because he is calculating an
                effective per-play rate in the benchmark interactive market),
                Professor Shapiro also incorporates into his calculation of [B] the
                number of interactive plays. 8/19/20 Tr. 2827 (Shapiro). By
                contrast, when calculating his value for [A], Professor Shapiro
                instead uses only the full (undiscounted) retail price of an
                interactive service rather than including in the value of [A] the
                retail price of discounted interactive plans. These issues are
                addressed in connection with the discussion of the more granular
                benchmark model issues, infra.
                 \116\ The total interactive royalties and interactive plays thus
                are inputs used to calculate the value of [B] in Professor Shapiro's
                model rather than stated inputs in the ratio.
                ---------------------------------------------------------------------------
                 Professor Shapiro avers that his only departure from the Web IV
                approach is in his calculation of input [B], a departure born of
                necessity. Specifically, he notes that he could not use a per-play rate
                in the interactive benchmark market because (as Mr. Orszag also
                acknowledges) the majority of contracts between the Majors and the
                interactive services no longer contains a stated (headline) per-play
                prong. Thus, he had no alternative but to substitute an ``effective''
                per-play rate as input [B]. Shapiro WDT at 41.
                 Of particular note here is a distinction between Professor
                Shapiro's approach and that taken by Mr. Orszag because the latter does
                not calculate a per-performance ``effective'' rate in the interactive
                benchmark market. Rather, as discussed supra, Mr. Orszag calculates the
                ``effective'' percent-of-revenue paid as royalties in the benchmark
                interactive market ([REDACTED]%).
                 Claiming to continue to follow Web IV, Professor Shapiro next
                identifies the weighted average retail subscription price for the
                noninteractive proxies on the right-hand side of his ratio, $4.99/
                month, as the value for [C], the numerator in the right-hand side of
                the ``ratio equivalency'' formula. Shapiro WDT tbl.9; 8/19/20 Tr. 2828
                (Shapiro). Thus, having identified values for inputs [A], [B], and [C],
                his model solves
                [[Page 59494]]
                for [D], including an implicit interactivity adjustment \117\ that is a
                function of the ratio equivalency formula. This value (before any
                further adjustments) is $[REDACTED] per play.\118\
                ---------------------------------------------------------------------------
                 \117\ Note that Professor Shapiro also proposes an additional
                ``second interactivity adjustment,'' which the Judges address infra
                in their analysis of the details of Professor Shapiro's ratio
                equivalency benchmarking model.
                 \118\ Professor Shapiro's $[REDACTED] per play (prior to
                adjustments other than an initial interactivity adjustment which is
                implicit in the model) is calculated as follows:
                 (1) $[REDACTED] divided by $[REDACTED] equals $[REDACTED]
                divided by [D]
                 (2) cross-multiplying: $[REDACTED] multiplied by [D] equals
                $[REDACTED] multiplied by $[REDACTED]
                 (3) calculating the above step: $[REDACTED] multiplied by [D]
                equals [REDACTED]
                 (4) dividing both sides by $[REDACTED] solves for [D] equals
                $[REDACTED] (rounded)
                ---------------------------------------------------------------------------
                d. SoundExchange's Criticisms of Professor Shapiro's Benchmark Model
                 As an initial matter, SoundExchange does not categorically reject
                Professor Shapiro's benchmarking approach. Rather, it asserts that
                identifying the effective per performance rate paid by the interactive
                services is not the ``necessary'' starting point for such an analysis.
                SX RPFFCL (to Pandora/Sirius XM) at 67 (emphasis added). In a similar
                vein, SoundExchange asserts that ``there is simply no reason why one
                must base the analysis on effective per-play rates in the benchmark
                market . . . .'' SX PFFCL ] 111 (emphasis added).
                 Nonetheless, SoundExchange finds Professor Shapiro's application of
                the Web IV approach wanting. As an initial matter, SoundExchange
                disagrees with Professor Shapiro's understanding that the Web IV model
                should be applied so as to generate a per-play rate in the benchmark
                (interactive) market. Rather, SoundExchange argues that in Web IV the
                Judges required that the denominators [B] and [D] should reflect the
                effective royalty rate--in whatever manner that royalty rate was
                established in the benchmark market--so that the ratios [A]/[B] and
                [C]/[D] would be equivalent. And, the present record reflects that most
                of the interactive (benchmark) rates are set, as a matter of contract
                (that is to say, in the market), as a percent of revenue. (This is in
                contrast to the record in Web IV which revealed that, pursuant to
                marketplace contracts, the royalty rate was set on a stated per-play
                basis).\119\ Given this change in market reality, SoundExchange asserts
                that--for the ratios to be equivalent in the benchmark and target
                market--the ratio [B]/[A] is the effective benchmark royalty rate. SX
                PFFCL ] 105 (citing 8/11/20 Tr. 1226 (Orszag) (``[B] over [A]
                representing the effective percentage of revenue royalty rate paid by
                the benchmark service'')).
                ---------------------------------------------------------------------------
                 \119\ SoundExchange also relies on statements in Web IV
                indicating that the Judges there were intending to set a per-play
                rate that effectively provided record companies with the same
                percentage of revenue in the target (noninteractive) market as in
                the benchmark (interactive) market. See SX RPFFCL (to Pandora/Sirius
                XM) ] 189 (citing Web IV, 81 FR at 26326, 26338). The Judges discuss
                infra how those Web IV statements bear on the ratio equivalency
                issues raised in the present proceeding.
                ---------------------------------------------------------------------------
                 According to SoundExchange, it is for the foregoing reason that
                Professor Shapiro should not have taken his intermediate step of
                deriving an effective per-play rate in the benchmark (interactive)
                market. Rather, according to SoundExchange, he should have solved for
                [D] (the statutory rate, by (1) applying the benchmark (interactive)
                percentage derived from the ratio [B]/[A], (2) multiplying that
                percentage by [C], and (3) dividing that product by the number of
                noninteractive plays. Simply put, SoundExchange (unsurprisingly)
                asserts that, in order to follow the Web IV approach, Professor Shapiro
                needed to utilize Mr. Orszag's approach.\120\
                ---------------------------------------------------------------------------
                 \120\ As noted supra, this criticism relates solely to the
                modeling aspects of Professor Shapiro's benchmark model.
                SoundExchange levels other criticisms at Professor Shapiro's
                application of his benchmark model, which are discussed infra.
                ---------------------------------------------------------------------------
                e. The Judges' Analysis and Findings Regarding the ``Ratio
                Equivalency'' and Benchmarking Issues
                 SoundExchange and Pandora accuse each other of misapplying the
                Judges' ratio equivalency approach adopted in Web IV. However, the
                broadsides by each side miss the mark, as explained below. The parties'
                attacks are off-target because, in Web IV, the effective rates upon
                which the Judges relied were also the stated per-play rates in the
                benchmark (interactive) agreements.
                 Thus, Pandora is incorrect in arguing that Mr. Orszag misapplies
                Web IV. Rather, consistent with Web IV, he relies on and applies the
                royalty terms in the benchmark agreements which are based on a percent-
                of-revenue royalty prong within their greater-of rate formulae.
                Therefore, it is incorrect to say that Mr. Orszag acted in a manner
                inconsistent with Web IV by (1) using benchmark (interactive) total
                revenue as the metric for [A]; (2) using benchmark (interactive) total
                royalties for [B]; (3) calculating the reciprocal, [B]/[A], as the
                effective benchmark (interactive) percent-of-revenue royalty rate; and
                (4) applying that percent ([REDACTED]%) to the total revenue in the
                target (noninteractive) market.
                 But, neither has Professor Shapiro run afoul of Web IV. Consistent
                with Web IV, Professor Shapiro calculates an effective per play rate in
                the benchmark (interactive) market by applying the actual prong
                utilized in that market--the percent-of-revenue prong--and then
                identifies an [A]/[B] ratio to apply to the target (noninteractive)
                market. In Web IV, the Judges also explicitly identified a per-play
                rate as the appropriate rate to use for [B] and, as undertaken by
                Professor Shapiro, utilized the retail price for the benchmark
                (interactive) subscription as the value for [A].\121\
                ---------------------------------------------------------------------------
                 \121\ Moreover, as noted supra, SoundExchange does not reject
                Professor Shapiro's approach but rather asserts only that his
                starting point of identifying the effective performance rate paid by
                the interactive services is neither necessary nor mandatory. That is
                a far cry from an outright rejection. Further, the fact that such an
                approach might not be necessary or mandatory does not mean that it
                is inappropriate or without significant value.
                ---------------------------------------------------------------------------
                 But, then a puzzle presents: How can both approaches be both
                correct and thus incorrect? Are we faced with a paradox analogous to
                that of ``Schr[ouml]dinger's Cat''? \122\ The resolution of the paradox
                lies in two points: (1) When the Judges in Web IV extracted the ratio
                equivalency methodology out of the record evidence, they intentionally
                eliminated the linkage between per-play rates and percent-of-revenue
                rates in the ``greater-of'' rate formulae present in the benchmark
                interactive market agreements; and (2) in the present proceeding,
                benchmark (interactive) royalties are paid predominantly as a
                ``percent-of-revenue,'' whereas in Web IV they were paid on a per-play
                basis.\123\ The Judges analyze below the impact of these two factors on
                the application of the benchmark models in the present proceeding.
                ---------------------------------------------------------------------------
                 \122\ ``Schr[ouml]dinger's Cat'' refers to a thought experiment
                regarding a theory of quantum mechanics involving a cat--sealed in a
                box with a flask of poison and a radioactive source--that, under the
                theory, conceptually may simultaneously be alive and dead.
                ``Schr[ouml]dinger's Cat'' has been extended in popular culture as a
                way to identify something as a paradox, unfeasible, or working
                against itself. See https://www.dictionary.com/e/tech-science/schrodingers-cat/?itm_source=parsely-api (last visited May 25,
                2021).
                 \123\ In fact, the record reflects that [REDACTED] and that
                [REDACTED]. 8/11/20 Tr. 1207-08 (Orszag); 8/20/20 Tr. 3000
                (Shapiro). See SX PFFCL ] 112 (and record citations therein).
                 Although the Services do not acknowledge such a sweeping
                abandonment of stated per-play rates, Professor Shapiro recognizes
                that ``[REDACTED].'' Shapiro WDT at 39.
                ---------------------------------------------------------------------------
                i. De-Coupling of Contractual Per-Play and Percent-of Revenue Rates in
                Web IV
                 The contrasting attempts by Mr. Orszag and Professor Shapiro to
                follow the Web IV ``ratio equivalency'' faithfully derive from the
                particular
                [[Page 59495]]
                factual and economic circumstances in Web IV. In that proceeding,
                SoundExchange had not proposed a stand-alone per-play rate. Rather, it
                had proposed that the Judges adopt a ``greater-of'' rate structure, in
                which the statutory subscription royalty rate would be the greater of
                (1) $0.0025 per play and (2) 55% of service revenue. Web IV, 81 FR at
                26335. In support of that structure, SoundExchange, through its
                economic expert, Professor Daniel Rubinfeld, asserted, inter alia, that
                (1) ``the per-play prong provides a guaranteed revenue stream'' and (2)
                ``the percentage-of-revenue prong allows record companies to share in
                any substantial returns generated by a Service.'' Web IV, 81 FR at
                26324. Thus, SoundExchange proposed the per-play rate--not as a stand-
                alone value, but rather as a partial metric--one that it believed
                served as a ``guarantee''--a floor on the percent-of-revenue
                effectively paid as royalties.\124\
                ---------------------------------------------------------------------------
                 \124\ Professor Rubinfeld apparently relied on per-play
                royalties as input [B] in his ``ratio equivalency'' approach because
                the per-play prongs were the ones triggered in the market and his
                intention was to faithfully utilize actual market data.
                ---------------------------------------------------------------------------
                 As noted supra, in Web IV the Judges rejected the ``greater-of''
                structure and adopted a per-play rate structure. But, their decision
                was not unrelated to the valuation of the royalty payments as a
                function of revenue. Rather, the Judges adopted the per-play rate
                approach in reliance upon Professor Rubinfeld's testimony that his
                ``ratio equivalency'' methodology resulted in a per-play royalty
                payment ($0.0025) that approximated 55% of service revenue, which, as
                noted above, was SoundExchange's percent-of-revenue royalty proposal.
                Web IV, 81 FR at 26324 n.44, 26326. Thus, in Web IV the Judges
                understood that the per-play rate was not proposed as a purely
                independent measure of the value of an individual play, but rather as a
                metric that was also designed to approximate a minimum royalty rate of
                55% of revenue.
                 Importantly, when the Judges in Web IV de-coupled the percent-of-
                revenue and per-play rates, rejecting the former approach and adopting
                the latter, the Judges also eliminated the capacity of the per-play
                rate to serve its limited function as a form of ``guarantee.'' Thus,
                the royalty rate paid by noninteractive subscription services during
                the Web IV 2016-2020 rate period--as adjusted (for other reasons) by
                the Judges from $0.0025 to $0.0022 for 2016--did not correspond with
                any particular percent-of revenue floor. Rather, the effective percent-
                of-revenue paid as a royalty would vary with the level of
                noninteractive service revenue and quantity of plays.\125\
                ---------------------------------------------------------------------------
                 \125\ By contrast, if the Judges had adopted only a percent-of-
                revenue structure, the royalty paid by a noninteractive service
                obviously would have remained at that fixed percentage.
                ---------------------------------------------------------------------------
                 With Web IV having severed the link between percent-of-revenue and
                per-play rates, the attempts in this proceeding by Mr. Orszag and
                Professor Shapiro to adopt the Web IV ratio equivalency approach--in
                order to set a per-play rate derived from a percent-of-revenue rates--
                are problematic because, as in Web IV, the per-play rate is untethered
                to a percent-of revenue rate. Indeed, despite their best efforts,
                neither Mr. Orszag nor Professor Shapiro could synthesize what Web IV
                had (for good reason) torn asunder.
                ii. In the Benchmark (Interactive) Market, Per-Play Rates Were Paid in
                the Web IV Era; but in the Web V Era Percent-of Revenue Rates Are Now
                Paid
                 Whereas in Web IV the actual rate in the benchmark (interactive)
                market and the proposed target statutory rate were both per-play rates,
                in this Web V proceeding the actual benchmark rate is now most often a
                percent-of-revenue rate. Despite this important change in the benchmark
                (interactive) market, the parties agree that the statutory rate should
                remain a per-play rate.
                 Accordingly, the parties' criticisms not only miss the mark, they
                fail to illuminate the issue at hand. The Judges need to revisit the
                economic principles identified in Web IV that undergird the ratio
                equivalency approach in order to apply that formula to the present
                record.
                 The concept of ratio equivalency is based on the principle that
                record companies, as licensors, in a hypothetical unregulated world
                ``would want to make sure that the marginal return that they could get
                in each sector [interactive and noninteractive] would be equal, because
                if the marginal return was greater in the interactive space than the
                noninteractive . . . you would want to continue to pour resources,
                recordings in this case, into the [interactive] space until that
                marginal return was equivalent to the return in the noninteractive
                space.'' Web IV 81 FR at 26344. This is an example of ``a fundamental
                economic process of profit maximization,'' id., one that ``pervades
                much of [e]conomics: A rational seller or licensor will ``[a]llocate
                resources among alternative uses so as to keep the marginal returns
                equal, or as near equal as possible [because] if marginal products
                aren't equal, there's a gain to be had by reallocating some resources
                from the use with the lower marginal product and assigning them where
                the marginal product is higher.'' Armen A. Alchian & William R. Allen,
                Universal Economics at 102 (2018) (summarizing this principle as ``the
                equalization of marginals at the maximum aggregate return''). In the
                present case, this economic logic implies that rational profit-
                maximizing record companies will seek to earn the same return for each
                relevant ``unit'' of value across both the interactive and
                noninteractive markets.
                 In Web IV, the metric for the royalty rate was per play, i.e., each
                individual performance of a copy of a sound recording. However,
                downstream revenue is not generated on a per-play basis. Rather, in the
                case of streaming subscriptions, marginal revenue can be generated by
                incremental increases in the number of subscriptions.\126\ A record
                company would seek to avoid a scenario where it loses marginal royalty
                revenue on each subscription dollar if listeners who would otherwise
                have chosen to become interactive subscribers instead decide to become
                noninteractive subscribers. By equalizing the percent of revenue paid
                as royalties per subscription dollar, the rational record company is
                indifferent regarding to which of these two forms of music services a
                consumer decides to subscribe.\127\ (And, it should also be noted, on
                the cost (supply) side, a particular feature of copies of sound
                recordings is that their transmission does not generate a marginal
                physical production cost. See Phonorecords III Dissent, 84 FR at 1976
                (and citations therein)).\128\
                ---------------------------------------------------------------------------
                 \126\ Services could also hypothetically increase marginal
                revenue simply by raising subscription prices. There is no evidence
                in the record, though, indicating that services have the market
                power to increase subscription prices charged within various
                segments of the retail market.
                 \127\ Of course, concern for substitution is appropriate only if
                the two services are indeed substitutes among consumers. This
                important point is considered infra.
                 \128\ The Phonorecords III majority Determination does not
                conflict with this economic point.
                ---------------------------------------------------------------------------
                 This is the precise point on which Professor Rubinfeld relied and
                as to which the Judges in Web IV agreed. Thus, the actual economic
                concern in Web IV was setting rates based on a per-play rate that was a
                marketplace proxy for a minimum percent-of-revenue earned by an assumed
                substitute service, i.e., interactive services (approximately 55%),
                which generates marginal opportunity costs.\129\
                ---------------------------------------------------------------------------
                 \129\ To be clear, that concern is not the end of the story.
                Potential adjustments also need to be considered to reflect
                effective competition, differences in WTP for substitutes (for
                example, because of interactivity differences), and inconsistent
                definitions of a ``play'' between service types (the ``skips''
                issue).
                ---------------------------------------------------------------------------
                [[Page 59496]]
                 In the present case, SoundExchange makes this point repeatedly,
                citing to language in the Web IV Determination. See, e.g., id. at 26338
                (``[G]iven Dr. Rubinfeld's assumption that the ratios should be equal
                in both markets, the per-play royalty rate for noninteractive services
                [D] (i.e., the statutory rate) would also have to provide record
                companies with the same minimum percentage of revenue out of [C] (the
                average monthly retail noninteractive subscription price).'') (emphasis
                added); id. at 26344 (``Dr. Rubinfeld acknowledged that his `ratio
                equivalency' was intended to create a rate whereby every marginal
                increase in subscription revenue would result in the same increase in
                royalty revenue, whether that marginal increase in subscription
                occurred in the interactive market or the noninteractive market.'')
                (emphasis added); id. at 26324 n.44 (noting that Dr. Rubinfeld's ratio
                equivalency per-play methodology resulted in an interactive royalty
                payment generally ranging from 50% to 60% of subscription revenues,
                with most falling between 55% and 60%); id. at 26338 (the per-play
                rates relied upon by Dr. Rubinfeld implied these same express percent-
                of-revenue rates as set forth in the ``greater-of'' formulae in the
                interactive direct licenses). To buttress this point, SoundExchange
                notes that the Judges' restatement in SDARS III of the ``ratio
                equivalency'' model is consistent with the understanding that this
                approach is intended to equalize royalties as a percent of revenue. SX
                PFFCL 119 (citing SDARS III, 83 FR at 65243 n.137).
                 The Judges agree with SoundExchange's assertion in this regard.
                Accordingly, the Judges find that the Web IV ``ratio equivalency''
                approach was properly intended to approximate and equalize percent-of-
                revenue royalties for interactive and noninteractive subscriptions--on
                the assumption that interactive and noninteractive subscriptions were
                1:1 substitute products for consumers downstream. If and when such
                substitution exists, Mr. Orszag's ``ratio equivalency'' approach is the
                more appropriate methodology.
                 Nonetheless, based on the record in this proceeding, the Judges do
                not find good reason to apply Mr. Orszag's benchmark rate other than in
                a partial manner. That is, because the ``ratio equivalency'' approach
                is economically premised on a presumed high substitutability (cross-
                elasticity in economic parlance) between interactive and noninteractive
                subscriptions, this equivalency cannot be economically pertinent where,
                as here, the record presents the Judges with facts in conflict with
                that presumption.
                 Again, recall that in Web IV, the Judges stated: ``Dr. Rubinfeld's
                `ratio equivalency' assumes a 1:1 `opportunity cost' for record
                companies, whereby, on the margin, a dollar of revenue spent on a
                subscription to a noninteractive service is a lost opportunity for
                royalties from a dollar to be spent on a subscription to an interactive
                service.'' Web IV, 81 FR at 26344-45 (emphasis added). To make clear
                that the Web IV Judges found this 1:1 substitutability to be a
                presumption (and certainly not an axiom), they rejected SoundExchange's
                attempt to extend this 1:1 substitution argument to the ad-supported
                market in order to equalize royalties as a percent of revenues in that
                market with the percent applicable in the subscription interactive
                market. In rejecting this attempted extension of the 1:1
                substitutability presumption, the Judges took note of a sharp dichotomy
                in the willingness to pay (WTP) of listeners in each market. Web IV, 81
                FR at 26345-46, 26353.
                 However, the Judges did apply a 1:1 substitutability of
                subscription interactive services for subscription noninteractive
                services in Web IV and noted its limited application:
                 Dr. Rubinfeld's interactive benchmark is only applicable when,
                inter alia:
                 Revenues in both markets are derived from subscription revenues
                and are thus reflective of buyers with a positive WTP for streamed
                music; [and] functional convergence and downstream competition for
                potential listeners indicate a sufficiently high cross-elasticity of
                demand as between interactive and noninteractive services, provided
                the noninteractive subscription rate is reduced to reflect the
                absence of the added value of interactivity . . . .
                Web IV, 81 FR at 26353 (emphasis added). Applying these principles, Web
                IV held:
                 When the segment of the market at issue consists of willing
                buyers/licensees who are providing access through subscription-based
                listening to listeners who have a WTP for either interactive or
                noninteractive services that are close substitutes, then Dr.
                Rubinfeld's ``ratio equivalency'' is reasonably based on revenues.
                Web IV, 81 FR at 26348 (emphasis added).
                 These quoted portions of Web IV show that the Judges dichotomized
                between Dr. Rubinfeld's use of the ``ratio equivalency'' model by
                rejecting it for the ad-supported noninteractive services but applying
                it to subscription noninteractive services. But these quoted portions
                also demonstrate that the Judges applied a ``ratio equivalency'' across
                the benchmark and target subscription markets by presuming that
                subscribers' revealed positive WTP for both interactive and
                noninteractive services was sufficient to show the necessary cross-
                elasticity and, relatedly, that each product was a close substitute for
                the other (after making an adjustment for interactivity.\130\
                ---------------------------------------------------------------------------
                 \130\ Such an assumption was not unreasonable as there were no
                ``opportunity cost'' surveys such as in the present case indicating
                the extent of cross-elasticity or substitutability of interactive
                and noninteractive subscriptions. As discussed, infra, that
                evidentiary absence does not exist in the present proceeding. Also,
                in Web IV, the $0.0025 benchmark (adjusted to $0.0022) that presumed
                this 1:1 substitutability was consistent with Pandora's own proposed
                benchmark derived from its noninteractive market agreement with
                [REDACTED]. Web IV, 81 FR at 26405.
                ---------------------------------------------------------------------------
                 In the present proceeding, a consumer survey in evidence,
                commissioned by SoundExchange--the Zauberman Survey--provides relevant
                information regarding the question of whether and to what extent
                subscription interactive services are substitutes for subscription
                noninteractive services. As analyzed and applied by one of
                SoundExchange's other economic expert witnesses, Professor Willig, the
                Zauberman Survey indicates that only 11.5% of subscribers to
                noninteractive services would divert to listening to subscription
                interactive services if their noninteractive subscription service were
                no long available. See Willig WDT ] 47 fig.6.\131\ These survey results
                indicate there is far less than the 1:1 substitution ratio between
                subscription interactive services and subscription noninteractive
                services that was presumed in Web IV. This SoundExchange-proffered
                evidence indicates that Mr. Orszag's per-play rate--derived from his
                ratio equivalency approach--has only limited applicability.
                ---------------------------------------------------------------------------
                 \131\ The Hanssens Survey indicates, according to Professor
                Shapiro, that this diversion to new interactive subscriptions would
                be even smaller, measuring [REDACTED]%. Shapiro WDT at 28 tbl.5.
                This lower figure would not alter the weights assigned to the
                benchmarking and ratio-equivalency models.
                ---------------------------------------------------------------------------
                 Moreover, in Web IV and also in SDARS III, the Judges laid out this
                precise critique of a ratio equivalency approach proffered by Mr.
                Orszag, with the Judges also relying on survey evidence to make the
                point:
                 The survey results highlight a . . . criticism . . . of Mr.
                Orszag's ratio equivalency approaches. . . . [T]he economic
                rationale support[ing] a ratio equivalency approach requires
                `significant competition, or a high cross-elasticity of demand,
                between
                [[Page 59497]]
                [the target market] and [the benchmark market] . . . . [A] limited
                degree of head-to-head competition . . . will not suffice. . . .'
                Web IV, 81 FR at 26353 . . . .
                 In Web IV, the Judges stated that the ratio equivalency approach
                might be appropriate if the record reflected . . . a sufficiently
                high cross-elasticity of demand as between interactive and
                noninteractive services, provided the noninteractive subscription
                rate is reduced to reflect the absence of the added value of
                interactivity. . . . 81 FR at 26353.
                 In the present case, Mr. Orszag did not provide either
                qualitative or quantitative evidence of a sufficiently high cross-
                elasticity. . . . [T]he survey results reported by SoundExchange's
                own survey witnesses . . . indicated that there is no such high
                substitutability between subscribership to interactive services and
                [the target market.] These survey conclusions negate any complete or
                overwhelming ratio equivalency Mr. Orszag has posited.
                SDARS III, 83 FR at 65247 (emphasis added).\132\
                ---------------------------------------------------------------------------
                 \132\ The Judges are perplexed by SoundExchange's decision to
                propose a per-play rate as opposed to a percent-of-revenue rate. Mr.
                Orszag could have more simply applied his [REDACTED]% percent-of-
                revenue rate as the applicable benchmark rate (subject to any
                warranted adjustments). Further, the Judges note that the Majors and
                the services revealed their [REDACTED] in the interactive market--a
                market that is unregulated and [REDACTED] to the record companies
                than the noninteractive market. Compare Orszag WDT tbl.4 (2018 U.S.
                interactive subscription revenue was $[REDACTED]) with id. tbl.6
                (2018 U.S. subscription revenue for Mr. Orszag's noninteractive
                proxies (including Pandora) was $[REDACTED], [REDACTED]% of the
                interactive revenue). There is no reason provided in the record to
                explain why SoundExchange and Mr. Orszag would find practical issues
                relating to revenue definition--which were insufficient to reject a
                percent-of-revenue rate in the far larger and unregulated
                interactive market--to be so vexing in the noninteractive market as
                to necessitate the conversion of the benchmark percent-of-royalty
                rate into a statutory per-play rate.
                ---------------------------------------------------------------------------
                iii. The Judges' Application of Mr. Orszag's and Professor Shapiro's
                Models
                 In sum, Professor Shapiro's model is more of a traditional
                benchmarking model. He identifies the interactive market as similar in
                terms of licensors, licensees, and licensed works, and he proposes
                adjustments (discussed infra) that allegedly correct for differences
                between the otherwise analogous benchmark and target markets. On the
                other hand, Mr. Orszag's approach is essentially an ``opportunity
                cost'' model more than it is a traditional ``benchmark model.'' Because
                SoundExchange's survey evidence, as applied by Professor Willig,
                reveals the limited applicability of the opportunity cost approach, the
                model cannot be extended to the entire market.
                 Therefore, the Judges find it necessary to apportion the
                applications of Professor Shapiro's benchmark result and Mr. Orszag's
                benchmark result. The Judges find it reasonable to apportion 11.5% of
                Mr. Orszag's proposed benchmark rate toward the subscription benchmark
                rate.\133\ The Judges apply the remaining and greater weight, 88.5%
                (i.e., 1-.115), to the more traditional benchmark approach undertaken
                by Professor Shapiro that relies on the broad similarities in terms of
                rights, licensors, and licensees, without adding assumptions regarding
                substitution patterns between the target noninteractive subscription
                market and the benchmark interactive subscription market.
                ---------------------------------------------------------------------------
                 \133\ The Judges prefer Mr. Orszag's approach over Professor
                Shapiro's approach for the portion of the market in which the
                relevant cross-elasticity/substitutability is high. As the Judges
                noted in SDARS III, if and when the opportunity cost approach is
                appropriate, it can be superior to a benchmark approach in
                estimating the statutory rate. SDARS III, 81 FR at 65231 (``When
                properly weighted, the opportunity cost approach is tantamount to a
                useful benchmark, because the weightings are quite analogous to (and
                more precise than) the `adjustments' the Judges consistently make to
                proposed benchmarks.'') (emphasis added).
                ---------------------------------------------------------------------------
                 The Judges will apply these apportionments to each expert's
                proposed rate after the Judges consider the more granular criticisms of
                each expert's approach and the proposed adjustments to those rates.
                iv. The Parties' Granular Criticisms of Their Adversary's Subscription
                Benchmarking
                 Having resolved the differences between Mr. Orszag and Professor
                Shapiro regarding the overarching issue of how to apply ratio
                equivalency and benchmarking principles, the Judges now turn to the
                detailed critiques of each approach.
                (A) SoundExchange's Granular Criticisms of Professor Shapiro's
                Benchmarking and the Judges' Analysis and Findings Regarding Those
                Criticisms
                (1) Professor Shapiro's Inclusion of Discount Plan Royalties and Play
                Counts in Calculating a Value for [B], the Effective Per-Play Royalty
                in the Benchmark (Interactive) Market
                 SoundExchange criticizes Professor Shapiro for including the
                royalties and play counts associated with interactive services'
                discount plans in order to calculate the value of [B] in his
                benchmarking model. More precisely, Professor Shapiro calculates an
                effective interactive (benchmark) per-play royalty rate [B] by
                including in his numerator the total royalties paid and, in his
                denominator, the play counts--not only for the interactive services'
                full-price ($9.99) subscription plans but also for discount plans, such
                as student, family, and military plans. 8/19/20 Tr. 2931 (Shapiro);
                Shapiro WDT, app. D.1.B n.7.
                 According to Mr. Orszag, this has the effect of lowering the
                effective per-play rates in the benchmark market and therefore the
                proposed rates for the target market. To make this point, he compares
                his calculation of the weighted average subscription per-play rate
                excluding discount plans--$[REDACTED] per play--with Professor
                Shapiro's effective per-play rate for the same services including
                discount plans--$[REDACTED] per play. Trial Ex. 5603 ] 88 (WRT of Jon
                Orszag) (Orszag WRT).
                 In response, Professor Shapiro asserts that it would be
                inappropriate to hand-pick a subset of the market (i.e., just the full-
                price plans) in order to generate the per-play rate because the
                statutory rate will apply to royalties generated by all subscribers
                regardless of whether they subscribe to a full-price or discounted
                plan. 8/19/20 Tr. 2852-53, 2898-99 (Shapiro).
                 The Judges agree with Professor Shapiro that the identification of
                a per-play benchmark rate in his model for subscription services should
                be based on the royalties and play counts of all plans. There is no
                valid reason to cherry-pick among the plans when calculating this
                benchmark input because all noninteractive services offering
                subscription plans will pay the calculated per-play royalty across all
                plans, whether full price or discounted.\134\
                ---------------------------------------------------------------------------
                 \134\ Mr. Orszag claims that interactive discount plans should
                be ignored because [REDACTED] engages in much less discounting. He
                claims that this difference requires the Judges to look only at
                full-price plans in order to make an ``apple-to-apples'' comparison.
                SX RPFFCL (to Pandora/Sirius XM) ] 186 (citing 8/11/20 Tr. 1215
                (Orszag)). But, Pandora analogizes to another food group
                (characterizing this point as a ``red herring''), namely one that is
                unresponsive to the need to consider that all noninteractive
                subscription services will pay the statutory per play rate,
                regardless of whether they engage in discounting. Pandora/Sirius XM
                PFFCL ] 186 (citing 8/19/20 Tr. 2852-53 (Shapiro)). The Judges
                disagree with SoundExchange's reliance on the different degrees of
                discounting. Discount plans are forms of price discrimination,
                designed to increase overall revenue. There is no reason why the
                manner in which different services generate revenue should affect
                the calculation of per play rates in this benchmarking exercise,
                unless the Judges were asked by the parties to consider setting
                different royalty rates for full-price and discount subscription
                plans (which no party has requested).
                ---------------------------------------------------------------------------
                (2) Professor Shapiro's Use of Full Subscription Prices Rather Than
                Average Revenue per User (ARPU) for the Values of [A] and [C]
                 SoundExchange also criticizes Professor Shapiro's inputs for the
                values for [A] and [C] in his benchmarking model, which represent the
                monthly
                [[Page 59498]]
                downstream retail price of the interactive benchmark subscriptions and
                the proxies for the noninteractive services, respectively. 8/19/20 Tr.
                2936-37 (Shapiro). SoundExchange asserts that Professor Shapiro should
                have used the Average Revenue per User (ARPU) for these values (which
                would have incorporated any lower discounted retail prices) rather than
                the full retail subscription prices for [A] and [C], which were $9.99
                and $4.99, respectively. For the first time in this proceeding, at the
                hearing, SoundExchange, through Mr. Orszag, sought to raise a concern
                that Professor Shapiro's use of retail prices rather than ARPU for [A]
                and [C] is improper. He maintained that because Professor Shapiro used
                all plans, including discounted plans, to calculate the effective per-
                play rate ([B]), as described above, while neglecting the discount
                plans' ARPU when providing values for [A] and [C], Professor Shapiro's
                model ``[REDACTED].'' 8/11/20 Tr. 1387-88 (Orszag).\135\ In Mr.
                Orszag's opinion, because Professor Shapiro calculates effective per-
                play royalty rates in a manner that includes all plans (including
                discount plans), he likewise should have based the interactivity
                adjustment on the effective payment for all plans, including discount
                plans. 8/10/20 Tr. 1164-67 (Orszag).
                ---------------------------------------------------------------------------
                 \135\ As noted supra, the first of Professor Shapiro's proposed
                two-part interactivity adjustment is implicit in the ratio
                equivalency approach and, for presentation purposes, is more
                naturally considered as an element of the modeling rather than as a
                stand-alone adjustment.
                ---------------------------------------------------------------------------
                 Further to this argument, SoundExchange notes that Professor
                Shapiro acknowledges that identifying what customers actually pay on a
                per-subscriber basis is preferable to relying on an undiscounted price
                that is paid by many, but not all, of the subscribers. SX PFFCL ] 136
                (citing 8/19/20 Tr. 2939 (Shapiro)). In addition, SoundExchange
                explains that, although the use of discount plans is a form of price
                discrimination, Professor Shapiro concededly did not build this price
                [REDACTED] only on the full prices for subscriptions as his values for
                [A] and [C]. SX PFFCL ] 137 (citing 8/19/20 Tr. 2958-59 (Shapiro)).
                 SoundExchange then uses its post-hearing PFFCL submissions to set
                forth its proposed new analysis, in which it suggests several different
                potential ARPU levels that could be used to substitute for [A], the
                retail price paid in the benchmark interactive market. See SX PFFCL ]]
                139-140 (and references cited therein).
                 However, the Services emphasize that none of SoundExchange's
                witnesses raised an objection in their written rebuttal testimonies to
                Professor Shapiro's use of retail prices as the metric for [A] and [C]
                in any of the witnesses. The Services further aver that no witness at
                the hearing proffered alternative ARPU calculations for use as values
                for [A] and [C]. See Pandora/Sirius XM PFFCL ] 191. Moreover, the
                Services note that this issue has already been resolved at the hearing,
                when a proffer by SoundExchange of testimony from Mr. Orszag was met
                with a motion by the Services to bar such testimony. At the hearing,
                after extended argument and colloquy, 8/25/20 Tr. 3821-28 (argument and
                colloquy), the Judges sustained the Services' objections to the
                presentation by Mr. Orszag of his belated attempt to raise this issue
                and attempt to utilize ARPU data for the first time from the witness
                stand in an attempt to support that new analysis because such 11th-hour
                testimony and data review would constitute delinquent and thus improper
                ``new analysis.'' 8/25/20 Tr. 3821-28 (Chief Judge Feder) (``[T]his is
                a new analysis. The objection is sustained.'').
                 Moreover, the Services note that contrary rebuttal arguments were
                certainly available for them to raise, if SoundExchange had advanced
                this assertion in a timely fashion. First, they take note that there is
                no established manner by which the industry calculates ARPU for
                discount plans. As Professor Shapiro and Mr. Orszag both testify, there
                is no uniform method employed by the various services for making that
                calculation, and SoundExchange has provided no evidence to the
                contrary. 8/19/20 Tr. 2943-44 (Shapiro); 8/11/20 Tr. 1199-1200 (Orszag)
                (conceding that ``there are some differences between how [the Majors]''
                account for family plans in their ARPU calculations). Second, they note
                that the several discount-based ARPU ratios [A]:[C] suggested by
                SoundExchange as supporting Mr. Orszag's unadmitted ``new analysis''
                are themselves contradicted by the ARPU-based ratio for Pandora's own
                interactive ``Premium'' service and its Pandora Plus service. 8/19/20
                Tr. 2853-54, 2855-56 (Shapiro).
                 Additionally, Professor Shapiro opines that his reliance on the
                ratios of full price retail subscriptions to effective per-play rates
                is a cleaner method to isolate the value of interactivity, and an
                inclusion of discount plans would inject confounding issues relating to
                the bundling of use by family plan members. 8/26/20 Tr. 3932 (Shapiro)
                (distinguishing (1) his use of royalties and plays from all plans as
                identifying an effective per-play rate to cover all plays from all
                plans from (2) the attempt to measure the ``value of interactivity,
                that's $9.99 versus $4.99, nicely isolated for particular individual
                undiscounted plans''); see also Pandora/Sirius XM PFFCL ] 190.
                 The Judges find that SoundExchange cannot resurrect this belated
                argument in its post-hearing submissions, through counsel, after the
                Judges had already ruled that the issue had been delinquent when
                presented for the first time at the hearing. Moreover, SoundExchange
                has not presented any argument in its post-hearing submissions to
                suggest that the Judges should revisit their decision. Indeed, the
                dispositive effect of SoundExchange's delinquency in making this
                argument remains manifest; having had no timely and proper notice of
                this argument, the Services and their witnesses had no ability to
                prepare a contrary argument.
                 Additionally, as the Judges note supra, the Services have
                identified specific rejoinders to Mr. Orszag's ``new analysis,'' which
                could not be explored thoroughly because SoundExchange did not raise
                this issue in a timely manner. Further, the Judges note that Professor
                Shapiro's reliance on the use of undiscounted retail prices as his
                values for [A] and [C] was consistent with the Judges' formulation of
                the ratio equivalency approach in Web IV.
                 For these reasons, the Judges do not give any weight to
                SoundExchange's arguments in this regard.\136\
                ---------------------------------------------------------------------------
                 \136\ To be clear, the Judges are not making any substantive
                finding regarding how they would rule if a timely argument were to
                be made in a subsequent proceeding regarding the merits of using
                ARPU values for numerators [A] and/or [C].
                ---------------------------------------------------------------------------
                (3) Professor Shapiro's Generation of a Per-Play Rate in the Benchmark
                Market
                 SoundExchange also asserts that Professor Shapiro's generation of
                an effective per-play rate in the benchmark interactive market ``is
                inconsistent with market reality.'' SX PFFCL ] 112. This is an odd
                critique, in that Mr. Orszag and SoundExchange are themselves proposing
                a per-play rate structure, the very approach it claims to be at odds
                with ``market reality.'' See Services RPFFCL ] 112 (``If the . . .
                shift from interactive services paying under per-play metric to a
                percentage-of-revenue metric really had . . . market-wide relevance . .
                . one would have expected [Mr. Orszag] to propose a percentage-of-
                revenue rate for statutory purposes.''). Further, because both
                SoundExchange and Pandora propose a per-play rate generated from a non-
                per-play benchmark, a conversion to a per-play rate must occur at some
                point in the analysis, and SoundExchange does not
                [[Page 59499]]
                adequately explain why making this conversion in the benchmark market
                (early in the analysis) is any more in accord with ``market reality''
                than engaging in the conversion in the target noninteractive market as
                a final step. Indeed, as noted at the outset of the Judges'
                presentation of SoundExchange's critique of Professor Shapiro's
                benchmark, they explicitly assert only that his setting of a per-play
                rate in the benchmark market is neither necessary nor mandatory--not
                that it was improper. See supra, section IV.B.1.d.
                (B) The Services' Criticisms of Mr. Orszag's Benchmarking and the
                Judges' Analysis and Findings Regarding Those Criticisms
                (1) SoundExchange's Reliance on Pandora's Data
                 The Services criticize Mr. Orszag for relying only on Pandora's
                revenue and play counts in his ratio equivalency approach. Services
                PFFCL ] 29 (and record citations therein). However, SoundExchange
                responds by noting that Pandora Plus has an [REDACTED]%+ market share,
                making it a highly suitable data source. Further to this point,
                SoundExchange notes that, when appropriate, the Judges have relied in
                past proceedings on facts and data attributable to entities with
                significant market share. SX RPFFCL (to Services) ] 29.
                 The Judges find the Services' criticism to be without merit. Mr.
                Orszag acted reasonably and in a manner consistent with the Judges'
                past reliance upon data from a significant industry participant.
                Moreover, as the Judges have said on several other occasions, the
                statutory rate-setting process does not instruct the Judges to protect
                any particular business model. Thus, Mr. Orszag's decision to rely on
                data from the largest noninteractive service with arguably the most
                successful business model (in terms of market share) can hardly be
                considered improper.
                (2) Mr. Orszag's Model Will Not Generate a Royalty Equal to [REDACTED]%
                of Revenue Across Noninteractive Services
                 The Services also object to Mr. Orszag's approach because his
                model's per-play royalty rate will not equate with [REDACTED]% of any
                noninteractive service's revenue (including Pandora) unless, by
                coincidence, it has revenues and a play count that generate that
                effective percentage royalty level. Accordingly, the Services maintain
                that Mr. Orszag's approach cannot even generate its ``foundational
                premise'' of ``ratio equivalency,'' whereby noninteractive services pay
                the same percentage of revenue rate as paid by interactive services in
                the benchmark market. Shapiro WRT at 28; 8/19/20 Tr. 2893-95 (Shapiro).
                Relatedly, the Services claim that Mr. Orszag fails to identify revenue
                and play counts for any existing statutory service, and for this reason
                as well he thus had not analyzed whether any such service would in fact
                pay [REDACTED]% of its revenues in royalties if it paid $0.0033 per
                performance. Services PFFCL ] 174.
                 The first criticism is correct but uninformative. It is but a
                specific example of a more general criticism: Any rate or rate
                structure set by the Judges can (and likely will) affect different
                regulated entities somewhat differently and also be rendered inaccurate
                or obsolete during the five-year rate term by changes in the
                marketplace. This is closely analogous to the well-known concept of
                ``regulatory lag'' in public utility regulation. See Alfred E. Kahn, 1
                The Economics of Regulation 54 (1970) (``regulatory lag'' results from
                the fixing of a rate for a period of time and the inability of
                regulated companies to maintain rates of return that were deemed
                satisfactory at the inception of the rate period'').
                 The second criticism is also off-target. As SoundExchange states by
                way of response, Pandora's subscription service indeed would pay
                essentially [REDACTED]% of its revenue as royalties pursuant to Mr.
                Orszag's proposed per-play rate (because [REDACTED]), and Mr. Orszag
                multiplied his proxy revenues by his [REDACTED]% benchmark royalty rate
                and then divided by the number of noninteractive proxy plays) SX RPFFCL
                (to Services) ] 174. While it is true that Pandora Plus is not a
                statutory service, the parties (including Pandora) have used it as a
                proxy for such services in this proceeding, subject to adjustments for,
                inter alia, differences in interactivity, if appropriate.\137\ Thus,
                the appropriate response by the Services is not to urge the Judges to
                reject outright this proxy-based analysis, but rather to: (1) Propose
                proper adjustments that would purportedly align the benchmark proxies
                to the statutory market; and/or (2) propose alternative benchmarks
                (which the Services have done).
                ---------------------------------------------------------------------------
                 \137\ Further, if the Services wanted to avoid a per play rate
                that would generate different effective percent-of-revenue royalty
                rates for different entities, it could have proposed a percent-of-
                revenue rate, either in its direct case or as a rebuttal to Mr.
                Orszag's benchmark per play rate proposal. Instead, the Services,
                like SoundExchange, propose only a per-play rate, that will also
                necessarily generate different effective percent-of-revenue royalty
                rates for different noninteractive services, depending upon their
                revenues and play counts. Also, as discussed infra with regard to
                Professor Shapiro's proposed additional (second) interactivity
                adjustment, the record evidence does not demonstrate that the
                Pandora Plus mid-tier service, priced at $4.99, is more valuable
                downstream than a statutorily-compliant noninteractive service,
                making Mr. Orszag's use of mid-tier services, Pandora Plus, iHeart
                and Napster (Rhapsody), as proxies for revenue and play count-
                purposes a reasonable modeling choice. See Orszag WDT ]] 176-179.
                ---------------------------------------------------------------------------
                (3) Mr. Orszag Fails To Identify a Per-Play Rate That Adequately
                Captures the Value of Individual Plays
                 Next, the Services assert that Mr. Orszag's reliance on a percent-
                of-revenue centric benchmarking approach fails to adequately capture a
                value attributable to each play of the sound recording, which is the
                metric he proposes. Shapiro WDT ] 47. The Judges reject this criticism.
                A fundamental rationale for Mr. Orszag's modeling approach, as the
                Judges discussed above, is that the value to be generated in this
                market for ``second copies'' of sound recordings lies not in the
                recordings of songs whose marginal (non-opportunity) cost is zero and
                whose marginal revenue is non-existent (because listeners do not pay
                per song as with a juke box), but rather in the revenue derived from
                subscribers (and advertisers in the ad-supported market). Thus, there
                is no economic ``value'' inherent in the ``second copies'' of the sound
                recordings from a marginalist perspective. Of course, there is
                tremendous value in the sound recordings themselves, in terms of the
                costs of artist discovery, development, recording and promotion, and--
                not to be deemphasized--the entrepreneurial profit generated by
                creating value through the assembly of such inputs. The record
                companies recoup those costs, avoid opportunity costs and generate
                profits by percent-of-revenue royalty pricing.
                 Thus, the Services' criticism of the fact that Mr. Orszag's
                approach does not capture some hypothetical inherent value of a sound
                recording is a red herring. Cf. Phonorecords III, 84 FR at 1931 n.64,
                1946 n.110 (explaining why the existence of different pricing regimes
                for the same music demonstrates the absence of an ``inherent value'' in
                copies of musical works, notwithstanding the significant ``first copy''
                value of musical works).
                (4) Mr. Orszag's Rate Is Far Above the Present Statutory Rate
                 The Services note that Mr. Orszag's $0.0033 proposed benchmark rate
                is
                [[Page 59500]]
                almost 50% above the statutory rate the Judges set in Web IV
                (originally $0.0022, now $0.0023 as adjusted for inflation)--using the
                same benchmarking approach Mr. Orszag claims to be following now. This
                substantial divergence is anomalous, according to the Services, and
                serves as a ``red flag'' that Mr. Orszag's methodology departs
                significantly from Web IV. See 8/19/20 Tr. 2896-97 (Shapiro).
                 The Judges find this criticism wholly unpersuasive. Each rate case
                is a de novo proceeding, based upon the contemporaneous circumstances
                in the relevant markets (benchmark and target) as demonstrated by the
                record evidence. Cf. Phonorecords III, 84 FR at 1944 (``The statute is
                plain in its requirement that the rates be established de novo each
                rate period''). There is no a priori reason why the rate in Web V
                should bear any particular relationship to the rate in Web IV.
                Moreover, this assertion appears self-serving because, as SoundExchange
                notes, Professor Shapiro advocates for a subscription royalty rate
                between $0.0005 and $0.0016, far below the current Web IV rate. Shapiro
                WDT at 2.
                (5) Mr. Orszag's Proposed $0.0033 Per-Play Rate [REDACTED] Than the
                Effective Rate Paid by His Mid-Tier Proxies
                 Next, the Services assert that Mr. Orszag's use of the three mid-
                tier proxies to generate his $[REDACTED] per-play rate [REDACTED] than
                the $[REDACTED] effective per-play rate actually paid by mid-tier
                services under the applicable percent-of-revenue rate. Shapiro WDT at
                37-39 & tbl.9; 8/12/20 Tr. 1564-65 (Orszag); Orszag WDT ]] 84-85; 8/13/
                20 Tr. 1958-59 (Orszag).
                 The Judges find this argument unpersuasive. For the Judges to make
                a meaningful comparison of Mr. Orszag's proposed rate and the effective
                rates paid by mid-tier services, they would need evidence that sheds
                light on how those effective rates had been calculated from the actual
                percent-of-revenue rates (or other rate tiers) applicable to those mid-
                tier services. The Judges find that the record does not provide a basis
                to make such an examination.
                (6) Mr. Orszag's Benchmark Interactive Rates [REDACTED] but He Proposes
                an Increase in the Statutory Noninteractive Rate
                 The Services criticize Mr. Orszag for--on the one hand--noting that
                benchmark interactive rates [REDACTED] while--on the other hand--
                calling for a significant increase in the noninteractive subscription
                royalty rate. But the Judges find that this reveals no ipso facto
                inconsistency. Factors particular to the noninteractive market could
                cause the rate in that market to increase and converge with the
                subscription interactive rate, which could be falling. Additionally,
                SoundExchange notes that the operative marketplace metric in the
                benchmark interactive market changed from the per-play metric to the
                percent-of-revenue measure from the Web IV to the Web V period.\138\
                Thus, Mr. Orszag (who was not a witness in Web IV) has relied on new,
                contemporaneous material to generate his opinion regarding changes in
                the market. The Judges find that the deviation between his proposed
                rate arising from his expert analysis, and the prior rate, does not
                raise a concern.
                ---------------------------------------------------------------------------
                 \138\ The Judges discuss the significance of that change supra,
                section IV.B.1.e.ii.
                ---------------------------------------------------------------------------
                (7) Mr. Orszag's Exclusion of Revenues and Royalties From Discount
                Plans in His Calculation of Inputs [A] and [B] in His Ratio Equivalency
                Model
                 The Services assert that Mr. Orszag errs in excluding discount
                plans from his ratio equivalency model. SoundExchange responds by
                noting that the interactive services--Spotify in particular--engage in
                [REDACTED] discounting/price discrimination than the noninteractive
                services (or [REDACTED] in the model), such that including discount
                plans would fail to generate an apples-to-apples comparison. Orszag WRT
                ]] 83, 87; 8/11/20 Tr. 1215 (Orszag).
                 This is essentially the reciprocal of SoundExchange's criticism of
                Professor Shapiro's inclusion of discount plans in calculating [B], his
                percent-of-revenue rate in the benchmark market (en route to a per-play
                rate in that market). Here, the Judges find no sufficient reason for
                Mr. Orszag's exclusion of discount plan royalty and revenue data from
                his calculation of [A] (his total revenue input) and [B] (his total
                royalty input (en route to his percent-of-revenue rate in the benchmark
                market). As the Judges explained in connection with the reciprocal
                argument pertaining to Professor Shapiro's inclusion of such data,
                because the statutory rate will apply to all plays across all plans the
                per-play rate should be derived from data across all plans.
                 But SoundExchange makes a point that at first blush is anomalous:
                It notes that, had Mr. Orszag included discounted plans in his
                analysis, the [REDACTED]% percent-of-revenue rate he calculates would
                have increased to [REDACTED]%, Orszag WRT ] 89 n.198.\139\ This has the
                effect, Mr. Orszag notes, of increasing the royalty rate in his
                benchmark interactive market from $0.0033 to $0.0035. Orszag WRT ] 89 &
                n.198; see also SX PFFCL ]] 95-96. Moreover, the Services expressly do
                not dispute that their criticism in this regard causes Mr. Orszag's
                benchmark rate to increase. See Services RPFFCL ]] 95-96.
                ---------------------------------------------------------------------------
                 \139\ Because the percent-of-revenue rate is [REDACTED]%, the
                [REDACTED]% rate which is inclusive of discount plans necessarily
                includes royalties that were paid on other prongs in the [REDACTED]
                in Spotify's license agreement. In fact, Mr. Orszag's calculation of
                a [REDACTED]% ``undiscounted plan'' royalty rate (rather than
                exactly [REDACTED]%) likewise suggests that Spotify paid [REDACTED].
                ---------------------------------------------------------------------------
                 So, why did SoundExchange decline to include the discounted plans
                in its analysis? As noted above, Mr. Orszag claims that he ignored
                discount plan data because the target mid-tier [REDACTED] service has
                far fewer discount subscribers, and he wants to make an apples-to-
                apples comparison. But the clear appropriateness of including discount
                plan data, together with the fact that including such data would have
                been significantly in SoundExchange's interest, makes its decision to
                exclude discount plan data something of a mystery, to say the least.
                 To wrap this mystery in an enigma, the Services continue their own
                apparent self-destructive argument, asserting that (1) the
                noninteractive market indeed offers a wide array of subscription plan
                discounts, including in particular SiriusXM's internet service, and (2)
                in any event, no economic principle supports Mr. Orszag's requirement
                of this particular apples-to-apples approach. See Services RPFFCL ]]
                93-94. Perplexingly (at least initially), SoundExchange still declines
                to forego this argument and declare victory, and simply accept the
                higher [REDACTED]% rate arising from the Services' criticism.\140\
                Likewise, the Services refuse to ``let sleeping dogs lie'' and stop
                arguing against themselves for an analysis that generates a rate of
                [REDACTED]%--which is [REDACTED]% above [REDACTED]%.
                ---------------------------------------------------------------------------
                 \140\ The difference between these rates is certainly not de
                minimis. SoundExchange argues, for example, that the [REDACTED] paid
                by Spotify to the Majors in their most recent contracts, from
                [REDACTED]% to [REDACTED]%, reflects [REDACTED] in the competitive
                nature of the upstream interactive market.
                ---------------------------------------------------------------------------
                 One may reasonably inquire: What is going on here? \141\ Why the
                facial
                [[Page 59501]]
                anomaly of SoundExchange advocating for the lower [REDACTED]% of
                revenue rate and the Services arguing for the higher [REDACTED]%? The
                answer appears to lie in the fact that, under Professor Shapiro's
                approach, the higher royalty total in the benchmark market must be
                divided by the number of plays by subscribers. When Spotify's discount
                plans are included, the percentage increase in the total number of
                plays (the denominator) [REDACTED] than the percentage increase in
                royalties (the numerator). It appears to the Judges that Mr. Orszag and
                SoundExchange were willing to sacrifice applying the [REDACTED]% of
                revenue percentage that would have increased their proposed per-play
                rate to $0.0035, in order to avoid relying on discount plans whose
                inclusion would bolster Professor Shapiro's model that includes
                discount plan play counts which thus decreases the per-play rate in the
                benchmark market. Conversely, Professor Shapiro and the Services were
                willing to acknowledge that if Mr. Orszag had included discount plans
                in his model, and the Judges fully applied his approach, they risked a
                higher statutory rate of $0.0035 per play. But the Services were
                apparently willing to take that risk, in order to bolster their general
                position that discount plan data be included, a position that, if
                adopted by the Judges, would add evidentiary weight to Professor
                Shapiro's model. In sum, it seems to the Judges that a good dose of
                game theory motivated the litigation strategy of the parties.
                ---------------------------------------------------------------------------
                 \141\ See John Kay & Mervyn King, Radical Uncertainty at 10
                (2020) (Two prominent economists, John Kay and Mervyn King, note:
                ``The question `What is going on here?' sounds banal, but it is not.
                . . . [R]epeatedly . . . people immersed in technicalities . . .
                have failed to stand back and ask, `What is going on here?''')
                ---------------------------------------------------------------------------
                 As discussed supra in connection with Professor Shapiro's
                benchmark, the Judges find that all revenues, royalties and plays,
                regardless of whether they are generated via discounted or undiscounted
                plans, must be included in the benchmarking analyses. That means Mr.
                Orszag's benchmark of $0.0033 in fact should be increased to $0.0035
                when all discounted revenues, royalties and plays are included.\142\
                Likewise, that means that Professor Shapiro's benchmark (interactive)
                effective per-play rate likewise properly considers all revenues,
                royalties and plays in that market. See Pandora/Sirius XM PFFCL ] 186
                n.19 (``The effective per-play rate for all plans, as calculated by
                Professor Shapiro ($[REDACTED]), is [REDACTED] than the per-play rate
                for solely full-priced plans ($[REDACTED]).'').\143\
                ---------------------------------------------------------------------------
                 \142\ The Judges could leave Mr. Orszag's proposed rate at
                $0.0033 per play, because he never revised his opinion to propose
                such a rate. However, the Judges take note that (as stated supra)
                the Services do not dispute the fact that including discount plans
                raise the per-play rate in Mr. Orszag's modeling to $0.0035.
                Further, because the Judges are including discounted plan data in
                Professor Shapiro's modeling in that it makes economic sense to do
                so, the Judges find it is their obligation under the section 114
                rate setting standard to utilize consistent economic analysis when
                evaluating Mr. Orszag's proposed rate model and resultant rates,
                when, as here, there is an evidentiary record to support such
                consistency.
                 \143\ These per-play differences indicate the monetary impact of
                SoundExchange's exclusion of discount plans, even though they
                increased Mr. Orszag's proposed statutory rate from $0.0033 to
                $0.0035. That is an increase of 6.1%. However, if discount plans
                were likewise excluded from Professor Shapiro's analysis, his
                effective per-play rate would be reduced from $[REDACTED] to
                $[REDACTED], a decrease of [REDACTED]%. These per-play differences
                likewise explain why the Services wanted to include discount plans,
                because that inclusion (compared to full price plans only) reduced
                Professor Shapiro's benchmark rate [REDACTED] Mr. Orszag's benchmark
                rate. Assuming quite reasonably that neither SoundExchange nor the
                Services could predict with any certainty which of the two benchmark
                approaches the Judges were more likely to adopt (if either), or in
                what proportions, it made rational sense for them to make their best
                prediction of the outcome and then choose the approach to the
                discount plan inclusion/exclusion issue based on which position
                maximized their litigation return. If that is not what they did,
                then the Judges are left with the absurdity of both parties arguing
                against their interests, even after the issue had been joined in the
                proceeding.
                ---------------------------------------------------------------------------
                v. Explicit Adjustments to the Subscription Benchmarks of Professor
                Shapiro and Mr. Orszag
                 Having considered the structures of the benchmarking and ratio
                equivalency models of Mr. Orszag and Professor Shapiro, and having
                considered the granular criticism of their respective applications of
                their models, the Judges now turn their attention to the choices made
                by these experts regarding whether to apply any additional, explicit
                adjustments to the subscription rates they derive from their models.
                And, if the Judges find that any additional adjustments are warranted,
                they determine the size of any such adjustment.
                (A) Professor Shapiro's Proposed Second Interactivity Adjustment
                 Professor Shapiro's first interactivity adjustment is discussed
                supra, as it is part and parcel of his ratio equivalency model. But
                Professor Shapiro also proposes a second additional (i.e., cumulative)
                interactivity adjustment, to be added on to his first interactivity
                adjustment.
                 According to Professor Shapiro, his first interactivity adjustment,
                while necessary, is not sufficient. The insufficiency arises, he
                asserts, because the mid-tier services that he utilizes to identify a
                retail price ([C] in his model) are not statutory noninteractive
                services. Rather, as mid-tier subscription services, they offer limited
                interactivity, at a full retail price of $4.99 per month. Shapiro WDT
                at 37-38, tbl.9; 8/19/20 Tr. 2828 (Shapiro). Thus, Professor Shapiro
                proposes an additional second ``interactivity adjustment, which he
                avers is necessary to fully adjust for the difference between the value
                of a fully interactive service ([A] in his model) and a statutorily-
                compliant noninteractive service.
                 In support of this further adjustment, Pandora asserts that the
                general purpose for making an ``interactivity adjustment'' is to
                reflect the incremental downstream market value generated by
                interactive functionality. Pandora/Sirius XM PFFCL ] 188 (citing
                Shapiro WDT at 38-39, 42; 8/12/20 Tr. 1505-10 (Orszag). Professor
                Shapiro claims that his first interactivity adjustment follows the Web
                IV approach by identifying the ratio of: (1) Subscription retail prices
                for his selected interactive services (identified above) to (2)
                subscription retail prices for his selected target market, the mid-tier
                services (also identified above). Shapiro WDT at 37-38 & tbl.9; 8/19/20
                Tr. 2828 (Shapiro); see also Web IV, 81 FR at 26348. The average
                monthly full subscription price of the interactive services he reviewed
                was $9.99. The average monthly subscription price of the mid-tier
                services he reviewed was $4.99. Thus, the ratio of [A]:[C] is 2:1.
                Shapiro WDT at 37-39; 8/19/20 Tr. 2828 (Shapiro).
                 But because that first (implicit) interactivity adjustment
                measures--at the retail level ([A]/[C])--the difference in the value of
                interactivity to consumers between a fully interactive service and a
                partially interactive (mid-tier) service, Professor Shapiro asserts
                that a second interactivity adjustment is necessary--to measure the
                value of the further difference between mid-tier level interactivity
                and a noninteractive (statutory) service. Shapiro WDT at 38-39; 8/19/20
                Tr. 2830-33 (Shapiro).
                 However, unlike with his first interactivity adjustment, Professor
                Shapiro does not measure the difference in value by identifying a
                difference in the downstream market between the (unregulated) retail
                values of: (1) The mid-tier limited interactive subscription services
                and (2) a measure of statutorily-compliant noninteractive subscription
                services. Instead, Professor Shapiro examines the upstream market,
                comparing: (1) The effective per-performance royalty paid by consumers
                for his selected mid-tier subscription services, $[REDACTED]; to (2)
                the 2019 statutory royalty for noninteractive services, $0.0023, which
                was the most recent inflation-adjusted rate established by Web IV.
                Shapiro WDT at 37-39 & tbl.9. According to Professor Shapiro, using
                this upstream royalty
                [[Page 59502]]
                differential is actually more direct than using the downstream retail
                price differential as a proxy for upstream value, because the purpose
                of the analysis is to determine the value of interactivity within the
                licensed rights in the upstream market. 8/19/20 Tr. 2830-32 (Shapiro).
                Thus, Professor Shapiro's additional interactivity analysis results in
                a further adjustment, reducing his proposed statutory royalty (before
                any additional adjustments) by an additional [REDACTED]%. Shapiro WDT
                at 39.\144\
                ---------------------------------------------------------------------------
                 \144\ $[REDACTED]-$[REDACTED] = [REDACTED]. This royalty
                difference, in percentage terms, is [REDACTED]% (rounded), i.e.,
                $[REDACTED]/$[REDACTED]. Professor Shapiro expresses this royalty
                difference, equivalently, as the ratio of $[REDACTED] / $[REDACTED]
                = [REDACTED]:1 ([REDACTED] / [REDACTED] = [REDACTED] (rounded), and
                [REDACTED]-[REDACTED] = [REDACTED], or [REDACTED]%).
                ---------------------------------------------------------------------------
                 Professor Shapiro further asserts that this second interactivity
                adjustment is consistent with the express language in Web IV. There,
                the Judges relied on the ``ratio equivalency'' argument proffered by
                SoundExchange's economic expert, Professor Rubinfeld. As with Professor
                Shapiro's approach, Professor Rubinfeld first compared ratios of
                interactive services to limited interactive services. The Judges
                utilized the implicit first adjustment discussed above. But
                additionally, as Professor Shapiro notes, the Judges found that
                Professor Rubinfeld should have made this second adjustment, if
                sufficient data was in evidence, to account for the different value of
                interactivity in the limited interactive market and the statutorily-
                compliant noninteractive market. Shapiro 8/19/20 Tr. 2832-33 (Shapiro).
                 Relying on the foregoing point from Web IV, Professor Shapiro then
                combines his 2:1 initial interactivity adjustment--reducing the
                effective royalty rate he had derived from the interactive market,
                $[REDACTED] by 50%, down to $[REDACTED]--and then further reducing that
                rate by an additional [REDACTED]% pursuant to his second interactivity
                adjustment, down to $[REDACTED]).\145\
                ---------------------------------------------------------------------------
                 \145\ $[REDACTED] x [REDACTED] = $[REDACTED] (rounded up from
                $[REDACTED]).
                ---------------------------------------------------------------------------
                 SoundExchange does not disagree with Professor Shapiro's assertion
                that a benchmark model consistent with Web IV requires an interactivity
                adjustment. However, SoundExchange avers that Mr. Orszag's model, which
                it contends is more faithful to the Web IV approach, properly adjusts
                implicitly for the value of interactivity (as discussed infra). SX
                PFFCL ] 100.
                 SoundExchange argues that Professor Shapiro's second interactivity
                adjustment is improper.\146\ SoundExchange bases this argument on two
                assertions. First, SoundExchange notes that the additional
                functionality of the Pandora Plus mid-tier service (compared to the
                previous Pandora One statutory subscription service) [REDACTED],
                precluding reliance on a royalty rate nominally attached to a
                particular tier of service within that bundle. SX PFFCL ] 155 (and
                record citations therein). SoundExchange asserts that the [REDACTED] is
                confirmed by a Pandora executive, who testified that the purpose of
                this increased functionality in the mid-tier subscription service
                (compared with the noninteractive functionality of the former statutory
                subscription service) was to ``creat[e] additional opportunities to
                upsell subscribers over time to Pandora Premium.'' Phillips WDT ] 22.
                Accordingly, SoundExchange avers that Pandora's WTP $[REDACTED] for
                mid-tier functionality does not represent an unambiguous measure of the
                marginal value to Pandora of such functionality, but rather reflects,
                or certainly includes, the value of the mid-tier service as a marketing
                tool. Also, SoundExchange--relying on testimony from Professor
                Shapiro--speculates that [REDACTED]. SX RPFFCL (to Pandora/Sirius XM) ]
                197 (citing 8/19/20 Tr. 2962 (Shapiro)).
                ---------------------------------------------------------------------------
                 \146\ SoundExchange also contends that Professor Shapiro's first
                interactivity adjustment, implicit in his model, is improperly
                inflated because Professor Shapiro (consistent with Web IV) utilizes
                only full retail value for [A] and [C] to identify his 2:1
                interactivity ratio (as had been calculated in Web IV). Instead,
                SoundExchange avers that Professor Shapiro should have used the
                overall ARPU attributable to all retail plans, including the
                discount plans, which would have been lower than the average retail
                prices, especially in the interactive benchmark market (input [A] in
                the model). The Judges have discussed this issue in detail supra,
                section IV.B.1.d, in connection with SoundExchange's criticism of
                Professor Shapiro's selection of values for [A] and [C]. As
                explained there, the Judges ruled at the hearing that SoundExchange
                had failed to timely raise this issue, as required, in its written
                rebuttal statement and included rebuttal testimonies, and that it
                therefore constituted delinquent and improper ``new analysis.''
                Further, the Judges noted that the evidence in the hearing was
                inconclusive as to how ARPU is measured in the industry, and that
                the several ARPU values mentioned in other contexts were not
                sufficient to support the ``new analysis'' the Judges declined to
                admit into the record at the hearing.
                ---------------------------------------------------------------------------
                 SoundExchange also emphasizes that the retail monthly subscription
                price for the Pandora Plus mid-tier service is $4.99--the same price as
                Pandora charged for its predecessor Pandora One statutory service.
                Phillips WDT ]] 18, 20; Orszag WDT ] 179; 8/19/20 Tr. 2960 (Shapiro).
                SoundExchange relies further on Professor Shapiro's testimony to assert
                that the absence of an increase in this subscription price demonstrates
                the absence of a marginal increase in market value from the additional
                mid-tier functionality, given that, under Web IV, the upstream demand
                for licensed interactivity is a ``derived demand,'' i.e., it is a
                function of downstream retail demand. 8/19/20 Tr. 2959-2960 (Shapiro)
                (``[T] this is derived demand. Since we're talking about the
                subscription side, it would be based on the customers who were paying,
                the subscribers.'').
                 Pandora has a different explanation of how the concept of ``derived
                demand'' affects this second interactivity issue. Pandora asserts that
                it had anticipated, ex ante the Pandora Plus offering, that an increase
                in the downstream value of that service would be reflected in an
                increase in the quantity of Pandora Plus (mid-tier) subscriptions
                compared with the quantity of Pandora One (noninteractive)
                subscriptions, as Pandora maintained the $4.99 monthly subscription
                price. SoundExchange discounts the economic value of this argument,
                asserting that only an increase in revenue per play unit--not a
                potential increase in total revenue--is probative of an increase in the
                value of the increase in licensed functionality. Orszag WDT ] 179
                (``[T]here is no reason to think that the difference in functionality
                between Pandora One and Pandora Plus changed the amount of revenue per
                play . . . .''); 8/12/20 Tr. 1574 (Orszag) (``[T]he right question then
                to ask is: Was there a change in revenue per-play?'').
                 The Judges find Professor Shapiro's attempt to make a second
                interactivity adjustment inappropriate. They find compelling the fact
                that the mid-tier retail $4.99 monthly subscription price was unchanged
                from the monthly price for Pandora's prior statutorily-compliant
                service (Pandora One). Also, the Judges find unwarranted Professor
                Shapiro's reliance on the difference between the effective per-play
                upstream royalty rate Pandora agreed to pay ($[REDACTED]) for its mid-
                tier Pandora Plus service and the statutory royalty rate of
                $[REDACTED]. The interactivity adjustment as described in Web IV
                reflects differences in retail prices ([A] and [C]) in the ratio
                equivalency model), not upstream royalty rates. As SoundExchange
                correctly notes, those upstream rates can be affected by the fact that
                they are set in a contract that [REDACTED]. Further, as Professor
                Shapiro conceded in a colloquy with the Judges during the hearing, the
                $[REDACTED] effective per-play rate--by Professor Shapiro's own
                conception
                [[Page 59503]]
                of the Majors' complementary power--could also embody a premium for
                that market power. 8/19/20 Tr. 2838-39 (Shapiro) (``it's true that we
                might be getting a measure that is somewhat inflated [in] comparison
                [with] if there were more competition to offer those rights . . . .
                [Y]ou might want to give [the second interactivity adjustment] a
                haircut if you thought it was infected by complementary oligopoly power
                . . . .''); see also 8/25/20 Tr. 3644-46 (Peterson) (witness unable to
                preclude that the upstream royalty premium includes a market power
                effect that he treats as an interactivity value). However, Professor
                Shapiro did not parse the $[REDACTED] rate to separate out this
                additional factor. In similar fashion, Professor Shapiro does not
                consider the extent to which the mid-tier services allow subscribers
                unlimited skips (plays of less than thirty seconds) for which no
                royalty is owed, unlike statutory noninteractive services (as discussed
                infra). Because the Judges are making separate adjustments for
                effective competition (to curtail the effect of the Majors'
                complementary oligopoly power) and for skips, Professor Shapiro's
                second interactivity adjustment could double-count those adjustments,
                as Professor Shapiro acknowledged in his colloquy with the Judges,
                quoted above.\147\
                ---------------------------------------------------------------------------
                 \147\ Although it might be possible to adjust the $[REDACTED]
                royalty rate to parse the effective competition and skips values
                therein, Professor Shapiro did not do so at the hearing, and, in
                fairness to SoundExchange, the Judges find in the exercise of their
                discretion that it would be unreasonable for the Services or the
                Judges, sua sponte, to attempt to make these adjustments, post-
                hearing, in this Determination. See Johnson v. Copyright Board, 969
                F.3d 363, (2020) (parties must be provided adequate notice of issues
                to be considered and resolved at the hearing, to ``ensure[] that
                agencies provide a fair process in which each party is able `to
                present its case or defense . . ., to submit rebuttal evidence, and
                to conduct such cross-examination as may be required for a full and
                true disclosure of the facts' that bear on the agency's decision and
                choices.'') (internal citation omitted).
                ---------------------------------------------------------------------------
                 Further, the second interactivity adjustment mentioned in Web IV,
                on which Professor Shapiro relies, did not provide for an adjustment
                based on an increase in the number of subscriptions sold and the
                increased revenue that may have resulted from those additional
                subscriptions. And, whether Pandora believed ex ante that it might
                generate additional revenue, or whether ex post some additional revenue
                may have been generated, there is no support for incorporating these
                revenue metrics into a model predicated on downstream retail
                prices.\148\
                ---------------------------------------------------------------------------
                 \148\ Professor Shapiro's attempt to rely on increases in
                revenues to support his second interactivity adjustment to his ratio
                equivalency adjustment appears to be inconsistent with his criticism
                of Mr. Orszag's reliance on a revenue-based application of the ratio
                equivalency model. Additionally, there is nothing in the record
                sufficient to indicate how any estimated increase in subscriptions
                (and thus revenues) generated by the mid-tier Pandora Plus service
                would impact the value of [C], given the inadequacy (discussed
                above) of simply applying the difference in upstream effective per-
                play royalty rates.
                ---------------------------------------------------------------------------
                 Accordingly, the Judges shall not make this second interactivity
                adjustment.\149\
                ---------------------------------------------------------------------------
                 \149\ Because the Judges reject Pandora's proposed second
                interactivity adjustment on other grounds, they do not address
                SoundExchange's argument that, because the mid-tier rate [REDACTED],
                the mid-tier rate cannot be examined in isolation.
                ---------------------------------------------------------------------------
                (B) Professor Shapiro's Proposed Skips Adjustment
                 Professor Shapiro also proposes to apply a skips adjustment to his
                benchmark subscription rate. The skips adjustment, he avers, is
                necessary to account for the fact that [REDACTED], by contrast,
                noninteractive services do not have the right to avoid paying royalties
                for plays under thirty seconds under the Copyright Act. Shapiro WDT at
                39. This difference in what constitutes a royalty-bearing play results
                in a [REDACTED] calculated per-play rate for on-demand services (who
                pay on a [REDACTED]) than for statutory services (who must pay for all
                plays). Peterson WDT ] 67.
                 In Web IV, as Professor Shapiro notes, the Judges applied a skips
                adjustment to correct for this disparity. Web IV, 81 FR at 26350-51,
                26639; 8/19/20 Tr. 2847 (Shapiro). Moreover, the need to account for
                the play count differential in the benchmark and target markets is not
                disputed in this proceeding. 8/11/20 Tr. 1191 (Orszag); 8/25/20 Tr.
                3632 (Peterson).
                 Applying the most current data for Pandora, Professor Shapiro
                determines that performances of less than 30 seconds constitute about
                [REDACTED]% of total performances. Shapiro WDT at 39. Accordingly,
                given Professor Shapiro's royalty rate of $[REDACTED], which includes
                the first interactivity adjustment (but not the second interactivity
                adjustment rejected by the Judges supra), this skips adjustment would
                reduce that rate by [REDACTED]%.
                 SoundExchange questions the data on which Professor Shapiro relies
                in making his skips adjustment. Specifically, it notes that the data he
                uses to calculate this [REDACTED]% skips adjustment applies to
                noninteractive plays that were available on all three tiers of
                Pandora's service--ad-supported, mid-tier and fully interactive. See 8/
                20/20 Tr. 3028-29 (Shapiro). According to Mr. Orszag, this multi-tier
                sourcing of the skips data indicates that the Pandora skips rate is
                probably overstated. He bases this conclusion on the fact that the
                subscription tiers (Plus and Premium), unlike statutory services,
                provide their subscribers with unlimited skips, likely resulting in
                subscribers to those tiers skipping more songs. Orszag WRT ] 120.
                SoundExchange notes that Professor Shapiro agrees. See 8/20/20 Tr.
                3030-32 (Shapiro).
                 In rebuttal, Professor Shapiro characterizes this issue as
                overblown, because [REDACTED]. Specifically, Pandora Plus and Pandora
                Premium have [REDACTED] and [REDACTED] subscribers, respectively, out
                of a total of [REDACTED] Pandora listeners. The remaining [REDACTED]
                listeners access Pandora Free. 8/20/20 Tr. 3031-32 (Shapiro); Phillips
                WDT ]] 5, 20-21. Accordingly, Professor Shapiro characterizes the
                number of noninteractive skips occurring on the subscription tiers is
                [REDACTED].
                 SoundExchange counters this point by noting that, although the
                impact of [REDACTED], Professor Shapiro nonetheless fails to measure
                this effect and reduce his skips adjustment accordingly. Conversely,
                the Services attack SoundExchange's criticism as being speculative and
                devoid of empirical support. The Judges find that, although there is no
                dispute that [REDACTED], SoundExchange does not bear the burden of
                quantifying, or at least estimating, the impact of the fact that
                listeners on the subscriber tiers would generate some of the reported
                skips. That is, because the adjustment is proffered by the Services,
                there is no apparent reason why SoundExchange should be required to
                assume the burden of proving the extent of the adjustment.
                 At a minimum, it is certainly reasonable, based on the record of
                the number of users and subscribers across Pandora tiers, as set forth
                above, that the percentage of skips would approximate the percent of
                Pandora customers who comprise the subscription tiers. That percent is
                [REDACTED]% ([REDACTED] / [REDACTED]).\150\ Applying this [REDACTED]%
                reduction in the [REDACTED]% the skips adjustment
                [[Page 59504]]
                proffered by Professor Shapiro reduces that skips adjustment to
                [REDACTED]% (i.e., [REDACTED] x ([REDACTED]-[REDACTED]) = [REDACTED]
                (rounded to [REDACTED]%). Thus, Professor Shapiro's proposed royalty
                rate, incorporating his first interactivity adjustment (but rejecting
                the second), of $[REDACTED], needs to be reduced by [REDACTED]% to
                $[REDACTED] (i.e., $[REDACTED] x (1-[REDACTED]), which rounds to
                $[REDACTED] per play.
                ---------------------------------------------------------------------------
                 \150\ The percentage of noninteractive skips attributable to
                subscribers might be higher than this percent, because subscribers
                have unlimited skips, but that percentage might also be lower,
                because subscribers have revealed a preference (by paying to
                subscribe) for utilizing on-demand features rather than
                noninteractive features. Thus, utilizing the relative percentages of
                subscribers is a reasonable middle ground for this small difference,
                and is certainly preferable to disregarding the skips adjustment in
                its entirety, when it is undisputed that such an adjustment is
                necessary.
                ---------------------------------------------------------------------------
                 This $[REDACTED] per-play rate does not include an adjustment to
                generate a rate that offsets the Majors' complementary oligopoly power,
                in order to reflect a market that is effectively competitive. The
                Judges turn next to that adjustment.
                (C) Professor Shapiro's Proposed Effective Competition Adjustment
                 Before considering Professor Shapiro's proposed ``effective
                competition'' adjustment, it is instructive to recall the Judges'
                separate detailed analysis \151\ of the effective competition issue and
                the associated necessary adjustments. To summarize, the Judges offset
                the 12% effective competition adjustment by an appropriate portion of
                the [REDACTED] in the effective royalty rate (from [REDACTED]% to
                [REDACTED]%) that [REDACTED] \152\ [REDACTED] for any analysis in which
                Spotify is the benchmark or ratio equivalency comparator. If the
                benchmark is the interactive market as a whole, then the Judges apply
                the 12% effective competition adjustment, minus ([REDACTED]% x the
                market revenue share attributable to [REDACTED] x the share of their
                royalties paid at or about the [REDACTED]%-of-revenue level).
                ---------------------------------------------------------------------------
                 \151\ See supra, section III.
                 \152\ SoundExchange asserts that [REDACTED]% of revenue after
                Spotify obtained that [REDACTED]. However, there is insufficient
                detail in the record relating to [REDACTED]'s negotiations with the
                Majors, the overall structure of its rates and which tiers of
                service pay which rates. (In fact, there is evidence that [REDACTED]
                continues to pay royalties at a rate of [REDACTED] percent-of-
                revenue. Peterson WRT, tbl.5). Thus, the Judges do not lump the
                Apple royalty rate together with the Spotify rate, but they do
                include [REDACTED]'s data in connection with Professor Shapiro's
                overall industry data.
                ---------------------------------------------------------------------------
                 But Professor Shapiro proposes a different effective competition
                adjustment for his subscription benchmark.\153\ As his ``alternative
                market-power adjustment,'' Professor Shapiro compares the royalty rate
                paid by [REDACTED] for its [REDACTED]. He relies on this comparison
                because of what he understands to be an important difference between
                the [REDACTED]: Whereas most interactive subscription services have a
                repertoire of approximately [REDACTED] songs they make available to
                subscribers, [REDACTED] subscribers have access to [REDACTED] songs.
                Given this disparity, Professor Shapiro opines that for [REDACTED]
                listeners the full repertoires of each Major are not ``Must Haves,''
                because customers do not expect to find all their favorite artists and
                recordings on [REDACTED] as they would with a standalone interactive
                subscription service. Shapiro WDT at 37-40.
                ---------------------------------------------------------------------------
                 \153\ Professor Shapiro proffers an identical effective
                competition adjustment for his subscription benchmark rate and his
                ad-supported rate. Because he presents his ad-supported first in his
                WDT, he essentially incorporates by reference his ad-supported
                effective competition adjustment. The text immediately following
                this footnote, is based on Professor Shapiro's substantively
                identical effective competition adjustment to his ad supported
                benchmark rate.
                ---------------------------------------------------------------------------
                 Professor Shapiro then takes note that the per-performance royalty
                rate paid by [REDACTED] for its [REDACTED] service is significantly
                below the general effective rate for interactive services.
                Specifically, he relies on the fact that the effective rate for
                [REDACTED] is $[REDACTED] cents per play, compared with the $[REDACTED]
                per-play effective rate for other interactive services. Relying on this
                difference, Professor Shapiro computes the ratio of the two rates--
                $[REDACTED]/$[REDACTED], which yields his proposed adjustment factor of
                [REDACTED]1, implying an effective competition adjustment of
                [REDACTED]%.\154\Id.
                ---------------------------------------------------------------------------
                 \154\ The [REDACTED]:1 factor implies a percentage difference in
                the two rates of [REDACTED]%. The rate differential is thus 1-
                [REDACTED] = [REDACTED]. Thus, Professor Shapiro's proposed
                effective competition adjustment is [REDACTED]% (rounded).
                ---------------------------------------------------------------------------
                 SoundExchange asserts that Professor Shapiro's subscription
                benchmark should not be reduced by an effective competition adjustment.
                It notes Professor Shapiro's characterization of [REDACTED]'s effective
                per-play rate of $[REDACTED] as an effectively competitive rate.
                SoundExchange finds this assertion particularly important because that
                rate is essentially identical to Spotify's effective per-play rate on
                its subscription service of $[REDACTED] per play.\155\ See SX PFFCL ]]
                483-489 (and record citations therein). Moreover, SoundExchange
                emphasizes that Professor Shapiro himself concedes that the effective
                rate for Spotify's subscription service, in his opinion, is ``the upper
                bound for a competitive rate.'' 8/20/20 Tr. 3116-17 (Shapiro).
                ---------------------------------------------------------------------------
                 \155\ Spotify avers that, at most, a downward effective
                competition adjustment of approximately [REDACTED]% would be
                warranted for Professor Shapiro's benchmark, reflecting the
                difference between the $[REDACTED] ([REDACTED]) and $[REDACTED]
                ([REDACTED]) rates. SX PFFCL ] 487.
                ---------------------------------------------------------------------------
                 Separate and apart from the foregoing issue, SoundExchange asserts
                that the [REDACTED] royalty rate is an inappropriate input for
                computing an effective competition adjustment. Specifically,
                SoundExchange argues that [REDACTED]'s royalty rate is [REDACTED]
                because: (1) [REDACTED] offers listeners only a limited number of new
                releases,\156\ (2) [REDACTED], and (3) [REDACTED]. Orszag WRT ] 112;
                Trial Ex. 5610 ]] 6-7, 9 (WRT of Aaron Harrison).
                ---------------------------------------------------------------------------
                 \156\ SoundExchange notes that Professor Shapiro concedes it
                would be reasonable to reduce his [REDACTED]-based effective
                competition adjustment to reflect [REDACTED]'s possibly [REDACTED]
                have access. 8/20/20 Tr. 3120 (Shapiro).
                ---------------------------------------------------------------------------
                 In response, Pandora concedes that the use of [REDACTED] for this
                comparative analysis is not ``perfect,'' but asserts that benchmarking
                exercises are fraught with inherent complexities, and thus rarely meet
                that standard. Pandora also seeks to dismiss the defects in this aspect
                of its benchmarking exercise by noting that Mr. Orszag failed to
                identify the need for an effective competition adjustment. Pandora/
                Sirius XM PFFCL ] 219. These arguments are meritless. Although the
                Judges disagree with Mr. Orszag regarding the need for this adjustment,
                his opinion in no way serves to support Pandora's reliance on
                [REDACTED]'s rate to propose a [REDACTED]% effective competition
                adjustment, which must succeed or fail on its own merits. And the
                acknowledgement by Pandora that this benchmarking exercise is less than
                perfect simply begs the question of whether it is so imperfect as to be
                given no weight in the Judges' benchmarking analysis.
                 With regard to the substantive merits of Professor Shapiro's
                proposed adjustment, Pandora does not deny that he acknowledges that
                his adjustment could reasonably be [REDACTED], particularly the
                [REDACTED]. However, Pandora chastises Mr. Orszag for failing to
                quantify the effect of the limited catalog. The Judges find Pandora's
                response unavailing. Because it is Professor Shapiro who proffers
                [REDACTED] as a comparator for effective competition purposes, Pandora
                and he bear the burden of producing evidence that this limited service
                serves the purpose for which Professor Shapiro intends.
                 Pandora also asserts that [REDACTED]'s commercial presence--
                [[Page 59505]]
                despite its limited repertoire--confirms that the catalogs of all
                Majors are not ``Must Haves,'' which is why its effective per-play rate
                is [REDACTED] $[REDACTED]. 8/20/20 Tr. 3119 (Shapiro). The Judges
                disagree. [REDACTED]'s limited repertoire is more suggestive to the
                Judges of a significantly differentiated service compared to other
                interactive services and to noninteractive services. Because [REDACTED]
                is offered for [REDACTED], and does not accept advertising, it is
                relatively unique.\157\ There is no sufficient evidence in the record
                indicating that a subscription or ad-supported music service
                (interactive or noninteractive) could survive commercially if it
                operated with [REDACTED]'s limited repertoire.
                ---------------------------------------------------------------------------
                 \157\ In fact, [REDACTED]'s availability to all [REDACTED]
                suggests it is offered as a sort of ``loss-leader,'' rather than as
                a stand-alone downstream source for direct monetization.
                ---------------------------------------------------------------------------
                 Additionally, the Services make no response to SoundExchange's
                contention that [REDACTED] receives a lower rate because it serves as a
                funnel, converting [REDACTED] listeners to [REDACTED] subscribers. The
                absence of a Services' response is especially relevant because, as
                discussed infra, Professor Shapiro agreed that the funneling/conversion
                capacities of another interactive service, Spotify, need to be taken
                into account when using Spotify's royalty rates (in the ad-supported
                market) as a benchmarking input.\158\
                ---------------------------------------------------------------------------
                 \158\ The Judges agree with the Services that SoundExchange's
                claim that Amazon had relatively greater bargaining leverage (as the
                record companies' primary physical product distributor) is belied by
                the [REDACTED] $[REDACTED] per-play royalty rate for [REDACTED]. See
                Shapiro WDT at 42 tbl.10. But the other issues discussed above, are
                sufficient bases to doubt the usefulness of the [REDACTED] royalty
                rate as a benchmark.
                ---------------------------------------------------------------------------
                 The Judges now turn from the question of whether the [REDACTED]
                royalty rate is substantively an appropriate benchmarking input, to
                SoundExchange's other argument--that if the $[REDACTED] per-play
                [REDACTED] rate is an effectively competitive rate, then so too is
                Spotify's effective $[REDACTED] per-play royalty rate. The Judges find
                that SoundExchange's assertion in this regard is of little practical
                importance as an opposition to Professor Shapiro's subscription
                benchmark model.
                 If the Judges were to treat Professor Shapiro's characterization of
                the [REDACTED] $[REDACTED] per-play rate as essentially an admission
                that the Spotify effective per-play rate of $[REDACTED] is also
                effectively competitive, the setting of a benchmark rate by the Judges
                would be little changed. Applying Professor Shapiro's proffered
                [REDACTED]% effective competition adjustment on his $[REDACTED]
                interactive benchmark generates an effectively competitive rate of
                $[REDACTED], (which would then be subject other potential adjustments).
                But the [REDACTED] rate of $[REDACTED] that Professor Shapiro opines to
                be ``effectively competitive'' is virtually identical (and it too would
                then be subject to the same potential additional adjustments). Thus,
                substituting the [REDACTED] effective royalty rate for Professor
                Shapiro's effective competition adjustment would be inconsequential.
                (D) Professor Shapiro's Subscription Benchmark Rate as Adjusted by the
                Judges
                 In sum, the Judges find as follows with regard to Professor
                Shapiro's proposed subscription benchmark rate:
                 1. The effective interactive industrywide interactive benchmark
                rate of $[REDACTED] per play is reasonable.
                 2. The first interactivity adjustment of 2:1 is appropriate,
                properly reducing his interim calculation to $[REDACTED] per play
                (rounded).
                 3. The second (cumulative) interactivity adjustment is rejected.
                 4. The skips adjustment is reduced to [REDACTED]%, properly
                reducing the interim calculation to $[REDACTED] (rounded).
                 5. The [REDACTED]% effective competition adjustment proposed by
                Professor Shapiro is rejected.
                 6. The Judges apply the lower effective competition adjustment
                supported by their overall ``effective competition'' analysis:
                a. -[REDACTED]%
                b. [REDACTED] \159\ x [REDACTED] \160\
                ---------------------------------------------------------------------------
                 \159\ See Orszag WDT tbl.4.
                 \160\ See Peterson WRT fig.5; see also 8/25/20 Tr. 3706
                (Peterson) [REDACTED]; 8/11/20 Tr. 1209 (Orszag) (As between the
                [REDACTED]
                ---------------------------------------------------------------------------
                c. = [REDACTED]%
                d. $[REDACTED] x (1-[REDACTED]) = $[REDACTED] x [REDACTED] = 0.0025
                (rounded).
                (E) Interactivity ``Adjustment'' to Mr. Orszag's Benchmark
                 Mr. Orszag avers that his benchmark model directly and implicitly
                accounts for the difference in interactivity between the benchmark and
                target markets, and that any further such adjustment would be
                unnecessary and improper. In particular, he states that it is his use
                of the effective percentage of revenue rate paid by interactive
                subscription services that allows his model to account for the impact
                of interactivity. More specifically, he testifies that, when he
                multiplies that benchmark percent-of-revenue rate by the lower revenues
                in the target market (relative to the benchmark market), the product
                equals a lower royalty. This lower royalty, he concludes, reflects the
                lower value consumers place on a service that lacks on-demand
                functionality. Orszag WDT ] 79. Alternately stated in terms of the
                ratio-equivalency model, the interactivity difference is implicitly
                modeled because the revenue figure in the target market--the right-hand
                numerator [C]--is substantially less than the revenue figure in the
                benchmark (interactive) market numerator [A]--given that the benchmark
                subscription service price is substantially higher than the
                subscription price in the benchmark market and the number of
                subscriptions in the benchmark market is substantially greater.
                 The Services do not make any specific challenge to Mr. Orszag's
                claim that his model implicitly includes an interactivity adjustment.
                To be sure, the Services vigorously challenge the appropriateness of
                his model, including its failure, in their opinion, to properly apply
                the ratio equivalency benchmarking model in Web IV.\161\ But, assuming
                arguendo that Mr. Orszag's subscription benchmarking model is otherwise
                appropriate, the Services offer no new or specific criticism regarding
                its implicit interactivity adjustment, as explained by Mr. Orszag.\162\
                ---------------------------------------------------------------------------
                 \161\ See discussion supra, section IV.B.1.e.
                 \162\ The Services do criticize Mr. Orszag for not making a
                ``second'' interactivity adjustment to reflect the greater
                interactivity of the mid-tier services that constitute Mr. Orszag's
                target market, relative to the noninteractivity of statutory
                services. However, as explained supra, section IV.B.1.e.v(A), in
                connection with Professor Shapiro's proposed further interactivity
                adjustment, the Judges find no sufficient evidence in the record or
                basis in the Web IV approach to support a finding that there is
                greater market value in these mid-tier services compared with
                statutory services.
                ---------------------------------------------------------------------------
                (F) Skips Adjustment to Mr. Orszag's Benchmark
                 According to Mr. Orszag, his benchmarking model also directly and
                implicitly accounts for the skips differential from the benchmark
                market to the target market, despite the fact that his benchmark data
                is weighted very heavily toward Pandora, which, under its direct
                license agreements with the record companies, pays royalties for skips
                (unlike the benchmark services). This difference does not affect Mr.
                Orszag's proffered per-play royalty rate because in his model he
                divides the target market's total royalties due by the
                [[Page 59506]]
                number of target market plays--including skips--yielding a per-play
                rate that accounts for skips. That per-play rate accounts for skips
                because (1) the royalties generated by the skips are included in the
                numerator and (2) the number of skips are included in the denominator,
                in the same manner as full plays, thus canceling each other out and not
                changing the per play royalty calculation. 8/11/20 Tr. 1191-92, 1249-50
                (Orszag).\163\
                ---------------------------------------------------------------------------
                 \163\ For example, assume all plays (including skips) generate
                $240,000 in royalties (the numerator), and the total number of plays
                (including skips) totals 120,000,000 plays. The per-play royalty
                (including skips) is $0.0020 ($240,000 / 120,000,000 plays =
                $0.0020). Now also assume 20,000,000 of these plays were skips. If
                in Mr. Orszag's model skips were explicitly eliminated, there would
                be only 100,000,000 plays in the denominator (120,000,000 plays-
                20,000,000 plays = 100,000,000 plays), and only $200,000 in
                royalties in the numerator ($240,000-(20,000,000 plays $0.0020 in
                royalties) = $240,000-$40,000 = $200,000. Now, with skips
                eliminated, Royalties / Plays = $200,000 / 100,000,000 = $0.0020--
                the same per-play royalty rate with or without skips.
                ---------------------------------------------------------------------------
                 In his WRT, Professor Shapiro asserts that Mr. Orszag had
                improperly failed to make an explicit skips adjustment. Shapiro WRT at
                33. At the hearing, however, Professor Shapiro acknowledges that Mr.
                Orszag's approach indeed does not require a separate skips adjustment.
                8/20/20 Tr. 3025-26 (Shapiro).
                 The Judges agree that Mr. Orszag's ratio equivalency benchmarking
                model, to the extent it is otherwise useful and appropriate, does not
                require a skips adjustment.\164\
                ---------------------------------------------------------------------------
                 \164\ Mr. Orszag acknowledges though that the two services other
                than Pandora included in his model's target market (iHeart and
                Rhapsody) do not report or pay for skips, which would require a
                skips adjustment. However, according to Mr. Orszag, those two
                services constitute a de minimis portion of the total plays in his
                target market. See 8/11/20 Tr. 1230 (Orszag). The Services agree
                that: (1) Mr. Orszag's ratio equivalency approach is [REDACTED]'s
                revenue-per-play; (2) Pandora pays for skips; and (3) the net effect
                of (1) and (2) is to minimize the impact of Mr. Orszag's failure to
                include a skips adjustment for iHeart and Rhapsody. Nonetheless, the
                Services aver that the absence of a skips adjustment for the iHeart
                and Rhapsody plays has an ``unquantified effect'' on Mr. Orszag's
                benchmark subscription royalty rate. Services RPFFCL ] 240. Although
                a benchmark proponent should quantify or estimate a benchmark input
                that would be significant, here the Judges find that the Services
                have essentially acknowledged the correctness of Mr. Orszag's skips
                analysis, and that the ``unquantified effect'' would be of little
                consequence.
                ---------------------------------------------------------------------------
                (G) Effective Competition Adjustment to Mr. Orszag's Benchmark
                 As explained in the separate section of this Determination
                analyzing the effective competition issue, SoundExchange maintains that
                the enhanced power of its benchmark interactive service, Spotify, has
                allowed it to exert countervailing power in its negotiations with the
                Majors that fully offsets their complementary oligopoly power. See SX
                PFFCL ]] 259-493 (asserting that no competition adjustment is required
                because the benchmark agreements on which Mr. Orszag's analysis is
                based reflect effectively competitive rates). For this reason, Mr.
                Orszag makes no effective competition adjustment to his proposed
                subscription benchmark rate.
                 However, as the Judges stated supra in their analysis and findings
                regarding the effective competition adjustment, it is appropriate to
                adjust downward Mr. Orszag's Spotify-based ratio equivalency rate as
                follows:
                 (1) Apply the 12% downward adjustment;
                 (2) [REDACTED] that adjustment by [REDACTED] percentage points to
                reflect Spotify's [REDACTED]; and
                 (3) multiply the rate from step (2) by [REDACTED]%, the percent of
                revenue paid by Spotify at the [REDACTED]% level).\165\
                ---------------------------------------------------------------------------
                 \165\ Unlike their adjustments to Professor Shapiro's approach,
                the Judges do not reduce Spotify's impact by multiplying by
                Spotify's market share, because Mr. Orszag uses only Spotify data in
                his benchmark market analysis, whereas Professor Shapiro uses a
                weighted average of multiple interactive services in his benchmark
                market analysis.
                ---------------------------------------------------------------------------
                (H) Mr. Orszag's Subscription Benchmark Rate as Adjusted by the Judges
                 The Judges do not make any adjustments to Mr. Orszag's proffered
                benchmark other than the foregoing effective competition adjustment.
                Based upon the analysis in the Judges' discussion of effective
                competition, supra, they calculate their effective competition
                adjustment to Mr. Orszag's $0.0033 benchmark per-play rate as follows:
                 1. The Judges adjust Mr. Orszag's proffered benchmark rate to
                reflect both the complementary oligopoly power of the Majors (12%) and,
                in partial mitigation, the extent to which Spotify paid the [REDACTED]
                percent-of-revenue royalty rate instead of the [REDACTED]% rate
                (reflecting Spotify's bargaining power).
                 2. The [REDACTED] of this royalty rate from [REDACTED]% to
                [REDACTED]% reflects a [REDACTED]% [REDACTED] royalties.
                 3. To determine the extent to which Spotify paid (approximately)
                the [REDACTED] percent-of-revenue rate, the Judges note that
                [REDACTED]% of its royalties were paid on that basis. Peterson WRT,
                fig.5.
                 4. [REDACTED]% x [REDACTED] = [REDACTED]% (rounded).
                 5. The complementary oligopoly adjustment is [REDACTED]%-
                [REDACTED]%, which equals [REDACTED]%.
                 6. Mr. Orszag's adjusted rate is calculated as $[REDACTED] x (1-
                [REDACTED]), which equals $0.0032 (rounded).
                f. The Judges' Synthesis of the Adjusted Rates of Professor Shapiro and
                Mr. Orszag
                 As explained supra, Professor Shapiro's benchmark approach has a
                weight of 88.5%, and Mr. Orszag's has a weight of 11.5%, in the Judges
                synthesized rate based on the benchmark/ratio equivalency approach. The
                synthesis of their two models, as adjusted by the Judges, is set forth
                below:
                 The Shapiro Subscription Benchmark Rate:
                 $0.0025 x 0.885 = $0.00221
                 +
                 The Orszag Subscription Benchmark Rate:
                 $0.0032 x 0.115 = $0.00037
                 =
                 $0.00258 rounded to $0.0026
                
                 Accordingly, the Judges find that the benchmark-derived rate for
                noninteractive subscription services is $0.0026 per play.
                2. The Ad-Supported Benchmark Models \166\
                ---------------------------------------------------------------------------
                 \166\ The Judges use the phrase ``ad-supported services'' to
                refer to nonsubscription services throughout this Determination.
                ---------------------------------------------------------------------------
                a. SoundExchange's Ad-Supported Benchmark Model
                 On behalf of SoundExchange, Mr. Orszag uses a benchmarking analysis
                quite similar to his subscription benchmark model considered supra.
                First, although he is modeling the ad-supported market, his approach
                again looks to the subscription interactive market as the benchmark,
                using Spotify as the proxy. Next, he calculates an effective percent-
                of-revenue royalty paid by Spotify in the subscription interactive
                market, and then converts that benchmark percent-of-revenue rate into
                an ad-supported per-play rate by dividing royalties by the number of
                noninteractive plays. Orszag WDT ] 96.
                 Mr. Orszag acknowledges that in Web IV the Judges rejected this
                approach, i.e., the use of subscription interactive services as a
                benchmark for ad-supported noninteractive services. See Web IV, 81 FR
                at 26344-46 (significant divergence in WTP between downstream
                subscription and ad-supported consumers negates a finding of
                substantial cross-substitution from subscribership to ``free to the
                listener'' use, thus rendering inapplicable
                [[Page 59507]]
                Professor Rubinfeld's attempted extension of the ratio equivalency
                approach to the ad-supported calculation of ad-supported royalties).
                Notwithstanding this Web IV finding, Mr. Orszag opines that his
                particular model, and new market developments, combine to distinguish
                his approach from that rejected in Web IV.
                 First, in his WDT, Mr. Orszag asserts that the present record
                evidence demonstrates there is sufficiently greater substitution
                between the benchmark and target markets than was shown in Web IV,
                justifying his use of interactive services as a benchmark for ad-
                supported services. Orszag WDT ] 88. Moreover, Mr. Orszag takes issue
                with the Judges' finding in Web IV that the ad-supported listeners did
                not reveal a positive WTP. He asserts that, from an economic
                perspective, listeners reveal a positive WTP, in that they subject
                themselves to listening to advertising, which, he argues, is itself a
                form of payment in time rather than in money.
                 However, Mr. Orszag does not attempt to measure the dollar value of
                that time to these listeners. Rather, he notes that the noninteractive
                services earn revenue from the advertising revenue they receive for
                making advertising time available on those services, a portion of which
                the noninteractive services can pay as royalties to the record
                companies. Mr. Orszag avers that, if it were really true that listeners
                to ad-supported service have a zero willingness to pay, then ad-
                supported services themselves should also have zero willingness to pay,
                which plainly is not the case. Orszag WDT ] 90; 8/11/20 Tr. 1240-41
                (Orszag). Mr. Orszag also points to record evidence, including Pandora
                documents, indicating that [REDACTED]. Trial Ex. 5056 at 26. Another
                Pandora document on which Mr. Orszag relies states that ``[REDACTED]''
                Trial Ex. 5061 at 2; Orszag WDT ] 93.
                 Nonetheless, although Mr. Orszag acknowledges that the sound
                recording and streaming industry perceives ad-supported listeners as
                having a ``low'' WTP, Orszag WRT ] 75, SoundExchange points out that a
                Services' witness, T. Jay Fowler, Director of Product Management for
                Music Products at YouTube (a division of Google), speculates that this
                ``may be only a temporary or transitory phenomenon,'' because consumers
                need time to understand the value of streamed music and thus make the
                switch from an ad-supported to a subscription service. Trial Ex. 1100 ]
                17 (WDT of T. Jay Fowler); SX PFFCL ] 164. In furtherance of this
                argument, Mr. Orszag also relies on evidence from Professor Willig's
                application of data from the Zauberman Survey, which Mr. Orszag
                characterizes as showing a high cross-elasticity of demand for
                noninteractive ad-supported listening and interactive ad-supported
                subscribership. That survey evidence, as applied by Professor Willig,
                indicates that 9.1% of respondents would switch from ad-supported
                noninteractive services to a new on-demand subscription, if their ad-
                supported noninteractive service was not available. Willig WDT ] 47,
                fig.6 (panel A).\167\
                ---------------------------------------------------------------------------
                 \167\ The Hanssens Survey indicates, according to Professor
                Shapiro, that this diversion to new interactive subscriptions would
                be [REDACTED], measuring [REDACTED]%. Shapiro WDT at 21, tbl.2. This
                lower figure would not alter the weights assigned to the
                benchmarking and ratio-equivalency models. The Judges note, though,
                that despite finding the Zauberman Survey less reliable in other
                respects than the surveys by Professors Hanssens and Simonson (the
                latter replicating Professor Hanssens's survey work) only the
                Zauberman Survey asks respondents directly to identify the source of
                music to which they would divert if noninteractive subscription
                services were not available (The Hanssens and Simonson surveys ask
                more ambiguously what respondents would do if they noticed all
                relevant services had stopped streaming songs by some popular
                artists and some newly released music. Hanssens WDT ]] 13, 21-22.)
                ---------------------------------------------------------------------------
                 Based on the foregoing rationale, Mr. Orszag utilizes the same
                ``ratio equivalency'' model as he used for the subscription tier.
                SoundExchange summarizes his application of this approach to the ad-
                supported model as follows:
                 [A] and [B] remain the total revenue earned by and total royalty
                paid by Spotify for its subscription interactive service. As before
                and for the same reasons provided in Mr. Orszag's benchmark analysis
                for noninteractive subscription services . . . the analysis
                conservatively uses the effective [percent of royalty] rates paid by
                Spotify as the basis for the proposed per-play rate for statutory
                ad-supported noninteractive services. . . . And as before, Mr.
                Orszag excluded family, student, military, employee, and trial and
                promotional products in calculating the effective rates because
                these products are unlikely to be relevant to an ad-supported
                service. . . . [C] is now the revenue earned by the [noninteractive]
                ad-supported service.
                SX PFFCL ]] 168-169 (and record citations therein).\168\
                ---------------------------------------------------------------------------
                 \168\ As with his subscription model, Mr. Orszag excluded
                family, student, military, employee, and trial and promotional
                products in calculating the effective rates, claiming that these
                products would not likely be relevant to an ad-supported service.
                Orszag WDT ] 97. And, as noted in the above quote, for the revenue
                of noninteractive services ([C] in his model) Mr. Orszag uses
                revenue earned by Pandora and iHeart. 8/11/20 Tr. 1248 (Orszag);
                Orszag WDT ] 98.
                ---------------------------------------------------------------------------
                 The effective percent-of-revenue rate in Mr. Orszag's benchmark
                market, [B]/[A], of course remains at [REDACTED]% (because he uses the
                same benchmark market). Mr. Orszag multiplies that [REDACTED]%
                effective rate by the noninteractive ad-supported gross revenue for
                Pandora and iHeart, and then divides by the corresponding number of
                plays in the target noninteractive ad-supported market. Id. ] 98.\169\
                His computations and results are set forth in the table below
                (excerpted from Orszag WDT tbl.9):
                ---------------------------------------------------------------------------
                 \169\ Calculated from a different perspective, Pandora and
                iHeart's combined average revenue per play was $[REDACTED]
                [REDACTED] for the twelve-month period ending April 2019. This
                average revenue per play, when multiplied by the percentage-of-
                revenue royalty rate for interactive subscription services, results
                in the per-play royalty rates for noninteractive ad-supported
                services. Id. ] 98.
                ---------------------------------------------------------------------------
                Table 9--Noninteractive Ad-Supported Benchmark, May 2018-April 2019
                [RESTRICTED]
                [REDACTED]
                 The resulting proposed royalty rate for noninteractive ad-supported
                services is $0.0025 per play, as presented in the right-hand column of
                the table above. Id. ] 99.\170\
                ---------------------------------------------------------------------------
                 \170\ With regard to potential adjustments to his proposed rate,
                Mr. Orszag opines first that, as with his subscription benchmark
                model, his ad-supported mode contains an implicit interactivity
                adjustment, because it relies on the lower revenue of the ad-
                supported noninteractive market as the value of [C] (compared to the
                higher revenue of the benchmark interactive subscription market.
                Next, Mr. Orszag finds no reason to make either a skips or an
                effective competition adjustment, for the same reasons discussed
                supra in connection with his subscription benchmark model.
                ---------------------------------------------------------------------------
                b. The Services' Criticism of Mr. Orszag's Benchmark Ad-Supported Model
                in His WDT
                 As an initial matter, the Services criticize the fundamentals of
                Mr. Orszag's ratio equivalency model in this ad-supported context for
                the same reasons they criticize his use of this model formulation in
                his subscription market analysis. Again, they criticize what they
                construe as Mr. Orszag's improper re-characterization of the Web IV
                ratio equivalency approach because he: (1) Defines [A]and [C] as
                revenue inputs; (2) fails to identify a per-play rate [B] in the
                benchmark market; (3) applies the percent-of-revenue paid in the
                benchmark market to the target market; and (4) uses play counts in the
                target market instead of the benchmark market to generate per-play
                rates.
                 Additionally, the Services criticize Mr. Orszag's decision to input
                the percentage-of-revenue royalty rate applicable to subscription
                interactive services as an appropriate data point for calculating the
                ad-supported noninteractive royalty, given the clear rejection of that
                approach in Web IV. Further, the Services aver that Mr.
                [[Page 59508]]
                Orszag's ad-supported modeling: (1) Fails to address the difference in
                the ways the two services generate revenue (advertising versus consumer
                subscription payments); (2) fails to demonstrate (or even calculate)
                comparable demand elasticities between the two categories of services
                as required by Web IV; (3) fails to demonstrate comparable WTP as the
                between the ad-supported and subscription services; (4) fails to
                demonstrate an opportunity cost even close to approximating the 1:1
                opportunity cost (cross-elasticity) between the two categories of
                service; and (5) fails to apply Spotify's own ad-supported rates into
                the analysis. Services RPFFCL ] 158 (and record citations therein).
                 Among these criticisms, the Services highlight what they assert are
                the two principal problems in Mr. Orszag's model. First, they point to
                his decision to duplicate his subscription ``ratio equivalency'' model
                by simply substituting noninteractive ad revenue for subscription
                revenue. They note that the identity and motivations of the different
                classes of payors--advertisers who pay for listeners' attention, on the
                one hand, and subscribers who pay for uninterrupted access to music, on
                the other--renders misguided any attempt to apply the ratio equivalency
                model in this manner.
                 Further, the Services emphasize that Mr. Orszag fails to
                demonstrate how users' willingness to listen to ads can be converted
                into a dollar value. What the market evidence does reveal, the Services
                state, is directional in nature--that the amount such users would pay
                (if any) must be less than the subscription price of an on-demand
                service. See Leonard WRT ] 54 (noting that, by revealed preference,
                consumers have demonstrated that their WTP to avoid ads is less than
                that of subscribers to paid services); see also Peterson WRT ]] 38, 40.
                 Relatedly, the Services maintain that Mr. Orszag does not provide a
                reason for his assumption--incorporated into his model--that the amount
                advertisers pay to transmit ads to noninteractive listeners is actually
                a proxy for the WTP for music of noninteractive listeners. See Peterson
                WRT ] 38 (advertiser WTP for listener attention may be completely
                unrelated to listeners' WTP for music, and therefore is not a basis to
                assert that ad-supported services, whose listeners are clearly price
                sensitive, have an elasticity of demand comparable to that of
                subscription services); see also 8/25/20 Tr. 3702-03 (Peterson) (same).
                In fact, the Services argue that advertising revenue generated by an
                ad-supported service is materially determined by that service's own
                investment and skill in building an advertising platform that will
                attract advertiser dollars. 8/20/20 Tr. 3248 (Shapiro). And, in
                particular, Pandora has invested significantly to create its
                advertising platform, allowing it to receive substantially higher
                advertising rates and more advertising revenue than other ``free-to-the
                listener'' noninteractive streaming services.
                 Specifically, the Services, and Pandora in particular, emphasize
                Pandora's unique ability to attract and monetize advertisers--a return
                on its investment of billions of dollars. They note that this revenue
                generation is unconnected to the level of functionality it offers. 8/
                20/20 Tr. 3218-20 (Shapiro) (testifying that Pandora's investment in
                ``systems [on] which . . . advertisers compete for . . . space''
                increases the per-play revenue Pandora receives in a way that has
                ``nothing to do with the rights they have licensed, but, rather, with
                their own capabilities.''); Herring WDT (Web IV) ] 11 (``Pandora
                derives more than 80% of its revenue from the sale of advertising. . .
                .'').
                 Further in this regard, the Services maintain there is no evidence
                that advertiser payments are correlated with the particular level of
                interactivity offered by a service, a correlation, they assert, is
                implicitly assumed by Mr. Orszag's adoption of a ratio equivalence
                relationship between subscriber payments in the interactive space and
                advertisers' payments in the noninteractive space. See Services PFFCL
                ]] 26-27 (and citations therein). As Dr. Leonard testifies, advertisers
                ``have no reason to prefer advertising on a service with greater
                interactivity. . . .'' Leonard WRT ] 54.\171\
                ---------------------------------------------------------------------------
                 \171\ The irony of this criticism by the Services is not lost on
                the Judges. On the one hand, the Services argue that interactivity
                is irrelevant on the ad-supported tier, because the payors (the
                advertisers) are uninterested in the functionality of the system.
                Yet, as discussed infra, the Services propose that the Judges make
                two interactivity adjustments to the ad-supported rate.
                ---------------------------------------------------------------------------
                 Even if listeners' tolerance for advertisements could be construed
                as a form of ``payment'' for noninteractive listening, the Services
                maintain that this would still be insufficient to justify Mr. Orszag's
                adoption of a ratio equivalence between the two broad categories of
                services. See Shapiro WRT at 38-40 (citing Web IV, 81 FR at 26349);
                Peterson WRT ]] 36-40 (citing Web IV, 81 FR at 26353). More
                specifically, the Services maintain that Mr. Orszag's model cannot
                address the Judges' point in Web IV that ``[t]he ratio equivalency
                approach assumes that listeners who willingly pay for a subscription to
                a service have a WTP equal to the WTP of those who use ad-supported
                (free-to-the-listener) services.'' Web IV, 81 FR at 26345. (emphasis
                added). Moreover, the Services point out that Mr. Orszag himself
                concedes that consumers of advertising-supported and subscription
                services have a different WTP. 8/12/20 Tr. 1548 (Orszag). This
                underscores the relevance of the Services' claim that Mr. Orszag did
                not provide, or even attempt to provide, the demonstration of
                comparable demand elasticities that the Judges previously required. See
                Web IV, 81 FR at 26349. And the Services point to Dr. Peterson's
                testimony, in which he notes that the low WTP of ad-supported listeners
                indicates that their demand is far more elastic than the demand of
                interactive subscribers. 8/25/20 Tr. 3702 (Peterson); Peterson WRT ]
                37.
                 Turning to the particular issue of cross-elasticity, the Services
                note the Zauberman Survey, as applied by Professor Willig, reveals that
                about 90% of ad-supported noninteractive listeners are unwilling to pay
                for a subscription interactive service. Services RPFFCL ] 165. This
                point, the Services claim, underscores the importance of their
                criticism that neither Mr. Orszag nor the survey evidence demonstrates
                the existence of a sufficiently high cross-elasticity of demand between
                ad-supported noninteractive listening and subscription interactive (on
                demand) listening to support the application of Mr. Orszag's ratio
                equivalency. In this vein, the Services emphasize that Mr. Orszag does
                not deny that he has not demonstrated the 1:1 opportunity cost required
                by the Web IV ``ratio equivalency'' approach, i.e., that, in this
                context, a dollar spent by an advertiser on an ad-supported
                noninteractive service would otherwise be spent on a subscription to an
                interactive service, or, alternatively, that if users discontinued
                listening to an ad-supported noninteractive service, the resulting
                reduction in advertising revenue would otherwise create a commensurate
                increase in subscription revenue for an interactive service. See 8/13/
                20 Tr. 1948 (Orszag).
                 The Services further claim that SoundExchange's reliance on
                Pandora's internal documents, Trial. Exs. 5056 and 5061, is misplaced.
                They point out that neither of these documents actually shows how many
                [REDACTED]. Services RPFFCL ] 163 (and record citations therein).
                Similarly, the Services maintain that SoundExchange has the relevant
                direction of the evidence wrongly reversed with regard to its analysis
                of Spotify's customer
                [[Page 59509]]
                behavior. That is, the fact that [REDACTED] % of Spotify's subscribers
                had originally used Spotify's ad-supported service provides no useful
                information regarding the appropriate metric: How many Spotify ad-
                supported users in fact have a WTP for a Spotify subscription. Indeed,
                the Services note, SoundExchange's argument in this regard is belied by
                Mr. Orszag, who acknowledges that only [REDACTED]% of Spotify's ad-
                supported listeners convert to Spotify's subscription tier within the
                first two years using Spotify's ad-supported service. Services RPFFCL ]
                164 (citing Orszag WRT ] 75 n.167).
                c. The Judges' Analysis and Findings Regarding Mr. Orszag's Ad-
                Supported Benchmark Model From His WDT
                 The Judges reject the ad-supported model Mr. Orszag presents in his
                WDT.\172\ At an obvious level, his approach deviates from the Judges'
                finding in Web IV, in which they rejected the use of a ratio
                equivalency formula that utilized subscription inputs on the left-hand
                benchmark side of the model. Moreover, Mr. Orszag's rationale for his
                departure from Web IV is unavailing. There is simply no evidence to
                support his assertion that there is anything approaching a 1:1
                substitutability (cross-elasticity) from interactive services to
                noninteractive services.
                ---------------------------------------------------------------------------
                 \172\ Alternatively, in his WRT and hearing testimony, in
                response to the models proffered by Professor Shapiro and Dr.
                Peterson, Mr. Orszag acknowledges that it is also reasonable to rely
                on Spotify's effective ad-supported percent-of-revenue paid as the
                benchmark rate, rather than the subscription percent-of-revenue it
                pays (as he proposes in the benchmark model) in his WDT. The Judges
                analyze Mr. Orszag's alternative approach infra, after considering
                the models proposed by Professor Shapiro and Dr. Peterson, that also
                use Spotify's ad-supported service as a benchmark.
                ---------------------------------------------------------------------------
                 Perhaps in recognition of the fact that the 9.1% substitution
                figure he cites from the Zauberman Survey does not reflect significant
                cross-elasticity, Mr. Orszag adds in a footnote, that ``no particular
                level of cross-elasticity is necessary for one market to serve as an
                appropriate benchmark for another market.'' To support this point, he
                presents as an example, quoted in part supra, the hypothetical that the
                subscription price for a cable television service in Chicago may be
                ``an ideal benchmark'' to use in order to set an appropriate
                subscription price for a cable television service in Philadelphia,
                ``even though there is zero cross-elasticity for cable services between
                the two cities, because residents of Philadelphia cannot access the
                Chicago service and vice versa.'' Orszag WDT ] 95 n.132. But this
                example only underscores the narrow relevancy of a ratio equivalency
                approach and its implicit assumption of a substitutability of (or
                proximate to) 1:1, to constitute effective cross-substitutability.\173\
                ---------------------------------------------------------------------------
                 \173\ The Judges incorporate by reference here their citations
                to Web IV and SDARS III, supra, in their consideration of Mr.
                Orszag's subscription model, pertaining to the import of the absence
                of sufficient cross-elasticity. See discussion supra, section
                IV.B.1.e.ii.
                ---------------------------------------------------------------------------
                 In this regard, Mr. Orszag's ``inter-city'' analogy reflects a
                subtle but important shift in his reasoning: He is dispensing with the
                Web IV/Professor Rubinfeld underpinning of the ratio equivalency
                model--high cross-substitutability (assumed or actual)--and asserting
                that his approach is consistent with the more traditional pure
                benchmarking approach, which relies on the similarity--not the cross-
                elasticity or substitutability--between sellers/licensors, buyers/
                licensees, and the rights being transferred between the benchmark and
                target products. The Judges' discern from Mr. Orszag's distinction a
                confirmation of their rationale for relying substantially on Professor
                Shapiro's benchmarking approach, because the cross-elasticity/
                substitutability revealed by the record is relatively low, whether in
                the subscription market (as discussed supra) or in the ad-supported
                market (as discussed here).\174\
                ---------------------------------------------------------------------------
                 \174\ The Judges also agree with the Services that Mr. Orszag's
                failure to estimate the own-elasticities of demand for his benchmark
                and target services compromises his attempt to apply the Web IV
                benchmark approach. ``Own-elasticities'' of demand reflect the
                responsiveness of quantity demanded to increases or decreases in the
                price of a product--typically a negative (inverse) relationship, as
                represented in the downward-sloping demand curve. Cross-elasticity
                measures the responsiveness of demand for product A in response to a
                change in the price of product B--a positive relationship for
                substitute products. See generally Robert S. Pindyck & Daniel L.
                Rubinfeld, Microeconomics at 33-36 (8th ed. 2013). As the Judges
                have noted in both SDARS III and Web IV, a significant level of
                cross-elasticity (proven or reasonably presumed) is necessary for
                the ratio-equivalency model to be broadly applicable, or else, as
                here, its application is limited by the extent of cross-elasticity
                demonstrated between the benchmark and target markets. Own
                elasticities can also be relevant because they indicate the relative
                pricing power of each tier of service (a low elasticity (i.e., high
                inelasticity) indicates relatively greater pricing power, and vice
                versa, pursuant to the Lerner Equation discussed in Web IV). If own-
                elasticities are roughly equal, then the services have a roughly
                equal concern over the impact on quantity (and thus revenue) of a
                change in retail prices, making the ratio equivalency model more
                appropriate, ceteris paribus. Further, high own-elasticity can be
                suggestive of significant cross-elasticity with regard to clearly
                substitutable products. A relatively high own-elasticity suggests
                that a given percentage increase in price will engender a larger
                percentage decrease in quantity, that is likely to result in
                substitution of a product sufficiently similar in price and
                characteristics, even in the absence a more specific measuring of
                cross-elasticity, such as through the use of consumer surveys.
                ---------------------------------------------------------------------------
                 The Judges also place no weight on Mr. Orszag's assertion that the
                willingness of ad-supported listeners to subject themselves to
                advertisements indicates a positive WTP. Although there is certainly
                disutility in listening to advertising that is annoying, uninformative
                or irrelevant, other advertising can be pleasant or amusing (or at
                least neutral), informative or relevant. Also, advertising
                interruptions allow a user to take advantage of the break to attend to
                other personal necessities. Moreover, ad-supported listeners are made
                aware of the presence of advertising, so they are already a self-
                selected cohort of consumers who have a tolerance for advertising. In
                any event, measurement of the cost of any disutility would be
                difficult, and Mr. Orszag certainly did not attempt to do so.
                Additionally, by choosing an ad-supported service, as Dr. Leonard
                notes, listeners have revealed a preference (given their budget
                constraints and utility preferences \175\) for that bundle of music +
                advertising over pure music priced at $4.99 per month or more. And of
                course, an immediate problem with Mr. Orszag's assertion is that the
                payments of advertising revenues reflect the WTP of advertisers--not
                the WTP of listeners. (Again, Mr. Orszag does not attempt to convert
                listener time into a direct monetary measure.)
                ---------------------------------------------------------------------------
                 \175\ Economic jargon often obscures reality. ``Budget
                constraints'' refer to consumers' limited incomes; for example, poor
                people will not have extra cash to spend on music, even if they
                would prefer the ``utility'' of an ad-free service, because they
                cannot transfer spending from necessities to the luxury of a
                subscription to a music service.
                ---------------------------------------------------------------------------
                 Further, advertising, like music, is an ``experience'' good. One
                does not know that certain advertising will be useful or not until it
                is heard. And in this context, it is important to appreciate that
                technological advancements in targeted advertising make it much more
                likely that advertising will be more useful to listeners than the
                former more blunderbuss approach.\176\
                ---------------------------------------------------------------------------
                 \176\ The Judges do not endorse in full Pandora's criticism that
                the record companies should not receive royalties based on
                advertising revenues generated by Pandora's arguably superior
                advertising platform. As SoundExchange notes, noninteractive
                services, including Pandora, also benefit from the superior
                identification, development and promotion of sound recordings and
                artists. Moreover, the advertising revenue is derived from the
                presence of listeners, who are attracted to Pandora in large measure
                because of the music produced by the record companies. Therefore,
                the advertisers' demand, and Pandora's investments in better
                monetization of that advertiser demand, are derived in part from the
                attributes of, and investments in, the underlying sound recordings.
                It is more accurate to state that Pandora's advertising revenues are
                jointly produced as a consequence of what economist call a ``joint
                production function,'' consisting of the quality of: (i) The record
                companies' music; (ii) Pandora's curation of the music; and (iii)
                Pandora's advertising platform. See 8/20/20 Tr. 3248 (Shapiro)
                (``the revenue earned [by Pandora's ad-supported service] is a
                combination of the music . . . creating the experience, the person .
                . . listening more, and then how much money can be collected per-
                play will depend also in an important way on value brought by the
                service [including] [Pandora's skill at monetization.'').
                Additionally, the purpose of a rate setting process, whether by
                negotiating counterparties in an unregulated market or by the
                Judges, is to apply economic analysis to determine how the overall
                value of these inputs will be allocated as between licensors and
                licensees. Although each side of the licensing market can accurately
                claim that its investments are responsible for generating value, and
                that the other side is wrongly appropriating that value for itself,
                such self-serving claims do nothing to assist in the allocation of
                value and, hence, the setting of royalty rates. See generally
                Richard Watt, Revenue Sharing as Compensation for Copyright Holders,
                8 Rev. Econ. Res. Copyright Issues 51, 56 & n.8 (2011) (economically
                a royalty rate derived from a percent-of-revenue approach is
                analogous to an ad valorem tax on the service).
                ---------------------------------------------------------------------------
                [[Page 59510]]
                 All of these advertising-related concerns were not addressed in the
                record, and their absence makes Mr. Orszag's speculation regarding
                listeners' revelation of a positive WTP unpersuasive.
                 In order to distill value from advertising revenues, the Judges
                agree with Dr. Leonard that Mr. Orszag would have been better served if
                he had analyzed the ad-supported tier as a ``multi-sided platform,
                where listeners, record companies and advertisers converge to create
                economic value for all participants. See Leonard WRT ] 54; 8/24/20 Tr.
                3561 (Leonard) (describing advertising-supported services as ``two-
                sided platform[s]'' connecting users to advertisers and distinguishing
                them from subscription services for which there is no ``other side of
                the market that you need to be worried about''); see generally David S.
                Evans & Richard Schmalensee, Matchmakers: The New Economics of
                Multisided Platforms (2016); Ruth Towse, Dealing with Digital: The
                Economic Organisation of Streamed Music, 42 Media Culture & Society,
                no. 7-8, 1461 (2020).\177\
                ---------------------------------------------------------------------------
                 \177\ Dr. Evans and Professor Schmalensee define a ``multi-sided
                platform'' as:
                 A business that operates in a physical or virtual place (a
                platform) to help two or more different groups find each other and
                interact. The different groups are called `sides.' For example,
                Facebook operates a virtual place where friends can send and receive
                messages, where advertisers can reach users, and where people can
                use apps and app developers can provide those apps.
                 Evans & Schmalensee, supra, at 210. Professor Towse notes the
                particular application of multi-sided platform economics to the
                analysis of ad-supported music services. Towse, 42 Media Culture &
                Society, at 1465 (``In the streaming market, the upstream price is
                negotiated by the [Digital Service Provider] for the rights to
                stream the music . . . for ad-based services, [it is] the price
                charged to the advertiser. It is an obvious application of platform
                economics.'') (emphasis added).
                 The Judges note that Mr. Orszag essentially endorses a platform-
                based approach in his WRT and hearing testimony, by acknowledging
                the appropriateness (in his model) of using revenue from the ad-
                supported service rather than subscription revenue. His testimony in
                that regard is discussed infra.
                ---------------------------------------------------------------------------
                 Additionally, the Judges find that the documents indicating that
                many Spotify subscribers originated as ad-supported listeners is
                uninformative. The Judges agree that the relevant measure is the extent
                to which ad-supported listeners convert to subscribers. Interestingly,
                that figure, [REDACTED]%, (as noted supra) is [REDACTED] to the 9.1%
                substitution figure from the Zauberman Survey (cited supra), which
                tends to confirm the low cross-elasticity between ad-supported and
                subscription tiers. Similarly, the internal Pandora documents on which
                SoundExchange relies do not [REDACTED], but rather purportedly
                estimate, [REDACTED].
                 In sum, the Judges find no sufficient basis to apply the
                benchmarking approach for the ad-supported noninteractive market that
                Mr. Orszag proffers in his WDT.\178\
                ---------------------------------------------------------------------------
                 \178\ The Judges' rejection of Mr. Orszag's ad-supported
                benchmark model moots any issues regarding his ad-supported
                benchmark adjustments.
                ---------------------------------------------------------------------------
                d. Professor Shapiro's Ad-Supported Benchmark Model
                 Professor Shapiro's ad-supported benchmark comes from the
                interactive ad-supported market. According to Professor Shapiro, this
                is an appropriate and direct benchmark, consistent with Web IV, in
                which the Judges likewise used ad-supported benchmarks to develop the
                ad-supported statutory rate.\179\
                ---------------------------------------------------------------------------
                 \179\ More particularly, in Web IV, the Judges relied on
                noninteractive ad-supported benchmarks: the Pandora/Merlin and
                iHeart/Warner agreements.
                ---------------------------------------------------------------------------
                 To apply this benchmark, Professor Shapiro begins by calculating
                weighted average effective per-play royalty rates. Specifically, he
                begins by analyzing the effective per-play rates paid by Spotify and
                SoundCloud \180\ to the Majors for performances on their ad-supported
                interactive tiers from May 2018 through April 2019--which he calculates
                as $[REDACTED] per play. Shapiro WDT at 33, 36 & tbl.8; 8/19/20 Tr.
                2900 (Shapiro). As discussed supra, although he includes SoundCloud
                data, essentially, the $[REDACTED]. Shapiro WDT at 36 & tbl.8; 8/19/20
                Tr. 2900 (Shapiro). Professor Shapiro further testifies that, to his
                knowledge, $[REDACTED] was the [REDACTED] at that time. 8/19/20 Tr.
                2900 (Shapiro).
                ---------------------------------------------------------------------------
                 \180\ It is undisputed that SoundCloud is not comparable to the
                target market services primarily because it has a high level of
                user-generated content and lacks access to the full catalogs of the
                record companies. 8/11/20 1408-09 (Orszag). Further, unlike other
                services, SoundCloud has always been mainly a platform where
                unsigned artists can post their music for downstream discovery.
                Harrison WDT ] 12; Trial Ex. 5289 at 7. The Services maintain that
                the issue regarding SoundCloud's suitability as a benchmark is
                ``much ado about nothing,'' because [REDACTED], Services RPFFCL ]
                206, and Professor Shapiro notes that [REDACTED] 8/19/20 Tr. 2100
                (Shapiro). Accordingly, the Judges do not rely on SoundCloud as an
                appropriate benchmark.
                ---------------------------------------------------------------------------
                 More particularly, Professor Shapiro divides: (1) The total royalty
                fees paid by Spotify and SoundCloud to each Major between May 2018 and
                April 2019; by (2) the play counts on their ad-supported interactive
                tiers during the same period. Shapiro WDT at 36 & tbl.8, 63 (Appx. D).
                 Professor Shapiro includes in his (pre-adjustment) $[REDACTED] per-
                play rate a previously omitted [REDACTED]. Shapiro WDT at 31 & Appx. D
                at 1. This [REDACTED] was needed because, pursuant to its contract with
                [REDACTED].\181\
                ---------------------------------------------------------------------------
                 \181\ However, Professor Shapiro declines to include a similar
                [REDACTED] payment by Spotify to Warner, asserting that the payment
                data he had been provided reflected a global true-up payment rather
                than a U.S. payment, without information to enable a break-out of
                the U.S. portion of the ``true-up.'' Shapiro WDT, app. D at 1 n.3;
                8/19/20 Tr. 2911-12 (Shapiro). The Judges discuss the [REDACTED]
                issue infra.
                ---------------------------------------------------------------------------
                 In addition, Professor Shapiro includes in his (pre-adjustment)
                $[REDACTED] per-play proposed rate a value for [REDACTED]. Professor
                Shapiro calculates this further value at $[REDACTED] per play. Shapiro
                WDT at 33 n.47; Appx. D at 1-2 & n.4; see also Trial Ex. 4044 at 14,
                43; Trial Ex. 5037 at 58-63 ([REDACTED]).
                 Before considering potential adjustments to his $[REDACTED]
                benchmark rate that may be required to account for differences between
                the benchmark and target markets, Professor Shapiro characterizes this
                $[REDACTED] per-play interactive market derived rate as exceeding an
                ``upper bound for the zone of reasonableness'' for ad-supported
                services. He reaches this opinion because he finds it would be
                ``unreasonable for [noninteractive services] to pay more per-
                performance for streams of sound recordings than the rate . . . for . .
                . interactive performances,'' which, because of its greater
                functionality, he characterizes as ``far more valuable'' than
                noninteractive performances). Shapiro WDT at 37.\182\
                ---------------------------------------------------------------------------
                 \182\ To be clear, this benchmarking approach is not the ratio
                equivalency method. Because Professor Shapiro is applying effective
                noninteractive rates as his benchmarks, his model does not require
                an assumption of a particular level of substitution (cross-
                elasticity) between the benchmark and target markets that would
                affect the per-play rate in the target market.
                ---------------------------------------------------------------------------
                [[Page 59511]]
                i. Professor Shapiro's Adjustments
                 Professor Shapiro proposes the same three adjustments to his
                benchmark rate for ad-supported webcasters as he did for his
                subscription benchmark rate: (1) An interactivity adjustment; (2) a
                skips adjustment; and (3) an effective competition adjustment. Shapiro
                WDT at 37-40. He supports the application of all three adjustments on
                the same general bases he advocates for making these adjustments to his
                subscription benchmark, as discussed supra.
                (A) Professor Shapiro's Proposed Interactivity Adjustment
                 Professor Shapiro proposes to make the same two-step adjustment he
                applies to the subscription benchmark. He relies on the principle he
                applies in the subscription market, viz., that ``the rights conferred
                to play music interactively . . . are much more valuable than the
                rights conferred for statutory services. . . .'' Shapiro WDT at 33-34.
                To make this adjustment--and even though Professor Shapiro eschews
                reliance on the ratio equivalency approach for this ad-supported
                benchmark--he proposes that his unadjusted $[REDACTED] benchmark be
                reduced by 50% by applying the same 2:1 ``ratio equivalency'' ratio
                that the Judges have only applied in connection with subscription
                services. Shapiro WDT at 38-39. To apply this ratio adjustment in the
                ad-supported context, Professor Shapiro relies on the relative retail
                prices charged by ten leading subscription interactive services, $9.99
                per service, and three mid-tier services (offering limited
                interactivity), $4.99 per service.\183\ This adjustment reduces
                Professor Shapiro's benchmark rate from $[REDACTED] to $[REDACTED].
                Shapiro WDT at 38-39.
                ---------------------------------------------------------------------------
                 \183\ The services on which Professor Shapiro relies are the
                same as those he relied on to make this adjustment in the
                subscription market (Pandora Plus, Slacker LiveXLive Plus, and
                Napster unRadio).
                ---------------------------------------------------------------------------
                 Professor Shapiro testifies that he found further support for his
                2:1 interactivity adjustment and the concomitant rate reduction to
                $[REDACTED] by comparing: (1) The rate Pandora pays Warner for limited
                Premium Access on-demand intervals on Pandora Free: $[REDACTED]; with
                (2) the noninteractive rate Pandora pays Warner: $[REDACTED] for
                noninteractive plays on its noninteractive tier. Trial. Exs. 5126,
                4031; Shapiro WRT at 34. Similarly, Professor Shapiro notes that
                Pandora's contract with Sony contains a per-play royalty rate of
                $[REDACTED] for noninteractive performances on its ad-supported
                noninteractive service, Trial. Exs. 5012 at 10; 5024 at 3, compared
                with a $[REDACTED] rate for interactive plays on that same ad-supported
                noninteractive tier. Shapiro WRT at 34 n.93.
                 As he asserts regarding his proposed subscription benchmark
                interactivity adjustment, Professor Shapiro claims the above 2:1
                adjustment remains insufficient because it compares the retail
                subscription price from the benchmark market to mid-tier services with
                limited interactive features--not to statutory noninteractive services.
                Shapiro WDT at 38. To complete the interactivity adjustment to account
                for this point, Professor Shapiro proposes (again, as with his
                subscription benchmark) to make an adjustment that reflects the
                percentage difference between: (1) The effective per-play mid-tier
                royalty rate for subscription services, $[REDACTED]; and (2) the
                statutory rate paid by subscription noninteractive services: $0.0023.
                Shapiro WDT at 30 & tbl.5, 38-39. This percentage difference is
                [REDACTED]%, based on a [REDACTED]:1 ratio of $[REDACTED]:$[REDACTED].
                Id. Applying this [REDACTED]% adjustment on top of the 2:1 adjustment
                reduces Professor Shapiro's interim rate (before any other adjustments)
                from $[REDACTED] to $[REDACTED].
                 However, in an acknowledgement that Spotify's ad-supported mobile
                tier (a part of his benchmark service) is less than fully interactive,
                with functionality more like that of a mid-tier limited interactive
                service, Professor Shapiro testifies that it would be reasonable for
                the Judges to apply only his second interactivity adjustment--i.e., the
                [REDACTED]:1 that he asserts adjusts for the difference between the
                value of (1) mid-tier services; and (2) statutorily-compliant
                functionality. 8/19/20 Tr. 2905. Applying only this second
                interactivity adjustment, Professor Shapiro lowers his $[REDACTED] per-
                play rate (described above) to $[REDACTED] (subject to the additional
                adjustments detailed below).
                (B) Professor Shapiro's Proposed Skips Adjustment
                 Professor Shapiro next proposes to make a skips adjustment, which
                he asserts is required because noninteractive licensees are required by
                statute to pay for plays under thirty seconds, but the benchmark
                interactive services do not pay for such truncated plays. Shapiro WDT
                at 39. Applying the same analysis as in his subscription benchmark
                model, and noting that recent Pandora data shows less-than-thirty
                second performances account for about [REDACTED]% of total radio
                performances, he derives a [REDACTED]:1 ratio for his skips adjustment.
                Shapiro WDT at 39. This adjustment lowers Professor Shapiro's benchmark
                rate for ad-supported services from $[REDACTED] to $[REDACTED]
                (applying both of his interactivity adjustments), or from $[REDACTED]
                to $[REDACTED] (applying only his second interactivity adjustment).
                (C) Professor Shapiro's Proposed Effective Competition Adjustment
                 Professor Shapiro proposes the same effective competition
                adjustment here, as he did for his subscription benchmark. That is, he
                calculates the difference between the effective per-performance rates
                paid to the Majors by [REDACTED] interactive service ($[REDACTED]) and
                the weighted average of the effective per-performance rates paid by ten
                other major on-demand streaming services ($[REDACTED]). Shapiro WDT at
                39-40, 42 & tbl.10. This results in a [REDACTED]:1 adjustment factor.
                This adjustment lowers Professor Shapiro's benchmark rate for
                advertising supported webcasters from $[REDACTED] to $[REDACTED] (if
                both interactivity adjustments are applied) or from $[REDACTED] to
                $[REDACTED] (if only the second interactivity adjustment is made). 8/
                19/20 Tr. 2906-2907 (Shapiro).\184\
                ---------------------------------------------------------------------------
                 \184\ The Judges consider Professor Shapiro's proposed effective
                competition adjustment in light of (1) their finding that the 12%
                steering adjustment remains appropriate; and (2) SoundExchange's
                criticism, discussed infra.
                ---------------------------------------------------------------------------
                 As discussed in detail supra,\185\ the Judges found that the 12%
                effective competition adjustment derived in Web IV--based on the pro-
                competitive effects of steering--remains the best measure, ceteris
                paribus, for transforming rates inflated by the Majors' complementary
                oligopoly market power into effectively competitive rates. But, as also
                noted above, all other things were not equal (comparing the Web IV and
                Web V evidence) in the subscription benchmarking exercise, whereas
                here, the [REDACTED].\186\
                ---------------------------------------------------------------------------
                 \185\ See supra, section III.C
                 \186\ See supra, section III.D
                ---------------------------------------------------------------------------
                e. SoundExchange's Criticisms of Professor Shapiro's Ad-Supported
                Benchmark Model
                i. Professor Shapiro's Decision Not To Include the [REDACTED] Value
                 Professor Shapiro declines to apply a [REDACTED].\187\ He explained
                in his
                [[Page 59512]]
                WDT that, although he applies a [REDACTED], he declines to apply a
                Warner ``true-up'' because it is his understanding that, although
                ``[REDACTED].'' Shapiro WDT at 63; Appx. D at 1 n.3 (emphasis added);
                see also 8/19/20 Tr. 2911-12 (Shapiro).\188\
                ---------------------------------------------------------------------------
                 \187\ A ``true-up'' in this context is an increase in total
                royalties paid at the end of the year. The additional royalties are
                due because, although [REDACTED]'' See 9/3/20 Tr. 5668 (Harrison);
                Shapiro WDT at 31 n.47.
                 \188\ The omission of this [REDACTED] is significant. When this
                royalty payment is included, Professor Shapiro's (unadjusted)
                benchmark rate increases from approximately $[REDACTED] to
                approximately $[REDACTED]. Compare Orszag WRT tbl.8 with 8/19/20 Tr.
                2912 (Shapiro) (describing the impact of applying or not applying
                the [REDACTED]).
                ---------------------------------------------------------------------------
                 However, Mr. Orszag, in his WRT, asserts that Professor Shapiro
                should have made the [REDACTED]. Moreover, Mr. Orszag identified the
                document upon which he relies as supportive of this testimony. Orszag
                WRT ] 80 n.178 (identifying the royalty statement document as
                ``SOUNDEX_W5_NATIVE_PROD_000751_RESTRICTED.xlsx.'' (henceforth the
                ``000751'' document)).\189\ SoundExchange had produced the ``000751''
                document to the Services in discovery, and Professor Shapiro
                specifically identified it as one of the documents he reviewed in
                preparing his written testimony. Shapiro WDT, Appx. C; see also id.
                app. D at 1 & n.1 (identifying the documents on which Professor Shapiro
                relies to calculate ad-supported royalty payments as
                SOUNDEX_W5_NATIVE_PROD_000001-001558, a sequence that includes
                ``000751,'' the document identified by Mr. Orszag).
                ---------------------------------------------------------------------------
                 \189\ This document was not proffered as evidence at the hearing
                and, accordingly, is not part of the hearing record.
                ---------------------------------------------------------------------------
                 Professor Shapiro had an opportunity at the hearing to contest Mr.
                Orszag's written rebuttal testimony in this regard, and, if he had
                contested that testimony, to explain why the aforementioned document
                was insufficient. Professor Shapiro did continue to claim at the
                hearing that [REDACTED]'' but he did not address Mr. Orszag's assertion
                that the document the latter cited, the ``00751'' document, in fact
                [REDACTED]. 8/19/20 Tr. 2911-12 (Shapiro) (Professor Shapiro asserting
                that he ``[REDACTED]).
                 The Judges find Professor Shapiro's failure to offer a substantive
                rebuttal relating to this document to be especially problematic
                because, as noted above, Professor Shapiro had already reviewed that
                document, had possession of it (or access to it) and presumably was
                familiar with its contents. Further, in its post-hearing proposed
                findings, the Services continue to ignore the ``07751'' document,
                asserting that ``Mr. Orszag did not calculate the value of the true-up
                himself or provide the data required to do so.'' Pandora/Sirius XM
                PFFCL ] 225. But, as noted above, Mr. Orszag did identify a document
                that he said contained the necessary data, and that specific testimony
                remained unchallenged.
                 It is also noteworthy that Google's expert economic witness, Dr.
                Peterson, having access to the same data, decided to apply the
                [REDACTED] in toto. 8/25/20 Tr. 3780 (Peterson) [REDACTED]''); see also
                8/10/20 Tr. 1172-73 (Orszag) (``Dr. Peterson and I have similarly found
                the same result . . . .'').
                 Professor Shapiro's failure to challenge the sufficiency of the
                document identified by Mr. Orszag, combined with Dr. Peterson'
                application of a [REDACTED] convinces the Judges that Professor
                Shapiro's failure to apply a [REDACTED] was incorrect. Applying this
                [REDACTED] increases Professor Shapiro's ad-supported benchmark rate,
                before any adjustments, from $[REDACTED] to $[REDACTED] (rounded).
                Orszag WRT tbls.7 & 8.\190\
                ---------------------------------------------------------------------------
                 \190\ Mr. Orszag, like Professor Shapiro, includes in his
                calculation of the Spotify effective rate the value of marketing
                considerations (alternatively valued at the functionally equivalent
                rate $[REDACTED] per-play) in the agreements between Spotify and
                major record companies. Compare Shapiro WDT at 31 n.47 & app. D at 2
                with Orszag WRT tbls. 7 & 8.
                ---------------------------------------------------------------------------
                ii. Professor Shapiro's Failure To Account for the Funneling
                (Conversion) Value of Spotify's Ad-Supported Service
                 Mr. Orszag claims that a fundamental problem with Professor
                Shapiro's use of the Spotify ad-supported tier as a benchmark is that
                he fails to account for the fact that this benchmark also incorporates
                a successful and thus valuable feature: The ability to convert users to
                Spotify's more lucrative subscription tier. Orszag WRT ] 72.
                 SoundExchange notes that, at the hearing, Professor Shapiro
                acknowledges this point. First, as a general matter, he agreed that the
                more promotional a music service is of other revenue streams (net of
                substitution for other revenue streams, the lower the royalty rate the
                service should be able to negotiate. Then, specifically, Professor
                Shapiro admitted that, if [REDACTED], then [REDACTED] 8/19/20 Tr. 2967
                (Shapiro).
                 Mr. Orszag further explains that the importance of funneling ad-
                supported users into paid subscriptions is thus a [REDACTED] component
                of the bargain between the record companies and Spotify. That value is
                manifested in the parties' negotiations by the record companies'
                [REDACTED]. Orszag WRT ] 73.
                 Another SoundExchange economic witness, Professor Tucker, places
                Spotify's funneling/conversion value in the broader contemporary
                economic context of ``freemium'' pricing models. More particularly, she
                notes the need for sellers to experiment constantly with different ways
                of ``nudging people to upgrade'' and reminding them of the potential
                benefits of the premium paid product, '' so as to overcome the risk
                that customers will become ``anchored to a zero price.'' 8/17/20 Tr.
                2116 (Tucker). Professor Tucker opined that the record companies'
                [REDACTED] was a striking application of the commercial necessity to
                funnel and convert to a premium service. Id. at 2120-21. (Tucker).
                 The Services contend that SoundExchange has failed to demonstrate
                adequately the [REDACTED]. Also, they contend record company witnesses
                have indicated that, notwithstanding any discounts/penalties based on
                listener tenure, the record companies have [REDACTED] Services RPFFCL
                ]] 179-183 (and record citations therein).
                 Notwithstanding these rejoinders, the Services propose that, if the
                Judges find Spotify's ad-supported tier rates to include [REDACTED],
                rather than reject the ad-supported rates as benchmarks, the Judges
                should adjust the Spotify ad-supported benchmark rate upwards in an
                attempt to isolate and remove the [REDACTED] in that rate tier. See 8/
                19/20 Tr. 2912 (Shapiro). In that regard, Professor Shapiro agreed that
                other potential evidence exists to calculate this adjustment: The
                express terms in [REDACTED] 8/19/20 Tr. 2912-13, 2914 (Shapiro)
                (agreeing with Judge Strickler's suggestion that the [REDACTED]); see
                generally Services PFFCL ] 146; Pandora/Sirius XM PFFCL ]] 242-243 (and
                record citations therein).
                 The Judges find that, despite the various incentives and market
                power that may have led to the [REDACTED],\191\ the [REDACTED], serve
                as a useful basis by which to isolate the [REDACTED]. Indeed, as
                discussed at length infra, the parties have adopted a basis by which to
                apply these [REDACTED].
                ---------------------------------------------------------------------------
                 \191\ Any potential impact from differences in market or
                bargaining power, such as from the licensors' complementary
                oligopoly market structure, Spotify's unique position as a pureplay
                service, interactivity differences or play counts, is addressed by
                the Judges elsewhere in this Determination, both generally and with
                specific regard to the experts' rate proposals.
                ---------------------------------------------------------------------------
                 Having considered SoundExchange's criticisms of Professor Shapiro's
                establishment of a benchmark, the
                [[Page 59513]]
                Judges next proceed to a consideration of SoundExchange's criticisms of
                the potential adjustments proffered by Professor Shapiro.
                iii. Criticism of Professor Shapiro's Interactivity Adjustment
                 Taking on Professor Shapiro's first interactivity adjustment,
                SoundExchange challenges the correctness of applying a supposed value
                for interactivity derived from the subscription market in the ad-
                supported market. More particularly, SoundExchange asserts, relying on
                Professor Shapiro's own testimony, that the added value, if any, of
                interactive functionality depends on its value to consumers in the
                downstream market. In a subscription market, SoundExchange avers the
                service's demand for interactive functionality is a derived demand,
                arising from its downstream customers' WTP for interactive
                functionality. SX RPFFCL (to Pandora/Sirius XM) ] 229 (citing 8/19/20
                Tr. 2975-76 (Shapiro)).
                 In contrast to a subscription market, SoundExchange maintains, an
                ad-supported service's demand for interactive functionality would be
                irrelevant to the calculation of advertisers' WTP for advertisements,
                and the users' willingness to listen to them. Id. (citing 8/19/20 Tr.
                2977-80 (Shapiro)). Thus, SoundExchange maintains that Professor
                Shapiro errs in using an interactivity adjustment derived from the
                subscription market to adjust his ad-supported rates. In further
                support of this argument, SoundExchange relies on the testimony of two
                of the Services' economists, testifying for the NAB and Google,
                respectively, in this proceeding. Id. (citing Leonard WRT ] 54 (``[T]he
                relationship between revenue generation and interactivity is
                substantially different for ad-supported than for subscription
                services.''); and 8/25/20 Tr. 3702-03 (Peterson) (``[I]t's really the
                willingness to pay of advertisers and the ability of the service to
                attract advertisers that is going to affect the revenue on the service.
                It's not listeners that are providing that revenue.'')).
                 Turning to Professor Shapiro's second interactivity adjustment
                based on mid-tier subscription services, SoundExchange offers the same
                criticism as it asserts immediately above because this adjustment is
                also derived from the subscription market. SX RPFFCL (to Pandora/Sirius
                XM) ] 230. SoundExchange also raises the criticism of this second
                interactivity adjustment it makes in connection with Professor
                Shapiro's subscription benchmark adjustments. That is, SoundExchange
                re-asserts that Professor Shapiro: (1) Entirely ignores consumer WTP to
                pay in the downstream market by relying on upstream royalty
                differentials; (2) cannot cite to evidence any positive WTP of
                consumers in the downstream market for the additional functionality
                that Pandora obtained for its mid-tier Pandora Plus service; (3)
                wrongly dismisses the fact that the subscription price for Pandora's
                prior noninteractive service was the same ($4.99) as its subsequent
                mid-tier Pandora Plus service; (4) merely speculates that the
                additional functionality of Pandora Plus may have increased consumer
                demand compared to demand for its prior noninteractive service; (5)
                ignores the fact that any increase in subscribership that may have
                occurred simply adds more plays and more revenue, without necessarily
                changing revenue per play; (6) fails to address the fact that
                [REDACTED] and (7) wrongly uses a statutory rate (the $0.0023 rate) as
                his base against which to compute the percentage value added by
                Pandora's mid-tier service. See SX PFFCL ]] 143-156 (and record
                citations therein).
                 SoundExchange also takes issue with the implicit premise that
                Spotify's ad-supported service has the full functionality necessary to
                justify the interactivity adjustments Professor Shapiro proposes. It
                notes that (as Professor Shapiro himself acknowledges), although
                Spotify's ad-supported service is fully interactive when used on a
                desktop, its mobile service is not fully interactive, but rather
                provides a ``shuffle'' feature that lets listeners select an artist or
                playlist and hear a somewhat randomized stream of tracks by that artist
                or from that playlist. See 8/19/20 Tr. 2985 (Shapiro).\192\ However,
                SoundExchange notes that Professor Shapiro does not reduce his proposed
                interactivity adjustment to reflect the lower functionality of the
                mobile service, 8/19/20 Tr. 2986 (Shapiro), even though he acknowledges
                that ``[REDACTED]'' and its [REDACTED] 8/19/20 Tr. 2986-87
                (Shapiro).\193\
                ---------------------------------------------------------------------------
                 \192\ Spotify's mobile shuffle service also allows up to 6 songs
                from an album within a 60 minute period, compared to the statutory
                sound recording performance complement which allows only 3 songs
                from an album within a 3 hour period. See Peterson WDT ] 45 n.33.
                 \193\ It was for this reason that Professor Shapiro proposes the
                alternative interactivity adjustment approach, as discussed supra,
                whereby only the difference between the mid-tier royalty rate and
                the statutory rate (his ``second'' interactivity adjustment) would
                be applied. However, SoundExchange characterizes this approach as a
                ``tactical retreat'' without economic meaning, because Professor
                Shapiro offers no explanation for why an interactivity adjustment
                for a mid-tier subscription service-with the same functionality
                available on both desktop and mobile devices-is applicable to
                Spotify's ad-supported service (with functionality that differs
                depending on whether the music is delivered via a mobile or a
                desktop method). SX RPFFCL (to Pandora/Sirius XM) ] 233.
                ---------------------------------------------------------------------------
                 SoundExchange also takes issue with Professor Shapiro's reliance on
                the per-play rates of $[REDACTED] for Premium Access plays on Pandora's
                noninteractive service. It notes that, for example, Sony's contract
                with [REDACTED]'' Trial Ex. 5097 at 1. Accordingly, SoundExchange
                maintains that these per-play rates embody a promotional value, and
                thus do not reflect the stand-alone value of on-demand functionality on
                Pandora's ad-supported service.
                iv. Criticism of Professor Shapiro's ``Skips'' Adjustment
                 SoundExchange questions the probative value of the data upon which
                Professor Shapiro relies for his [REDACTED]% skips adjustment on the
                same basis as it challenges his application of this data to his skips
                adjustment in the subscription market. To recap the criticism,
                SoundExchange notes that Professor Shapiro acknowledges that this data
                came from noninteractive plays available on all three tiers of
                Pandora's service--ad-supported, mid-tier and fully interactive. 8/20/
                20 Tr. 3028-29 (Shapiro). As a consequence, Mr. Orszag asserts, the
                [REDACTED]% ``skips'' rate is likely overstated because subscribers to
                Pandora's two interactive tiers have unlimited skips, making them more
                likely to skip when accessing noninteractive plays on those two tiers.
                Orszag WRT ] 120. SoundExchange notes that Professor Shapiro agrees but
                testifies that any such upward bias would have had a de minimis impact,
                so he did not measure the effect. 8/20/20 Tr. 3030-32 (Shapiro).
                v. Criticisms of Professor Shapiro's Effective Competition Adjustment
                 SoundExchange asserts that no effective competition adjustment is
                warranted. Because Professor Shapiro proffers the same [REDACTED]%
                effective competition adjustment to the ad-supported rate as he does to
                the subscription rate, for the same reasons, SoundExchange sets forth
                the same substantive opposition. See SX PFFCL ]] 487-489. Accordingly,
                the Judges' recitation of that argument supra is incorporated by
                reference here.\194\
                ---------------------------------------------------------------------------
                 \194\ See supra, section IV.B.1.e.v(C).
                ---------------------------------------------------------------------------
                 SoundExchange also repeats its argument regarding the virtual
                equivalency of the $[REDACTED]
                [[Page 59514]]
                effective per-play rate for [REDACTED] and the $[REDACTED] effective
                per-play rate for Spotify. Again, SoundExchange notes that Professor
                Shapiro characterizes this [REDACTED] rate as effectively competitive,
                whereas he asserts that [REDACTED] reflects the Majors' complementary
                oligopoly power. See SX PFFCL ]] 483-486 (and record citations
                therein).
                f. The Judges' Analysis and Findings Regarding Professor Shapiro's
                Proposed Adjustments
                i. Professor Shapiro's Proposed First and Second Interactivity
                Adjustments
                 The Judges reject Professor Shapiro's proposed interactivity
                adjustments to his proposed ad-supported rate. In reaching this
                finding, the Judges agree with SoundExchange that the concept of added
                economic value for interactivity is not a suitable basis to adjust
                downward a proposed benchmark rate. Advertisers, not listeners, pay the
                royalties. And there is insufficient evidence to establish that
                advertisers' payments to noninteractive ad-supported services are a
                function of the level of interactivity of that service.\195\ Moreover,
                Professor Shapiro's attempt to apply the 2:1 interactivity adjustment
                derived from the subscription market is not only unsupported, it is
                ironic, because Professor Shapiro has rightfully chastised Mr. Orszag
                for applying subscription market data to divine an ad-supported rate,
                as discussed supra.
                ---------------------------------------------------------------------------
                 \195\ To be sure, listeners to ad-supported services may well
                prefer interactive functionality to noninteractive functionality,
                because the former provides greater utility. The problem is that
                such a preference is not revealed in this multi-sided platform
                context because the listeners do not make purchasing decisions.
                ---------------------------------------------------------------------------
                 The Judges also decline to endorse Professor Shapiro's alternative
                proposal to apply only his second interactivity adjustment. As the
                Judges explained supra regarding Professor Shapiro's proffer of this
                [REDACTED]% adjustment in the subscription market, there is no
                sufficient evidentiary basis to use the entirety of the upstream
                royalty differences to generate downstream differences in interactivity
                value, nor is there sufficient evidence that any of the royalty
                difference ($[REDACTED]) reflected actual value differences, given the
                $4.99/month price for both Pandora's prior Pandora One statutory
                subscription service and its subsequent Pandora Plus mid-tier
                subscription service. Moreover, because this royalty differential
                relates to the subscription market, the Judges find it (like professor
                Shapiro's proffered first interactivity adjustment) to be uninformative
                with regard to the ad-supported market.
                ii. Professor Shapiro's Proposed Skips Adjustment
                 SoundExchange does not add any other criticisms of Professor
                Shapiro's skips adjustment to its discussion of his ad-supported
                adjustment to his subscription skips adjustment. Accordingly, the
                Judges adopt (and incorporate by reference here) the same analysis and
                the same finding of a [REDACTED]% skips adjustment as they found for
                the subscription market.
                iii. Professor Shapiro's Proposed Effective Competition Adjustment
                 Because Professor Shapiro's proffered ad-supported effective
                competition adjustment, and SoundExchange's criticism thereof, are
                identical to their positions regarding this potential adjustment in the
                subscription market, the Judges incorporate by reference here their
                rejection of that adjustment, and the reasons for that rejection.\196\
                ---------------------------------------------------------------------------
                 \196\ See supra, section IV.B.1.e.v(C). The Judges add, though,
                that Professor Shapiro's ad-supported methodology appears to shed
                light on Pandora's decision (discussed supra) to propose an
                effective competition adjustment ([REDACTED]%) based on the
                difference between the interactive average royalty rate
                ($[REDACTED]) and the [REDACTED] royalty rate ($[REDACTED]), rather
                than the difference between the $[REDACTED] average rate and
                [REDACTED]s $[REDACTED] effective per-play rate. Because Pandora
                uses the Spotify ad-supported rate as its benchmark, if it
                identified Spotify's effective per-play rate (based on a [REDACTED])
                as effectively competitive, it could not then rely on that rate to
                generate a downward effective competition adjustment, as exposed by
                SoundExchange. That would have significantly increased Pandora's
                proposed benchmark rate.
                ---------------------------------------------------------------------------
                 The Judges' rejection of Professor Shapiro's proposed effective
                competition adjustment does not mean that no such adjustment is
                warranted. Rather, the Judges apply the same analysis to the ad-
                supported sector as they have in the subscription context. However, the
                Judges' application of that approach here in the ad-supported sector
                differs from their analysis in the subscription sector. To recap, in
                the subscription sector, [REDACTED].\197\ Thus, when applying the
                [REDACTED]% effective competition adjustment based on the price-
                competitive impact of steering, the Judges offset the percentage
                difference between the [REDACTED]% and [REDACTED]% rates--[REDACTED]%--
                to set an effective competition adjustment of [REDACTED]% (i.e.,
                [REDACTED]%-[REDACTED]%).
                ---------------------------------------------------------------------------
                 \197\ Under the 2017 Agreements, [REDACTED]. Shapiro WDT at 40,
                tbl.10; see also Orszag WDT ] 153 & tbl.15 ([REDACTED]).
                ---------------------------------------------------------------------------
                 However, in the ad-supported sector, [REDACTED]. Indeed, the Majors
                [REDACTED]. Ultimately, the Majors and Spotify [REDACTED]. Trial Ex.
                4040 (Universal/Spotify 2017Agreement); Trial Ex. 5038 (Warner/Spotify
                Agreement).
                 With regard to the headline per-play rates, the 2017 Universal-
                Spotify Agreement [REDACTED]. Compare Trial Ex. 2062, Fees Annex, p. 3
                (2013 Agreement) with Trial Ex. 4040, Fees Annex, p.1 of 3; see also
                Harrison WDT ] 24 (noting [REDACTED]); Shapiro WRT at 19 n.60
                ([REDACTED]. Similarly, [REDACTED]. Compare Trial Ex. 5020 ex. I (Rate
                Card) (2013 Agreement) with Trial Ex. 5038 app. 1 (Rate Card) (2017
                Agreement).\198\
                ---------------------------------------------------------------------------
                 \198\ The Sony/Spotify 2013 and 2017 Agreements [REDACTED]. See
                Trial Exs. 5074 (2013 Agreement) and 5011 (2017 Agreement); see also
                Orszag WDT, fig.6..
                ---------------------------------------------------------------------------
                 In the other tier of its 2017 Agreements with [REDACTED], Spotify
                [REDACTED]. Spotify has been paying royalties [REDACTED] 2017
                Agreements because that [REDACTED]. 8/20/20 Tr. 3085-86 (Shapiro); 8/
                11/20 Tr. 1233 (Orszag). But, as Mr. Harrison of Universal
                acknowledged, [REDACTED]. 9/3/2020 Tr. 5710-11 (Harrison); SX PFFCL ]
                291 (acknowledging the [REDACTED]). Further, there is no evidence to
                indicate that the effective per-play rate on the ad-supported tier
                [REDACTED] under Spotify's 2017 Agreements with the other two Majors,
                i.e., Warner or Sony.
                 Mr. Harrison asserts that the reason Spotify's [REDACTED] was
                because Spotify was [REDACTED]. But the ability of a licensor to
                extract value from a licensee's [REDACTED] is precisely the sort of
                ``heads-I-win, tails-you-lose'' advantage that the Judges noted in
                SDARS III is part-and-parcel of a licensor's complementary oligopoly
                power. SDARS III, 83 FR at 65228. Accordingly, the 2017 Agreement
                between Universal and Spotify, with regard to the ad-supported rates
                (and unlike with regard to the subscription rates), is consistent with
                an undiminished exercise of complementary oligopoly power.\199\
                ---------------------------------------------------------------------------
                 \199\ The Judges discussed this phenomenon elsewhere in this
                Determination, regarding the Majors' obtaining a share of the value
                of Pandora's investment in the monetization of its advertising
                platform. In that context and in the present context, the extent to
                which the Majors can share in the increase in advertising revenue is
                a function of their complementary oligopoly power (as is every
                aspect of the rate-setting process). This particular aspect of the
                Majors' complementary oligopoly power is mitigated by the Judges'
                general inclusion of the [REDACTED]% effective competition
                adjustment, which is broadly intended to offset all aspects of the
                Majors' complementary oligopoly power (that is not otherwise offset
                by Spotify's countervailing power in the subscription benchmark
                market).
                ---------------------------------------------------------------------------
                 Additionally, by obtaining [REDACTED] in the 2017 Agreements,
                Universal and Warner [REDACTED],
                [[Page 59515]]
                relative to their 2013 Agreements, [REDACTED]. Thus, [REDACTED] of the
                2017 Agreements, these Majors had [REDACTED]--which, as noted above,
                [REDACTED], according to Mr. Harrison.
                 The Judges find these facts to belie any assertion that [REDACTED].
                Thus, the effective competition adjustment on the ad-supported tier
                remains at [REDACTED]%, as it pertains to Professor Shapiro's benchmark
                rate.
                g. Applying the Skips and Effective Competition Adjustments
                 Because the Judges do not apply any interactivity adjustment to
                Professor Shapiro's ad-supported benchmark rate, they adjust the
                $[REDACTED] per-play ad-supported rate by first applying the
                [REDACTED]% adjustment for skips, which reduces the rate to
                $[REDACTED]. The Judges then apply the effective competition adjustment
                of [REDACTED]. The resulting rate is $[REDACTED] ($[REDACTED])
                rounded).
                3. Supplementation by Mr. Orszag and Professor Shapiro to Their
                Original Ad-Supported Benchmarking Approaches
                 Both Mr. Orszag and Professor Shapiro supplement their ad-supported
                benchmarking models in manners that narrow the differences between
                their proposed rates. Each expert's supplemental position is examined
                seriatim below.
                a. Professor Shapiro Acknowledges the Propriety of Adjusting His
                Proposed Spotify Ad-Supported Benchmark Rate Higher To Account for
                Spotify's Ability To Funnel Ad-Supported Users Into Its Higher Royalty-
                Bearing Subscription Tier
                 Professor Shapiro takes notice of SoundExchange's criticism that
                his ad-supported benchmark model fails to account for Spotify's added
                value as a funneling tool, converting ad-supported listeners into
                subscribers who pay a higher retail price and generate higher
                royalties. 8/19/20 Tr. 2912 (Shapiro) (``[[REDACTED]''); see also
                Orszag WRT ] 72. Further, for benchmarking purposes in this proceeding,
                Pandora assumes that [REDACTED]a value to the Majors that [REDACTED].
                Pandora/Sirius XM PFFCL ] 241.\200\
                ---------------------------------------------------------------------------
                 \200\ Consistent with this assumption, the Judges have described
                supra the ad-supported rate structure in Spotify's agreements with
                Universal and Warner, respectively, that provide Spotify [REDACTED].
                ---------------------------------------------------------------------------
                 Having adopted this assumption, Professor Shapiro testifies that
                the appropriate response is not to disregard Spotify's ad-supported
                tier rates. Rather, the correct approach is to address Spotify's ad-
                supported rate structure by [REDACTED]. 8/19/20 Tr. 2912 (Shapiro);
                Shapiro WRT at 42.
                 Taking note of the aforementioned Spotify agreements with Warner
                and Universal, Professor Shapiro focuses on the per-play royalty rates
                Spotify pays [REDACTED]): $[REDACTED].\201\ Each of these rates,
                Professor Shapiro notes, represents a [REDACTED]% [REDACTED] the base
                per-play minimum specified in the agreements. Shapiro WRT at 43;
                Harrison WDT ] 67 (regarding the Universal agreement); Adadevoh WDT ]
                21 (regarding the Warner Agreement).
                ---------------------------------------------------------------------------
                 \201\ There is no evidence of a comparable [REDACTED] rate in
                its agreement with Sony.
                ---------------------------------------------------------------------------
                 According to Professor Shapiro, it would be appropriate to use the
                [REDACTED]users, as the basis for an upward adjustment to his benchmark
                rate, in order to [REDACTED]. In other words, [REDACTED]. 8/19/20 Tr.
                2912-14 (Shapiro).
                 Professor Shapiro at first intended to adjust his benchmark rate
                higher to reflect the full [REDACTED]% [REDACTED]. However, Mr. Orszag
                pointed to a fact that indicated Professor Shapiro would actually
                overstate his benchmark if he applied [REDACTED]. Specifically, Mr.
                Orszag testified:
                 You just can't take the rate and [REDACTED]. That would be
                inappropriate. One would want to weight by the number of subscribers
                who have been--have been [REDACTED] [REDACTED].
                 8/11/20 Tr. 1382 (Orszag). Mr. Orszag used this data to determine
                that, to adjust the proposed royalty rate derived by Professor Shapiro
                (and by Dr. Peterson), as well as the proposed royalty rates he
                derived--to eliminate the funneling/conversion value in the rate
                structure--required a [REDACTED] adjustment (a [REDACTED]) in their
                respective rates. 8/11/20 Tr. 1382, 1405-06 (Orszag); 8/25/20 Tr. 3816
                (Orszag).\202\
                ---------------------------------------------------------------------------
                 \202\ Mr. Orszag calculated this [REDACTED] adjustment from a
                worksheet he utilized in this proceeding that had been produced by
                SoundExchange to the Services in discovery, Bates #W5 00492-00502).
                8/11/20 Tr. 1408 (Orszag) (promising to identify the underlying
                worksheet the next hearing day); 8/12/20 Tr. 1486 (identification of
                the worksheet the next hearing day by David Handzo, Esq, counsel for
                SoundExchange, without objection).
                ---------------------------------------------------------------------------
                 Professor Shapiro analyzed this background worksheet and came to
                the same conclusion as Mr. Orszag, quantifying the smaller upward
                adjustment of [REDACTED]% to the proposed rate, rather than
                [REDACTED]%. Compare 8/25/20 Tr. 3816 (Orszag) (``Professor Shapiro in
                his testimony has introduced a new adjustment. He proposed a [REDACTED]
                x adjustment to the Spotify Free rate . . . that works to correct the
                [REDACTED] that are associated with the Spotify Free benchmark. And
                with that, I am more comfortable with that benchmark. '') with 8/19/20
                Tr. 2913, 2921, 2970 (Shapiro) (``I have calculated, for the same
                calculation he did . . . that the proper adjustment would be a
                [REDACTED] adjustment factor. . . . [W]e did the same calculation and
                we both got to this same number.. . . And that ratio is also
                [REDACTED]. So we're doing the same thing.. . . I [had] said something
                like the [REDACTED], but Mr. Orszag corrected me and pointed out it
                should be [REDACTED].'').
                 Applying this [REDACTED] factor to the Judges' calculation
                (conducted supra) of Professor Shapiro's benchmark effective rate for
                ad-supported noninteractive services, $[REDACTED], results in a final
                effective rate of $[REDACTED] (i.e., $[REDACTED] x [REDACTED]), or
                $0.0023 (rounded).
                b. Mr. Orszag Acknowledges the Propriety of Using Spotify's Ad-
                Supported Service as a Benchmark for the Statutory Benchmark Service
                 Although SoundExchange and Mr. Orszag continue to advocate for the
                latter's subscription benchmark-based rate of $0.0025 as the statutory
                ad-supported rate,\203\ Mr. Orszag subsequently testified that he had
                become ``comfortable'' as well with applying Spotify's ad-supported
                rate as the benchmark in his own ratio equivalency model. He came to
                this conclusion after discerning that ``[t]he percentage of revenue for
                the Spotify subscription tier is virtually the same as the percentage
                of revenue for the Spotify Free tier.'' 8/25/20 Tr. 3809 (Orszag).
                ---------------------------------------------------------------------------
                 \203\ ``I continue to believe that license agreements for
                subscription on-demand services can be useful benchmarks for
                statutory ad-supported services.'' Orszag WRT ] 75.
                ---------------------------------------------------------------------------
                 More particularly, he notes that the effective percent-of-revenue
                rate paid by [REDACTED] (i.e., as a percent of advertising revenue) is
                [REDACTED]%. Peterson WDT, ] 51. By comparison, the royalty rate on
                which Mr. Orszag relies in his WDT is based on a very similar
                [REDACTED]% subscription market effective rate paid by [REDACTED].
                Orszag WDT, tbls.7, 9.
                 Mr. Orszag notes, though, that his percent of revenue calculation
                differs from the calculations of Dr. Peterson and Professor Shapiro.
                Dr. Peterson bases his royalty percentage on net revenue, which is
                lower than gross revenue. By contrast, Mr. Orszag makes
                [[Page 59516]]
                his percent-of-revenue calculation off Spotify's gross revenues. The
                revenue figure (whether gross or net) is the denominator in the
                calculation of effective percent-of-revenue royalties. (The royalties
                paid comprise the numerator.). Thus, Dr. Peterson's [REDACTED]% figure,
                Mr. Orszag acknowledges, must be restated using gross revenues, to make
                an apples-to-apples comparison with Mr. Orszag's benchmarking approach.
                Mr. Orszag performs this restatement and re-calculates Spotify's
                effective percent-of-revenue royalty payments, on a gross revenue
                basis, as [REDACTED]%. Orszag WRT ] 71 n.155. Mr. Orszag also notes
                that the effective percent-of-revenue rate (apparently on gross
                revenues) determined through Professor Shapiro's data is similar, at
                [REDACTED]% (after correcting for (1) Professor Shapiro's acknowledged
                double-counting in connection with the [REDACTED]) and (2) his decision
                not to provide [REDACTED].). Orszag WRT ] 71 nn.155-156.
                 Mr. Orszag explains that, when establishing percent-of revenue
                rates using net advertising revenues, his own ratio equivalency
                approach (not the benchmarking approach of either Dr. Peterson or
                Professor Shapiro) per-play rates decrease by [REDACTED]%, from
                $[REDACTED] to $[REDACTED] (a $[REDACTED] reduction). Id.\204\
                Specifically, when Mr. Orszag applies Dr. Peterson's [REDACTED]% of
                revenue figure, Mr. Orszag calculates a per-play royalty of $[REDACTED]
                ($[REDACTED] rounded). Similarly, when Mr. Orszag applies Professor
                Shapiro's [REDACTED]% rate, Mr. Orszag calculates an effective per-play
                rate of $[REDACTED] (which also rounds to $[REDACTED]). Orszag WRT ] 71
                n.156.
                ---------------------------------------------------------------------------
                 \204\ To be clear, Mr. Orszag is here plugging in calculations
                of percent-of-revenue rates in the benchmark market by using Dr.
                Peterson's and Professor Shapiro's own percent-of-revenue
                calculations in order to generate a percent-of-revenue rate in the
                benchmark market that Mr. Orszag, using his ratio equivalency model,
                then applies to the target market; Mr. Orszag is not applying his
                percent-of-revenue calculations, as derived from these other two
                experts, in their benchmarking models. See Services PFFCL ]] 48-56
                (and record citations therein).
                ---------------------------------------------------------------------------
                 In his WRT, Mr. Orszag continues to cast doubt, though, on
                Spotify's ad-supported rate as a useful benchmark. He emphasizes that
                Spotify's ad-supported tier is ``wholly different'' from, inter alia,
                statutory noninteractive ad-supported services because of the former's
                separate attribute as a [REDACTED] funneling tool, inducing ad-
                supported listeners to convert to subscribership and its concomitant
                higher royalty payments. Orszag WRT ]] 72-75. However, as noted supra,
                when the [REDACTED] adjustment was made to control for the separate
                value of funneling/conversion,\205\ Mr. Orszag became, if not a full-
                fledged convert, ``more comfortable'' with the ``Spotify Free
                benchmark.'' 8/25/20 Tr. 3816 (Orszag).\206\
                ---------------------------------------------------------------------------
                 \205\ Mr. Orszag also contends that the [REDACTED] rate is still
                too low because: (1) Some Spotify ad-supported listeners ultimately
                convert to the subscription tier [REDACTED]; and (2) Spotify's
                contract with the Majors require it to [REDACTED]. Orszag WRT ]] 73,
                75 n.167. However, the Services convincingly note that: (1)
                [REDACTED]; and (2) there is no evidence that [REDACTED], resulting
                in a loss of revenue. Services RPFFCL ]] 195, 204; see also 8/19/20
                Tr. 2971 (Shapiro) (noting that an adjustment based on additional
                revenue arising from an [REDACTED].'').
                 \206\ The Services nonetheless do not agree with the methodology
                utilized by Mr. Orszag, as it does not reflect the need to make any
                appropriate adjustments. Id.; Pandora/Sirius XM PFFCL ] 244 n.33.
                However, the Judges examine the relative merits of the Services'
                proposed adjustments separately, in their analysis of each expert's
                model. The salient point here though is that Professor Shapiro's
                approach (and Dr. Peterson's approach) yield effective per-play
                royalty rates on the ad-supported tiers that are quite proximate,
                prior to the consideration of particular adjustments.
                ---------------------------------------------------------------------------
                 When Mr. Orszag applies the [REDACTED] adjustment to reflect the
                number of Spotify listeners [REDACTED], his proposed rate--derived from
                his ratio equivalency model but using Spotify's ad-supported data--
                increases from $[REDACTED] to $[REDACTED] See 8/11/20 Tr. 1406
                (Orszag).
                 The final step in this analysis would be to apply an appropriate
                adjustment for effective competition. For the reasons discussed, supra,
                regarding the effective competition adjustment necessary for Professor
                Shapiro's ad-supported benchmark rate, the Judges apply the same 12%
                effective competition adjustment.
                 Applying the 12% effective competition adjustment to Mr. Orszag's
                $[REDACTED] rate reduces his ad-supported rate, to $[REDACTED] ($0.0024
                rounded).
                 As in the subscription market analysis, the Judges need to weight
                the relative impacts of: (1) The benchmark approach of Professor
                Shapiro (joined in the ad-supported analysis by the identical rate
                identified by the Judges from Dr. Peterson's analysis) and (2) Mr.
                Orszag's (de facto) ratio equivalency approach. The Judges use the same
                approach here as they did supra for the subscription rate. That is,
                they look to the Zauberman Survey,\207\ as applied by Professor Willig,
                for SoundExchange's' estimate of the diversion ratio from ad-supported
                noninteractive listeners to a new ad-supported interactive service,
                which is [REDACTED]%.\208\
                ---------------------------------------------------------------------------
                 \207\ As the Judges noted regarding their use of the Zauberman
                Survey in their subscription rate calculation, although they find
                the Zauberman Survey less reliable in other respects than other
                surveys in the record, only the Zauberman Survey asks respondents
                directly the necessary diversion question, here, to identify the
                source of music to which they would divert if noninteractive ad-
                supported services were not available, not if they were merely
                downgraded.
                 \208\ Professor Willig estimated the number of monthly plays on
                Pandora to be [REDACTED]. Willig WDT ] 45. The diversion of monthly
                plays to interactive ad-supported services (i.e., to a service such
                as Spotify's) is [REDACTED], according to Professor Willig's
                application of the Zauberman Survey. Willig WDT, fig.6 (panel A).
                [REDACTED]=[REDACTED]% (rounded).
                ---------------------------------------------------------------------------
                 Thus, Mr. Orszag's $0.0024 rate has a weight of [REDACTED]% in the
                calculation of the overall benchmark rate in the ad-supported market.
                Professor Shapiro's $0.0023 rate has a weight of [REDACTED]% (i.e., 1-
                [REDACTED]). The resulting rate is $0.0023 (rounded).\209\
                ---------------------------------------------------------------------------
                 \209\ [REDACTED].
                ---------------------------------------------------------------------------
                4. Dr. Peterson's Ad-Supported Benchmark Model
                a. Dr. Peterson's Interactive Benchmark
                 Dr. Peterson, testifying on behalf of Google, derived his ad-
                supported benchmark analysis from the interactive ad-supported market.
                According to Dr. Peterson, this is an appropriate benchmark, consistent
                with Web IV, in which the Judges used ad-supported benchmarks to
                develop the ad-supported statutory rate. 8/25/20 Tr. 3631 (Peterson);
                Peterson WDT ]] 10, 12. Google and Dr. Peterson posit that Spotify's
                ad-supported service is the closest benchmark available for statutory
                ad-supported services. Google LLC's Amended Proposed Findings of Fact
                and Conclusion of Law ] 24 (Google PFFCL); 8/25/20 Tr. 3633-34
                (Peterson). Google further suggests that the Judges have indicated a
                preference toward benchmark analysis and that prior determinations have
                tended to eschew non-benchmark-based approaches. Google PFFCL ] 13-18;
                Web IV, 81 FR at 26320, 26327; Distribution of Cable Royalty Funds,
                Final Allocation Determination, 84 FR 3352, 3602 (Feb. 12, 2019) (2010-
                13 Cable Allocation Determination).
                 To apply his benchmark, Dr. Peterson began by calculating effective
                per-play royalty rates, derived from the royalties paid by Spotify to
                Warner, UMG, Sony, Merlin and Ingrooves on a percent-of-revenue
                [REDACTED], in which the other [REDACTED]. Peterson WDT ]] 10, 48-51;
                8/25/20 Tr. 3634 (Peterson) (explaining that he divided the total
                royalties paid or to be paid by the reported royalty-bearing plays for
                [[Page 59517]]
                each label); Peterson WDT ]] 13, 48.\210\ Dr. Peterson used the
                payments due under the [REDACTED]. 8/25/20 Tr. 3636-3637 (Peterson)
                ([REDACTED]). Under the Spotify licenses, Dr. Peterson found that the
                effective per-play rates [REDACTED]. Peterson WDT ]] 10, 48-51.
                ---------------------------------------------------------------------------
                 \210\ Dr. Peterson also analyzed SoundCloud Limited's
                (SoundCloud) licenses with UMG and Warner for the SoundCloud ad-
                supported tier to corroborate his findings based on the five Spotify
                licenses. The SoundCloud licenses were offered as confirmatory
                benchmarks rather than primary benchmarks because the SoundCloud ad-
                supported tier includes comparatively less than a full catalog of
                content and significant user-generated content. Peterson WDT ] 11.
                As previously indicated, the Judges find that SoundCloud is not
                comparable to the target market services primarily because it has a
                high level of user-generated content and lacks access to the full
                catalogs of the record companies. 8/11/20 1408-09 (Orszag). Further,
                unlike other services, SoundCloud has always been mainly a platform
                where unsigned artists can post their music for downstream
                discovery. Harrison WDT ] 12; Trial Ex. 5289 at 7.
                ---------------------------------------------------------------------------
                 On behalf of SoundExchange, Mr. Orszag, as noted supra, proposed
                that an upward adjustment was necessary to address the funneling/
                conversion value [REDACTED], namely a [REDACTED] adjustment (a
                [REDACTED]% increase) in the respective rates. 8/11/20 Tr. 1382, 1405-
                06 (Orszag); 8/25/20 Tr. 3816 (Orszag).\211\ Dr. Peterson set forth
                that any adjustment to Spotify ad-supported rates to account for value
                attributable to funneling or conversion of users from ad-supported to
                paid subscription tiers that may occur should not look toward funneling
                occurring from the Spotify ad-supported tier to the Spotify
                subscription tier, but instead should seek to assess the difference in
                the upselling capabilities of the Spotify ad-supported benchmark
                compared to statutory services. Dr. Peterson noted that Mr. Orszag did
                not attempt such an analysis, despite evidence that statutory services
                are funneling consumers into subscription offerings. Therefore, he
                suggested, the Judges should reject Mr. Orszag's incomplete attempt to
                support a [REDACTED]x upward adjustment without comparing the upsell
                potential of Spotify against statutory services such as Google,
                Pandora, and iHeart. Peterson WDT ]] 60-61.
                ---------------------------------------------------------------------------
                 \211\ Pandora and Sirius XM's expert witness Professor Shapiro
                also accepted a similar [REDACTED] upward adjustment. See, e.g., 8/
                19/20 Tr. 2913, 2921, 2970 (Shapiro) (``I have calculated, for the
                same calculation he did . . . that the proper adjustment would be a
                [REDACTED] adjustment factor. . . . [W]e did the same calculation
                and we both got to this same number. . . . And that ratio is also
                [REDACTED]. So we're doing the same thing. . . . I [had] said
                something like the [REDACTED], but Mr. Orszag corrected me and
                pointed out it should be [REDACTED].'').
                ---------------------------------------------------------------------------
                 Dr. Peterson further countered Mr. Orszag's suggested adjustment by
                offering that the premise for applying an upsell adjustment is
                unfounded. He argued that the evidence does not support the notion that
                [REDACTED] that accounts for the conversion of users to subscription
                tiers. Instead, he contended that the labels [REDACTED]. Google notes
                testimony from executives at Warner Music and UMG regarding both
                [REDACTED]. Dr. Peterson suggested that Mr. Orszag's analysis was
                erroneous because he arrived upon a ratio using headline per-play rates
                ([REDACTED]) to form a proposed adjustment to apply to Dr. Peterson's
                analysis, which is based on effective rates [REDACTED]. Peterson WDT ]]
                62-65.
                 Relatedly, in the hearing Dr. Peterson offered an alternative
                adjustment to account for funneling or conversion from ad-supported to
                paid subscription, whereby the starting point for his analysis (to
                which his proposed adjustments would be applied) would be the
                [REDACTED] for ad-supported customers who used the ad-supported service
                [REDACTED], as opposed to the payments due under the [REDACTED]. He
                reasoned this starting point may be appropriate if the Judges feel they
                need additional adjustment for funneling value, because any funneling
                value, [REDACTED], would have been exhausted or otherwise be de
                minimis. And, he offered, that was the amount [REDACTED] was willing to
                accept under the agreement. 8/26/20 Tr. 3955, 3960, 3961-63 (Peterson).
                b. Dr. Peterson's Adjustments
                 Dr. Peterson and Google proposed four adjustments to the benchmark
                rates for ad-supported webcasters: (1) An interactivity adjustment, (2)
                a skips adjustment, (3) an effective competition adjustment, and (4) a
                marketing adjustment. Peterson WDT ]] 15.\212\
                ---------------------------------------------------------------------------
                 \212\ Dr. Peterson's testimony also suggested that the decrease
                in length of the average hit song indicates that per-play rates
                should decrease. Peterson WDT ]] 78-79 (suggesting that a hit-driven
                station would have to play more songs per hour such that any
                decrease in the statutory rate is likely to be offset, at least
                partially, by an increase in the number of royalty-bearing plays).
                Google did not argue for such an adjustment but instead suggested
                the issue as a reason to view its rate proposal as a modest one.
                Google PFFCL ] 79.
                ---------------------------------------------------------------------------
                 i. Dr. Peterson's Proposed Interactivity Adjustment
                 Dr. Peterson proposed a downward interactivity adjustment because
                the benchmark agreements he used are from an interactive market,
                whereas the target, statutory market is for non-interactive. 8/25/20
                Tr. 3632, 3638 (Peterson). His testimony noted that interactive
                services receive a greater grant of rights (including the ability to
                let listeners hear on-demand whatever songs they want whenever they
                wish) and that licensors expect higher rates from interactive licenses
                than non-interactive licenses. Peterson WDT ] 52; 8/25/20 Tr. 3648
                (Peterson).
                 Dr. Peterson proposed a downward interactivity adjustment of
                [REDACTED]%. 8/25/20 Tr. 3632 (Peterson); Peterson WDT ]] 15(a), 55.
                His proposal came from his comparison of [REDACTED] [REDACTED] service
                to the statutory rate. 8/25/20 Tr. 3642 (Peterson); Peterson WDT ]] 53-
                55. Peterson explained that [REDACTED] service, while meeting most of
                the statutory criteria, is not eligible for the statutory license
                because it [REDACTED], and that [REDACTED]. 8/25/20 Tr. 3641-43
                (Peterson); Peterson WDT ]] 53, 54. Dr. Peterson offered that the
                incremental amount [REDACTED] agreed to pay above the statutory rate is
                a useful measure of how a willing buyer and willing seller value the
                additional interactive functionality. Peterson WDT ] 54; see also 8/25/
                20 Tr. 3649, 3678-79 (Peterson). He set forth that the [REDACTED]%
                difference represents an incremental premium [REDACTED] paid for non-
                statutory functionality and that the difference is not meaningfully
                influenced by the statutory rate, but rather, that the comparison with
                the statutory rate allows for calculation of the delta between the
                respective rates. 8/25/20 Tr. 3632; 3646 (Peterson).
                ii. Dr. Peterson's Proposed Skips Adjustment
                 Dr. Peterson also proposed to make a skips adjustment, which he
                asserts is required because the noninteractive licensees are required
                by statute to pay for plays under thirty seconds, but the benchmark
                interactive services do not pay for such brief plays. Peterson WDT ]
                67. Dr. Peterson set out that the effective per-play rate he calculated
                (total royalties paid/reported streams) has a denominator (streams 30
                seconds or longer) that excludes plays for which a statutory service
                would pay, thus leading to a higher per-play rate for interactive
                services. Peterson WDT ] 67. Based on information from Spotify on the
                number of total plays and plays of less than 30 seconds on its ad-
                supported interactive service, Dr. Peterson calculated that a downward
                adjustment of [REDACTED]%, applied to Spotify's effective per-play rate
                results in what Spotify would have paid on a dollar-per-stream basis.
                See 8/25/20 Tr. 3680-81 (Peterson); Peterson WDT ]] 15(c), 68. He
                proposed an alternative skips adjustment by calculating the adjustment
                to the statutory rate that would be required for statutory payments to
                remain unchanged if
                [[Page 59518]]
                statutory services were to pay only on performances of 30 seconds or
                longer. He offered that relevant information provided from Pandora
                showed that on its ad-supported radio service [REDACTED]% of total
                performances are less than 30 seconds, thus leading him to arrive at an
                alternative [REDACTED]% reduction in the benchmark rate to account for
                skips. Id.
                iii. Dr. Peterson's Proposed Effective Competition Adjustment
                 As with other participants and experts, Google and Dr. Peterson
                propose that a competition adjustment is necessary because labels have
                complementary oligopoly power in the benchmark market for licensing of
                music services, which means those rates do not reflect effective
                competition, but rather they result in royalty rates set at
                supracompetitive levels even higher than a single monopolist would
                charge. 8/25/20 Tr. 3652-53 (Peterson); see also Peterson WDT ]] 19,
                21-22, 34-35. Dr. Peterson offered that the consumer expectation that
                all interactive services will have the full catalog of each significant
                record label means that the labels' catalogs do not substitute for one
                another and are instead ``must haves'' for interactive services, which
                thus creates a licensing market where the major labels have
                complementary oligopoly power. 8/25/20 Tr. 3653 (Peterson); Peterson
                WDT ]] 33, 57.
                 Dr. Peterson also set out that statutory streaming services have a
                greater ability to steer listeners' experience than interactive
                services, using techniques such as designing playlists to meet
                listeners' tastes that omit recordings from certain labels or reducing
                the number of plays for a given label's recordings if the license rate
                is too high. Dr. Peterson opines that this ability to steer is a marker
                of effective competition. Peterson WDT ] 58-59. He sought to replicate
                such effective competition through his competition adjustment, which
                reflects a statutory licensee's ability to avoid high license rates by
                substituting or steering away from high royalties. Peterson WDT ]] 65-
                66; see also 8/25/20 Tr. 3662 (Peterson). Dr. Peterson offered an
                analysis that chiefly used a Pandora-Merlin agreement that was in
                effect at the time of Web IV, which required Pandora to increase (i.e.,
                steer toward) Merlin spins by at least 12.5% and allowed Pandora to
                effectively engage in significant steering without negative reaction,
                to arrive at a proposed lower bound for his downward competition
                adjustment of 11.1%-12.5/(100+12.5) = 11.1%. Peterson WDT ]] 62, 65.
                Dr. Peterson also looked to an agreement between iHeart and Warner, in
                effect at the time of Web IV, with a different [REDACTED] structure
                which required iHeart to pay royalties to Warner [REDACTED] at the time
                the deal was struck, which Dr. Peterson found indicative of an
                intention to steer of more than 50%. Peterson WDT ] 63. In his
                analysis, he set out that evidence of the ability to steer ranges from
                [REDACTED]% in the case of the Pandora/Merlin agreement to more than
                50% in the case of iHeart/Warner. Dr. Peterson also looked at Pandora's
                steering experiments, cited in the Web IV determination, finding some
                consumer resistance to steering at a rate of 30%, thus arriving at a
                proposed upper bound for the downward competition adjustment of
                [REDACTED]% [REDACTED]. Peterson WDT ]] 62, 65.
                 Dr. Peterson asserted that his competition adjustment is
                conservative because it is calculated based only on a reasonable
                ability to steer, which does not fully address or compensate for
                complementary oligopoly power. 8/25/20 Tr. 3662-63, 3664-65 (Peterson).
                He added that other market data supports that even higher levels of
                steering are possible in the target noninteractive market, again noting
                evidence that Pandora engaged in steering toward Merlin by [REDACTED]%
                (instead of [REDACTED]%), without negative feedback. Peterson WDT ] 62.
                iv. Dr. Peterson's Proposed Marketing Adjustment
                 Dr. Peterson offered that a marketing adjustment to the Spotify
                benchmark licenses may not be appropriate. While he recognized that the
                agreements [REDACTED], he concluded that the value of [REDACTED] may be
                zero. The provisions, he indicated, [REDACTED]. Peterson WDT ] 69. Dr.
                Peterson offered that the marketing value stated in the Spotify
                benchmark licenses likely does not reflect [REDACTED]. Peterson WDT ]]
                69-70. Dr. Peterson calculated a potential valuation by allocating the
                total advertising value across active countries and dividing the value
                of advertising attributable to the United States by the number of
                performances. Dr. Peterson determined this additional unadjusted value
                at $[REDACTED] per play. To address any uncertainty of the actual value
                of such negotiated advertising in the current record, Dr. Peterson
                calculated the adjusted Spotify benchmark range with and without the
                advertising adjustment. Peterson WDT ]] 71, 75. Google argues that no
                advertising adjustment is justified, given the acknowledged
                uncertainties in assigning specific valuation and admitted inability to
                value such benefits on a dollar-for-dollar basis with the value stated
                in the agreements. Google PFFCL ]] 66-69.
                v. Dr. Peterson's Application of His Proposed Adjustments
                 The range of Dr. Peterson's proposed adjustments are reflected
                below, in Dr. Peterson's Figure 2. Peterson WDT ] 74.
                 The top section of each panel shows the unadjusted benchmark rates
                and the adjusted rates based on three adjustments (Interactivity,
                Competition and Skips adjustments). In order to determine the benchmark
                rate reflecting these adjustments the unadjusted rate is multiplied by
                one minus the adjustment for each rate. Thus, the adjusted rates are
                equal to:
                Adjusted Rate = (1-Interactivity Adj) x (1-Competition Adj) x (1-Skips
                Adj) x Unadjusted Rate.
                Peterson WDT ] 74.
                 The top panel of Figure 2 uses the [REDACTED]% Skips adjustments
                and the bottom panel uses the [REDACTED]% skip rate. The adjustment
                range of [REDACTED]% to [REDACTED]% using the Pandora free tier skips
                data is arrived at by applying, to the Unadjusted Rate, Dr. Peterson's
                proposed interactivity adjustment of [REDACTED]%, Skips adjustment of
                [REDACTED]% (Pandora free tier), and competition adjustment of
                [REDACTED]%. The adjustment range of [REDACTED]% to [REDACTED]% using
                the Spotify free tier skips data is arrived at by applying Dr.
                Peterson's proposed interactivity adjustment of [REDACTED]%, skips
                adjustment of [REDACTED]% (Spotify free tier), and competition
                adjustment of [REDACTED]%. The range of adjusted rates before
                accounting for the potential value of marketing support is $[REDACTED]
                to $[REDACTED] per play. Dr. Peterson offered the midpoint of this
                range as being a reasonable estimate of a rate, when treating
                advertising allowances as having no value. That midpoint is equal to
                $[REDACTED] per play. Peterson WDT ] 74; Figure 2.
                 Both the top and bottom panels of Figure 2 show the calculation of
                the adjusted value of advertising in the benchmark agreements. The top
                row of the middle section reflects the unadjusted value of advertising
                per play in the United States. The value is calculated by allocating
                the total advertising value across active countries and dividing the
                value of advertising attributable to the United States by the number of
                performances. The adjusted advertising ranges are calculated in the
                [[Page 59519]]
                same way as the adjusted rates indicated above, where the adjusted rate
                = (1-Interactivity Adj) x (1-Competition Adj) x (1-Skips Adj) x
                Unadjusted Rate. The range of adjusted benchmark rates including the
                stated value of advertising allowances is $[REDACTED] to $[REDACTED]
                per play. Dr. Peterson offered the midpoint of this range as being a
                reasonable estimate of a rate, when advertising allowances are
                included. The midpoint is equal to $[REDACTED] per play. Peterson WDT
                ]] 75-76.
                Figure 2--The Adjusted Benchmarks [RESTRICTED]
                [REDACTED]
                c. SoundExchange's Criticisms of Dr. Peterson's Ad-Supported Benchmark
                Model
                 SoundExchange acknowledges that the Judges have found benchmark-
                based approaches useful in the past. However, SoundExchange disputes
                that the Judges have expressed a preference of benchmarking over other
                approaches, such as modeling. Instead, it offers that the Judges have
                assessed each type of analysis on the merits, as established by the
                record in each case. SoundExchange's Corrected Replies to Google's
                Amended Proposed Findings of Fact and Conclusions of Law ]] 14-17 (SX
                RPFFCL (to Google)).
                 SoundExchange also initially disputed that the benchmarks proposed
                by Google are appropriate. SoundExchange argues that Dr. Peterson
                improperly used Spotify's ad-supported rates as a benchmark, suggesting
                that subscription interactive services are a better starting point than
                ad-supported interactive services. SoundExchange also urged that
                Spotify's ad-supported service should not be used as a benchmark
                without an upward adjustment to account for its [REDACTED] ability to
                promote sales of subscriptions. SX RPFFCL (to Google) ]] 22-26.
                However, in the hearing Mr. Orszag testified that he had become
                ``comfortable'' with applying Spotify's ad-supported rate as the
                benchmark in his own ratio equivalency model. He came to this
                conclusion after discerning that [REDACTED].'' 8/25/20 Tr. 3809
                (Orszag). When a [REDACTED] adjustment was made to control for the
                separate value of funneling/conversion, Mr. Orszag became, if not a
                full-fledged convert, ``more comfortable'' with the ``Spotify Free
                benchmark.'' 8/25/20 Tr. 3816 (Orszag).
                i. SoundExchange's Criticisms of Dr. Peterson's Proposed Interactivity
                Adjustment
                 SoundExchange faults Dr. Peterson's interactivity adjustment
                because, in its view, the adjustment is not based sufficiently on the
                incremental value placed on the interactive functionality by consumers
                in the downstream market. It notes that in past cases the Judges have
                accepted interactivity adjustments based on downstream market value,
                evidenced by consumers' willingness to pay for the functionality. It
                offers that there is little evidence from Google that consumers
                actually value the additional functionality that [REDACTED] obtained
                under its direct licenses and that, in fact, the additional
                functionality on [REDACTED]'s ad-supported service was minimal. SX
                PFFCL ] 228-231; Web IV, 81 FR at 26345, 26348; see also Web II, 72 FR
                at 24902 (accepting SoundExchange's interactivity adjustment, based on
                average consumer subscription price and the average per-subscriber
                royalty rate for on-demand services). SoundExchange adds that Dr.
                Peterson was unable to indicate whether increased functionality
                generated more revenue per play on the ad-supported tier. SX PFFCL ]
                232; 8/11/20 Tr. 1401 (Orszag). It adds that, per [REDACTED] (Trial Ex.
                5321), [REDACTED]. SX PFFCL ] 232. SoundExchange suggests that the true
                motivation for [REDACTED] to license the increased functionality was to
                offer customers a sample of the full interactive function as a way to
                promote and upsell its subscription interactive service. SX PFFCL ]]
                235-236; 8/31/20 Tr. 4646 (Phillips).
                 SoundExchange asserts that Dr. Peterson's interactivity
                adjustment--being based on a comparison of [REDACTED]'s effective per-
                play rate for its ad-supported [REDACTED] service to the statutory
                rate--is based in part on the statutory rate, which violates
                requirements that benchmark rates be free from the influence of
                regulation. Sound Exchange raises further issues with regard to the
                relationship between the negotiated and statutory rates, with Mr.
                Orszag testifying that if the statutory rate that Dr. Peterson relied
                on in his adjustment is too low (as SoundExchange argues it is) then
                Dr. Peterson's interactivity adjustment will be too large. SX PFFCL ]]
                237-239; Orszag WRT ] 95.
                ii. SoundExchange's Criticisms of Dr. Peterson's ``Skips'' Adjustment
                 SoundExchange questions the probative value of the data upon which
                Dr. Peterson relies for his [REDACTED]% skips adjustment on the same
                basis as it challenges his application of this data to Professor
                Shapiro skips adjustment. SoundExchange notes that Dr. Peterson's data
                came from noninteractive plays available on all three tiers of
                Pandora's service, ad-supported, mid-tier, and fully interactive. 8/20/
                20 Tr. 3028-29 (Shapiro). As a consequence, Mr. Orszag asserts, the
                [REDACTED]% ``skips'' rate is likely overstated, because subscribers to
                Pandora's two interactive tiers have unlimited skips, making them more
                likely to skip when accessing noninteractive plays on those two tiers.
                Orszag WRT ] 120. SoundExchange notes that Professor Shapiro agrees
                with the concern in principle but testified that any such upward bias
                [REDACTED], so he did not measure the effect. 8/20/20 Tr. 3030-32
                (Shapiro).
                 SoundExchange also takes issue with Dr. Peterson's alternative
                skips adjustment and its reliance on the Spotify ad-supported service's
                skip rate [REDACTED]%), alleging Dr. Peterson's analysis is faulty for
                only considering the benchmark market's skip rate and ignoring the
                target market's skip rate. It argues that Spotify pays for its ad-
                supported service on a percentage of revenue basis and, therefore,
                whether Spotify's skip rate is [REDACTED]% has no impact on what
                Spotify pays the record companies on the percentage of revenue basis.
                It notes Mr. Orszag's view that the benchmark market's skip rate may
                only be used if there is a basis to assume that the benchmark market
                and the target market have the same skip rate and that there is no
                evidentiary basis for such a conclusion. SX PFFCL ]] 244-247.
                iii. SoundExchange's Criticisms of Dr. Peterson's Effective Competition
                Adjustment
                 SoundExchange criticizes Dr. Peterson's analysis asserting that it
                relied on stale evidence, from the time of Web IV, namely a 2014
                agreement between Merlin and Pandora, a 2013 agreement between iHeart
                and WMG, and a 2014 litigation experiment conducted by Pandora.
                SoundExchange argues that the market for subscription interactive
                services has changed since Web IV, and that the increased competition
                would require a downward shift of the competition adjustment used in
                Web IV. It adds that the application of the evidence from Web IV would
                need to account for the differing market evidence used in that
                proceeding, involving many services and not just the
                [[Page 59520]]
                service with the [REDACTED]. SX PFFCL ]] 490-493.
                iv. SoundExchange's Reaction to Dr. Peterson's Proposed Marketing
                Adjustment
                 SoundExchange reiterates that value is derived by the record
                companies in the relevant agreements through provisions for the
                streaming services to provide marketing support in the form of
                uncompensated advertisements to the record labels. SX PFFCL ]] 490-493.
                It points out that Dr. Peterson calculated proposed adjustments based
                on advertising benefits and that Google should not be able to walk away
                from the adjustments. SX RPFFCL (to Google) ] 69.
                d. The Judges' Analysis and Findings Regarding Dr. Peterson's Ad-
                Supported Benchmark Model
                 As an initial matter, the Judges clarify that they do not strictly
                adhere to any preference toward any particular method of analysis,
                benchmark or otherwise, but instead assess all reasoned analyses on
                their merits and on the record of each case.
                 Taking into account the entirety of the record, the Judges
                determine that it is appropriate to utilize the proposed benchmarks
                from the interactive ad-supported market, provided that an appropriate
                conversion adjustment is applied.\213\ The Judges apply the
                aforementioned [REDACTED] adjustment to the rates for [REDACTED]).
                Where negotiated provisions place a value on funneling in the benchmark
                agreements, the Judges find an adjustment is appropriate. While Dr.
                Peterson started his analysis with the higher-end per-play rate under
                the [REDACTED] for customers who [REDACTED], the Judges note that this
                is not necessarily the [REDACTED]. The Judges find that Mr. Orszag's
                proposal is a superior mode to account for the value of funneling.
                However, as there is insufficient evidence and analysis of analogous
                funneling value in the [REDACTED], the Judges make no such adjustment
                to those benchmark rates.
                ---------------------------------------------------------------------------
                 \213\ The Judges find insufficient basis to find that any shift
                in song length is not adequately accounted for in the benchmark
                markets.
                ---------------------------------------------------------------------------
                 Applying this [REDACTED] factor to Dr. Peterson's calculated per-
                play rates for [REDACTED], results in a final effective rate of
                $[REDACTED] (i.e., $[REDACTED] x [REDACTED]) or $[REDACTED] (rounded)
                [REDACTED]; and $[REDACTED] (i.e., $[REDACTED] x [REDACTED]) or
                $[REDACTED] (rounded) for [REDACTED]. The starting point benchmark per-
                play rates calculated by Dr. Peterson for [REDACTED] remain.
                i. The Judges' Analysis and Findings Regarding Dr. Peterson's Proposed
                Adjustments
                (A) The Judges' Analysis and Findings Regarding Dr. Peterson's Proposed
                Interactivity Adjustments
                 Based on the entirety of the record, the Judges decline to apply
                Dr. Peterson's--proposed interactivity adjustments. The Judges agree
                with SoundExchange that the record does not clearly demonstrate added
                economic value for interactivity as a suitable basis to adjust the
                proposed benchmark rates downward. Advertisers, not listeners, pay the
                royalties. And there is insufficient evidence to establish that
                advertisers make payments to noninteractive ad-supported services based
                upon the level of interactivity of that service.
                 While we do not foreclose the possibility of a record that may
                allow measuring interactivity value by looking toward how the service
                and the labels (as opposed to downstream users) value that
                interactivity in an ad-supported context, on this record the Judges
                will not apply an interactivity analysis which fails to appropriately
                consider oligopoly power in a direct deal such as the proposed
                [REDACTED] benchmark. The Judges' decline to apply the proposed
                interactivity adjustment in part because the record, [REDACTED],
                indicates that major labels exert oligopoly power in similar direct
                deals. When Judge Strickler asked Dr. Peterson whether any of the
                proposed [REDACTED]% adjustment for interactivity constitutes a
                complementary oligopoly premium, he conceded that he could not preclude
                that oligopoly power could be a cause of the higher rate. 8/25/20 Tr.
                3645 (Peterson). Absent accurate consideration of oligopoly power,
                which is persuasively established elsewhere, we find it inappropriate
                to apply the proposed interactivity adjustment.
                (B) The Judges' Analysis and Findings Regarding Dr. Peterson's Proposed
                Skips Adjustment
                 As indicated previously, the Judges are in agreement with
                SoundExchange's criticisms of both Professor Shapiro's and Dr.
                Peterson's skips adjustment for ad-supported services. Additionally the
                Judges agree that the reliance on the Spotify ad-supported service's
                skip rate ([REDACTED]%) as a basis for adjustment is in error. The
                Judges agree that there is insufficient basis to conclude that the
                benchmark market and the target market have the same skip rate, and
                that absent reliable evidence to that effect a direct adjustment as
                proposed would be incorrect. Accordingly, and based on the entire
                record, the Judges adopt (and incorporate by reference here) the same
                analysis and the same finding of a [REDACTED]% skips adjustment as they
                found for the subscription market.
                (C) The Judges' Analysis and Findings Regarding Dr. Peterson's Proposed
                Competition Adjustment
                 Taking into account the entirety of the record, the Judges are
                persuaded of the necessity to apply an effective competition
                adjustment. For the reasons discussed with regard to the effective
                competition adjustment to Professor Shapiro's ad-supported benchmark,
                the Judges apply a 12% effective competition adjustment to Dr.
                Peterson's ad-supported rate. The Judges' Analysis and Findings
                regarding Dr. Peterson's Proposed Marketing Adjustment.
                 Based on the entirety of the record, the Judges find that it is
                appropriate to apply the marketing adjustment, as offered by Dr.
                Peterson. While we note that Google and Dr. Peterson offer rationales
                that an adjustment may not be appropriate, Dr. Peterson also found a
                basis to place a value on this factor. Additionally, while Dr. Peterson
                offers calculations performed with and without the marketing
                adjustment, his ultimate analytical step, finding a midpoint within the
                range of rates he calculated, was done based on calculations that
                included the marketing adjustment. Finally, we are in agreement with
                SoundExchange that Google has not offered a sufficient basis to
                distance itself or the Judges from applying a factor offered by
                Google's own expert analysis.
                ii. Dr. Peterson's Benchmark Rate as Adjusted by the Judges
                 In sum, the Judges find as follows with regard to Dr. Peterson's
                proposed ad-supported benchmark rate:
                 1. The effective ad-supported benchmark per-play rates of
                $[REDACTED] for [REDACTED], $[REDACTED] for [REDACTED], $[REDACTED] for
                [REDACTED], $[REDACTED] for [REDACTED], and $[REDACTED] for [REDACTED]
                are in the range of a reasonable starting point.
                 2. Applying the [REDACTED] factor to account for funneling/
                conversion to Dr. Peterson's calculated per-play rates for [REDACTED],
                results in a final effective rate of $[REDACTED] (i.e., $[REDACTED] x
                [REDACTED]) or $[REDACTED] (rounded) for
                [[Page 59521]]
                [REDACTED]; and $[REDACTED] (i.e., $[REDACTED] x [REDACTED]) or
                $[REDACTED] (rounded) for [REDACTED] The starting point benchmark per-
                play rates calculated by Dr. Peterson's for [REDACTED] remain
                respectively as $[REDACTED], $[REDACTED], and $[REDACTED].
                 3. The interactivity adjustment is rejected.
                 4. The skips adjustment is reduced to [REDACTED]%, properly
                reducing the interim calculation to $[REDACTED] (rounded) for
                [REDACTED], $[REDACTED] (rounded) for [REDACTED], $[REDACTED] (rounded)
                for [REDACTED], $[REDACTED] (rounded) for [REDACTED], and $[REDACTED]
                (rounded) for [REDACTED].
                 5. The 24% effective competition adjustment proposed by Dr.
                Peterson is rejected.
                 6. The Judges apply the 12% effective competition adjustment. This
                effective competition adjustment properly reduces the interim
                calculation to $[REDACTED] (rounded) for [REDACTED], $[REDACTED]
                (rounded) for [REDACTED], $[REDACTED] (rounded) for [REDACTED],
                $[REDACTED] (rounded) for [REDACTED], and $[REDACTED] (rounded) for
                [REDACTED].
                 7. Applying the Marketing adjustments set forth by Dr. Peterson,
                increasing the per-play rates as follows of $[REDACTED] [$[REDACTED] +
                $[REDACTED]] for [REDACTED], $[REDACTED] [$[REDACTED] + $[REDACTED]]
                for [REDACTED], $[REDACTED] [$[REDACTED] + $[REDACTED]] for [REDACTED],
                $[REDACTED] [$[REDACTED] + $[REDACTED]] for [REDACTED], and $[REDACTED]
                [$[REDACTED] + $[REDACTED]] for [REDACTED].
                 8. The range of adjusted rates is $0.00197 and $0.00228 per play,
                and the midpoint of $0.002125, when rounded (or, more precisely,
                rounded further) is $0.0021, which is a reasonable estimate of the rate
                applying the Judges' modifications to Dr. Peterson's model.
                5. Separate Rate for Nonportable Services
                a. Google's Proposal
                 Google seeks a separate rate for certain nonportable uses, citing
                the statutory directive that the Judges ``shall distinguish among the
                different types of services then in operation.'' 17 U.S.C.
                114(f)(1)(B). Google argues that the rise of nonportable smart speaker
                devices, and streaming services tailored to those devices, has created
                such a different type of service. Google PFFCL ]] 91-92. It offers that
                separate rates for nonportable uses have been adopted by the Board in
                other regulations and that the Judges should set a separate rate for
                nonportable, nonsubscription services that is 50% of whatever headline
                rate the Judges set for portable nonsubscription services. Google PFFCL
                ]] 93-94. Specifically, Google seeks a per-performance rate for the new
                type of service that it refers to as ``Nonsubscription Nonportable
                Webcasting Services'' which Google proposes to define as ``a service
                offered by a Licensee that makes an Eligible Transmission available
                solely over a nonportable device, such as a smart speaker, a smart home
                appliance, or a personal computer.'' Google Proposed Rates and Terms at
                3.
                 Google offers proposed benchmark licenses between major labels
                ([REDACTED]) with Google as evidence in support of its proposal, which
                include [REDACTED]. Google PFFCL ] 102. It [REDACTED]. Google PFFCL ]
                103. Google asserts that the [REDACTED] reflect an understanding that
                consumers are willing to pay an incremental amount for the ability to
                take music with them on phones and portable devices. Google PFFCL ]
                104. Google also points toward lower rate structures for certain
                nonportable services in the context of the mechanical compulsory
                license under 17 U.S.C. 115. Google PFFCL ] 105.
                b. SoundExchange's Criticism of Google's Proposal for a Separate Rate
                for Nonportable Services
                 SoundExchange asserts that Google has not established that
                streaming services that are available only on nonportable devices are a
                different type of service warranting a different rate, and that there
                is no evidence that a willing buyer and willing seller would agree to
                lower rates for such a service. SX RPFFCL (to Google) ] 94. It contends
                that Google confuses nonportable devices with nonportable services in
                its attempts to highlight ``Nonsubscription Nonportable Webcasting
                Services'' as an allegedly different type of service. SoundExchange
                argues that the dichotomy that Google proposes is undermined by the
                fact that portable services can also be consumed on nonportable
                devices. SX RPFFCL (to Google) ] 96. SoundExchange challenges the
                notion that any growing popularity of smart speakers supports the
                notion that streaming services that can only be operated on a smart
                speaker are growing in popularity or exist as a different type of
                service. SX RPFFCL (to Google) ] 97. It argues that Google ``bears the
                burden of demonstrating not only that'' nonportable services ``differ[]
                from other forms of commercial webcasting, but also that [they differ]
                in ways that would cause willing buyers and willing sellers to agree to
                a lower royalty rate in the hypothetical market.'' SX RPFFCL (to
                Google) ] 100 (citing Web IV, 81 FR at 26320 (applying that principle
                to simulcasters)).
                 SoundExchange contends that the proposed benchmark agreements do
                not match up with Google's rate proposal. It notes that the [REDACTED].
                Through Mr. Orszag, SoundExchange posits that [REDACTED] and does not
                support the notion that the rate should be half of the per-performance
                rate for a service available on a broader range of devices. SX RPFFCL
                (to Google) ] 94; Orszag WRT ]] 139-140.
                 SoundExchange further addresses concerns that the proposed
                benchmarks do not provide useful information about the per-performance
                rate for a service tier accessible on multiple nonportable devices to
                which a willing buyer and a willing seller would agree. SX RPFFCL (to
                Google) ] 101. It notes that even if the offered [REDACTED] were
                relevant, it would be inappropriate to attribute all of the difference
                in [REDACTED] to nonportability because the rates are also driven by
                the fact that they are for single-device services, which excluded
                classes of devices that would be eligible under Google's proposed rates
                and terms, e.g., a personal computer. SoundExchange suggests these
                distinctions discount the notion that [REDACTED]. SX RPFFCL (to Google)
                ]] 102-104, 110. SoundExchange also challenges the notion that the
                cited rates for certain nonportable mechanical licensing royalties are
                not appropriate support for Google's proposal because they address
                different rights to different works with different sellers. SX RPFFCL
                (to Google) ]] 104-106.
                c. The Judges' Analysis and Findings Regarding Google's Proposal for a
                Separate Rate for Nonportable Services
                 Based on the entirety of the record the Judges are not persuaded
                that Google has established the basis for a separate rate for
                Nonsubscription Nonportable Webcasting Services. While the Judges have
                concerns about the extent to which the [REDACTED] and the appropriate
                use of mechanical rates within the context of the section 115
                compulsory regime as persuasive evidence for the purpose of sustaining
                a separate rate, those are relatively minor concerns. The Judges find
                the case for a separate rate is most profoundly undermined because the
                requested rates would extend far beyond the bounds of the proposed
                benchmark agreements.
                [[Page 59522]]
                 The benchmark agreements are tied to [REDACTED] and to very
                specific device characteristics,\214\ whereas the requested rate (and
                defined bounds) are not tied or specifically limited to the same
                specific types of devices, nor are they limited to [REDACTED]. This
                makes them poor benchmarks and makes for a poor case for the existence
                of the requested distinct different type of service. Furthermore,
                Google did not adequately acknowledge or offer appropriate adjustments
                to account for the fairly profound distinctions between its request and
                the limitations represented in its proposed benchmarks. While the
                Judges may amend a request to comport with the offered evidence, on
                this record we find an inadequate basis to do so. Additionally, in a
                case such as this where the request diverts so profoundly from the
                offered benchmark evidence, prudence compels the Judges not to engage
                in such refining of the requested rates or terms.
                ---------------------------------------------------------------------------
                 \214\ [REDACTED], Trial Ex. 5090 at 37 ([REDACTED] [REDACTED]);
                [REDACTED], Trial Ex. 1006 at 50 [REDACTED]); [REDACTED], Trial Ex.
                1010 at 65-66 ([REDACTED]).
                ---------------------------------------------------------------------------
                C. Evaluation of Game Theoretic Modelling Evidence
                1. Professor Willig's Shapley Value Model
                 Professor Willig describes his Shapley Value Model as a ``multi-
                party bargaining approach.'' Willig WDT ] 9. He explains that his
                Shapley Value Model is a form of economic game theory that assumes a
                ``cooperative'' relationship among the bargaining parties, id. ] 12,
                providing a ``generalized solution to the problem of how to apportion
                among the members of a multi-party bargaining group the surplus created
                by their productive cooperation with each other.'' Id. ] 14.\215\
                ---------------------------------------------------------------------------
                 \215\ A ``cooperative'' game assumes that the participants'
                ``joint action agreements are enforceable,'' and are distinguished
                from ``non-cooperative games,'' ``in which such enforcement is not
                possible, and individual participants must be allowed to act in
                their own interests.'' Avinash Dixit et al., Games of Strategy 26
                (3d ed. 2009).
                ---------------------------------------------------------------------------
                 Professor Willig's Shapley Value Model indicates a royalty rate for
                ad-supported noninteractive services of $0.0028 per play in 2021, and,
                for subscription noninteractive services, a per-play royalty rate of
                $0.0030 in 2021. Willig WDT ] 55. He derives these 2021 royalty rates
                from the average royalty rates over the entire five-year (2021-2025)
                rate period generated by his Shapley modeling, which are $0.0030 and
                $0.0031 for the ad-supported and subscription services,
                respectively.\216\
                ---------------------------------------------------------------------------
                 \216\ More particularly, Professor Willig derives his proposed
                2021 rates from his five-year average by discounting back from the
                mid-point of the rate period to the start of the period, using the
                Federal Reserve Open Market Committee's inflation forecast. Id.
                ---------------------------------------------------------------------------
                 According to Professor Willig, the Shapley Value Model has
                properties that make it well suited for establishing royalties in this
                proceeding. He explains that this modeling, when combined with relevant
                data, identifies the following values and properties:
                 1. The ``fallback value'' which any party (record company or
                streaming service in the present case) could create on its own without
                an agreement among one or more of the other parties. Willig WDT ] 13.
                 2. The extra value--the Shapley ``surplus''--that the parties
                collectively could generate in ``notional'' \217\ agreements with the
                other parties, above their fallback values. Id.
                ---------------------------------------------------------------------------
                 \217\ The Judges use ``notional'' to identify the negotiations
                assumed in Shapley Value modeling, and to distinguish those ersatz
                negotiations from the ``hypothetical'' negotiations the Judges must
                construct to establish the statutory royalty rates. More precisely,
                the ``notional'' Shapley Value negotiations generate ``notional''
                royalty rates that may: (1) Constitute a ``hypothetical'' rate that
                would constitute an effectively competitive rate; (2) fail to
                reflect a ``hypothetical'' effectively competitive rate; or (3)
                serve as a building block that, with adjustments or offsets, is an
                input into a ``hypothetical'' effectively competitive rate.
                ---------------------------------------------------------------------------
                 3. The ordering of ``every possible combination of unilateral,
                bilateral and multilateral deals that may be struck by the different
                parties.'' Id. ] 14.\218\
                ---------------------------------------------------------------------------
                 \218\ As Professor Willig explains: ``In Shapley Value analysis
                there are always N! (i.e., N factorial) different arrival orderings,
                where N is the number of negotiating parties. For example, with
                three negotiating parties, there are 3! (i.e., 3 x 2 x 1) = 6
                different arrival orderings. Id. ] 20 n.13.
                ---------------------------------------------------------------------------
                 4. The portions of the surplus--the ``incremental contribution''--
                that each party adds to the total amount of value created, is
                ``assessed as increments to every possible combination of unilateral,
                bilateral, and multilateral deals that may be struck by the different
                parties . . . .'' Id.
                 5. Each party's ``incremental contribution'' is then averaged
                across all such combinations.'' Id.
                 Each party's average incremental contribution is its Shapley Value.
                Id. ] 16 (``The Shapley Value accorded to a party rests on the value
                that it brings to the group's cooperation, taking into account all the
                subsets of the group to which it can join.'').
                 To further explain the Shapley Value concept, Professor Willig
                provides the following example: \219\
                ---------------------------------------------------------------------------
                 \219\ In this proceeding, the economic experts appropriately
                proffer potentially illuminating examples (as in the accompanying
                text) in an attempt to state clearly the principles and methods
                underlying their work. The Judges find their use of such examples to
                be consistent with the evidentiary principles set forth in 37 CFR
                351.10(e).
                 The concept of a Shapley Value is best understood by reference
                to a simple analogy. Imagine that parties A, B, and C are
                negotiating a deal in person. Party C can be the first, the second,
                or the third to arrive in the room. The value it brings to the
                bargaining table may be contingent on the order in which it arrives.
                For example, if Party C is last to the negotiation it may have more
                bargaining power as a result of its ability to hold up or frustrate
                consummation of a deal to which Parties A and B are otherwise
                amenable. When C is first to the negotiation, it has no bargaining
                power over the others. Shapley analysis takes into account all such
                possible differences in Party C's bargaining power that are
                contingent on its order of arrival to the negotiation. It does so by
                taking the average of each ``incremental value'' created by Party C
                in each possible sequence of arrivals. As such, Party C's Shapley
                Value will only be high relative to the other parties' Shapley
                Values if, on average, it brings a relatively high incremental value
                ---------------------------------------------------------------------------
                to all possible orderings and sub-orderings of Parties A, B, and C.
                Id. ] 15.
                 The value of a sub-set--i.e., a Shapley coalition--prior to joinder
                by other parties to the notional negotiation, is denominated as its
                ``Characteristic Function.'' The calculation of its Characteristic
                Function is ``necessary to assess and delineate the value that can
                result from the cooperation of any subset of the overall cooperating
                group.'' Id. ] 17. The value of each coalition's Characteristic
                Function is based on the fundamental economic principle that a
                coalition of willing sellers (like any individual seller) ``is assumed
                to act in the manner that maximizes the collective surplus of the
                coalition.''. Willig WDT app. C at C-4 (] 6 therein); see also id. app.
                F at F-4 (] 7 therein) (same). After specifying these coalitions and
                calculating the maximum values of their characteristic functions, the
                modeler can derive Shapley Values for each party to the notional
                Shapley ``negotiation.'' Id. ] 33.
                 Professor Willig contends that Shapley Value modeling is related to
                the royalties that are to be determined in the present proceeding, with
                the record companies and the noninteractive streaming services
                constituting the ``arriving'' participants. The record companies must:
                (1) Recover their opportunity costs,\220\ identified as their fallback
                values in Professor Willig's model; and (2) receive their Shapley
                Values, i.e., their average share of the surplus they contribute across
                all arrivals. Thus, unless royalty payouts are high enough to at least
                allow the
                [[Page 59523]]
                record companies to receive their fallback values (i.e., their
                opportunity costs) plus their Shapley Values, they would not license
                their repertoires to the noninteractive services. In similar fashion,
                the noninteractive services will receive their average share across all
                arrival orderings, corresponding to their Shapley Values (also
                calculated across all arrivals, of Shapley-derived Surplus). See Willig
                WDT ] 24 (describing this application of Shapley Value modeling).
                ---------------------------------------------------------------------------
                 \220\ ``The opportunity cost'' of anything of value is what you
                must give up to get it,'' and thus ``is inseparably bound up with
                choice.'' John Quiggin, Economics in Two Lessons: Why Markets Work
                So Well, and Why They Can Fail So Badly 15 (2019).
                ---------------------------------------------------------------------------
                 According to Professor Willig, in this proceeding, a record
                company's ``opportunity costs'' include any marginally higher royalties
                it might have earned by licensing to other distribution methods (such
                as, e.g., interactive services), rather than licensing its sound
                recordings to noninteractive services.\221\ Thus, he claims that
                Shapley Value modeling is ``an appropriate approach for assessing rates
                that would be negotiated in the hypothetical marketplace for
                noninteractive webcasting [because it] fit[s]within the requirements of
                the relevant legal statute.'' Id.
                ---------------------------------------------------------------------------
                 \221\ Note that his application of the opportunity cost concept
                does not include the value of additional royalties that a record
                company would have earned by licensing its sound recordings to
                noninteractive services--such as royalties earned because some
                listeners to terrestrial radio, (which does not pay sound recording
                royalties) might have converted to noninteractive listening (as
                indicated by the surveys presented in this case, discussed infra,
                section IV.A). These negative opportunity costs (opportunity
                benefits) would need to be offset against the opportunity costs
                described by Professor Willig in the accompanying text, to determine
                the net value of all opportunities foregone. See Paul J. Ferraro and
                Laura O. Taylor, Do Economists Recognize an Opportunity Cost When
                They See One? A Dismal Performance from the Dismal Science, 4 J.
                Econ. Analysis & Pol'y 1, 7 (2005) (``An avoided benefit is a cost,
                and an avoided cost is a benefit. Thus, the opportunity cost . . .
                is . . . the net benefit forgone.'') (emphasis added).
                ---------------------------------------------------------------------------
                a. The Specifications in Professor Willig's Shapley Value Model
                 A necessary initial step for an economist constructing a Shapley
                Value model is the delineation and enumeration of the parties to the
                notional negotiations, i.e., the types and the number of sellers and
                buyers (licensors and licensees in this proceeding). Id. ] 25.
                According to Professor Willig, this process should ``strike[] a balance
                between offering a granular and realistic description of the
                hypothetical market [while] maintaining enough simplicity around the
                number of entities being modeled such that the model can be readily
                solved and necessary data inputs can be estimated.'' Id. ] 26.
                 In the notional negotiations of his Shapley modeling, Professor
                Willig assumes a market with four upstream record companies and two
                downstream noninteractive webcasting distributors. Willig WDT ] 25.
                Three of these four record companies represent each of the major record
                companies (Sony, Warner and Universal) (collectively the Majors), and
                the fourth represents a ``combination'' of all independent record
                companies (Indies). Id. Thus, these four entities comprise the entirety
                of the record company licensors in his market model. The two
                noninteractive services represent, respectively, a combination of all
                ad-supported noninteractive distributors, and a combination of all
                subscription noninteractive distributors, thus comprising the entirety
                of the noninteractive licensees. Id. According to Professor Willig,
                these assumptions strike the required balance between granular realism
                and model tractability. Id.
                 Professor Willig claims that the assumptions he makes regarding
                these specifications are necessary and prudent because they allow the
                model to generate the following economic information:
                 1. The effects of the ``potentially different negotiating
                positions'' of the Majors vis-[agrave]-vis the Indies.
                 2. The difference, if any, in royalty rates, between ad-supported
                noninteractive services, on the one hand, and subscription
                noninteractive services, on the other.
                 3. The effects of ``competition between the collective ad-supported
                noninteractive distributor and the collective subscription
                noninteractive distributor.''
                Willig WDT ] 26. Professor Willig adds that his model will generate
                royalty rates that are lower than would exist in the actual market
                because the model's ``grouping'' of services ``simplifies away rivalry
                among the various extant ad-supported noninteractive distributors and
                among the various extant subscription noninteractive distributors,
                [which] eliminate[es] consideration of competition within these groups
                of distributors,'' artificially elevating ``their respective market
                power. Id.\222\
                ---------------------------------------------------------------------------
                 \222\ This specification may not be a simplification so much as
                an approximation of reality. As noted infra, Professor Willig finds
                that in the noninteractive market Pandora has a market share of more
                than [REDACTED]% in the ad supported and subscription sectors,
                respectively, making the ``one noninteractive service''
                specification fairly realistic.
                ---------------------------------------------------------------------------
                 Next, Professor Willig calculates the value of the ``characteristic
                functions'' created by each possible cooperative grouping
                (``coalition'') of these six parties to the notional negotiation (i.e.,
                the four record companies and two noninteractive distributors). To make
                these ``characteristic function'' calculations, he first determines the
                value that each party or set of parties contributes upon arriving to
                the coalition. Id. ] 27.
                 Starting with the record companies, Professor Willig defines the
                value each brings to these coalitions as ``a function of both the costs
                it incurs and the revenue it could generate by licensing its sound
                recordings to distributors other than interactive services.'' Id. ] 28.
                Professor Willig characterizes this value as a record company's
                ``fallback value''--i.e., a value it would retain in the absence of
                agreements with the noninteractive distributors. Id.\223\
                ---------------------------------------------------------------------------
                 \223\ Professor Willig acknowledged that the ``fallback value''
                in his model doesn't specify whether that fallback value is
                generated from markets that are perfectly competitive,
                monopolistically competitive, oligopolistic or monopolistic. 8/5/20
                Tr. 378-79 (Willig).
                ---------------------------------------------------------------------------
                 According to Professor Willig, in order to determine this fallback
                value the model must ``evaluat[e] what would happen if each
                noninteractive [service] did not have access to that record company's
                music.'' Id. ] 29. In that regard, he testifies that the model must
                explain--assuming the absence of noninteractive services from the
                market--``how much of each noninteractive [service's] audience would
                divert to other music listening options (including to the other
                noninteractive distributor).'' Id.\224\
                ---------------------------------------------------------------------------
                 \224\ As noted supra, his model does not net out the positive
                royalties record companies would earn by listeners who would listen
                to a noninteractive service rather than to terrestrial radio (or,
                any other non-royalty bearing substitute, such as listening to
                existing music sources or listening to less music, for that matter).
                ---------------------------------------------------------------------------
                 Because of the importance to his Shapley Value Model of the value
                of this diversion, Professor Willig begins the model-building aspect of
                his testimony by describing the type of data necessary to calculate the
                diversionary impact of noninteractive services. Specifically, he
                explains that his model requires the following inputs:
                 1. The size of the audience of each noninteractive distributor;
                 2. The diversion parameters that represent the proportion of these
                audiences that would divert to each alternative mode of distribution;
                and
                 3. The respective share of noninteractive plays for each record
                company specified in the model.
                Id.
                 Professor Willig explains that the value the noninteractive
                services bring to the notional Shapley negotiation is based on the
                profits they can generate, i.e., from the revenues they receive from
                subscribers and advertisers, less
                [[Page 59524]]
                ``various costs''--including the copyright royalties noninteractive
                services pay to music publishers for musical works. Id. ] 30. These
                costs of course do not include the sound recording royalties, as these
                are the ``unknowns'' for which the Shapley Value model is intended to
                solve. See id. ] 30.
                 Professor Willig's Shapley Value Model treats licenses from all
                three Majors as essential to the viability of a noninteractive service,
                in each Shapley subset of negotiating parties. As Professor Willig
                notes, incorporating this ``must have'' input into the Shapley Value
                model means that ``without access to the sound recordings of all three
                of the major record companies, a noninteractive distributor does not
                operate and contributes zero profits to the rest of the subset of the
                bargaining parties.'' Willig WDT ] 31.\225\
                ---------------------------------------------------------------------------
                 \225\ By contrast, Professor Willig's model does not assume that
                the repertoires of the specified aggregate of Indies are ``must
                have'' inputs for a noninteractive service. Rather, his model
                assumes that a noninteractive service without access to all of the
                Indies' sound recordings would not suffer a complete loss of profits
                attributable to the Indies, but would instead would see a decline in
                profits commensurate with listeners' preferences for content carried
                by [I]ndies.'' Id.
                ---------------------------------------------------------------------------
                 To support his treatment of each Major as a ``Must Have,''
                Professor Willig relies on an abundance of record facts and prior
                statements by the Judges, as enumerated below.
                 First, Professor Willig notes that, in Web IV, the Judges stated
                that ``[t]here appears to be a consensus that the repertoire of each of
                the three Majors is a `must have' in order for a noninteractive service
                to be viable.'' Web IV, 81 FR at 26373 (emphasis added). This statement
                by the Judges was supported by testimony in Web IV. In that proceeding,
                Professor Michael Katz, the NAB's economic expert witness, and
                Professor Shapiro, testifying for Pandora, both declined to conclude
                that the Majors were not ``Must Haves'' for noninteractive services.
                Web IV, 81 FR at 26364. Additionally, in Web IV the Judges found that
                the ``Must Have'' status of noninteractive services was demonstrated by
                Pandora's own data showing the high percentage of total plays on
                Pandora that were comprised of the most popular songs (hits), i.e.,
                from the top 5%, 10%, and 20% of ``weekly spins,'' a percentage greater
                than the total percent of overall plays of Majors' recordings on
                Pandora. As the Judges stated, ``[t]hese `top spin' figures are
                indicative of the `must have' aspect of the Majors' repertoire,'' and
                explain ``why steering away from [the Majors'] repertoires cannot be
                pursued beyond a certain level, and why [Professor] Shapiro candidly
                declined to reject the idea that the Majors' repertoires were `must
                haves' even though noninteractive services could steer away from them
                to an extent.'' Id. at 26373 n.155.
                 In this proceeding, SoundExchange notes that an even earlier
                proceeding took note of the importance to a noninteractive service of
                accessing all the ``hits.'' SX PFFCL ] 595 (citing SDARS II, 78 FR at
                23064 (quoting a Sirius XM witness who testified that ``Sirius XM is
                very hits driven, and they want to have the most successful service
                they can, so they're going to use what's popular.'')). Further,
                SoundExchange identifies the body of evidence in the present record
                that belies a view that a noninteractive streaming service could simply
                eliminate a Major's entire repertoire:
                 Numerous documents produced by Pandora explain that [REDACTED].
                Tr. Ex. 5153 at 35-56; see 8/5/20 Tr. 467:17-468:5 (Willig); 8/10/20
                Tr. 960:3-961:1 (Willig); see, e.g., Ex. 5156 at 17 [REDACTED] Ex.
                5157 at 22 [REDACTED]); Ex. 5154 at 18 ([REDACTED]); Ex. 5155 at 31
                ([REDACTED]''); Ex. 5158 at 13 [REDACTED]).
                SX PFFCL ] 596.\226\
                ---------------------------------------------------------------------------
                 \226\ SoundExchange also relies on evidence regarding the ``Must
                Have'' status of the Majors' individual repertoires to interactive
                services. The Judges do not find that evidence germane to the
                question of whether the Majors are ``Must Haves'' for noninteractive
                services.
                ---------------------------------------------------------------------------
                 The only new evidence that the Services proffer that would
                potentially support their claim that noninteractive services can move
                beyond steering and forego the entire repertoire of a Major are the
                results from Pandora' Label Suppression Experiments. However, as
                explained in the Judges' consideration of Professor Shapiro's game
                theoretic modeling they find that evidence to be deficient and accord
                it no weight.
                 For the foregoing reasons, the Judges find Professor Willig's
                decision to treat each of the three Majors as a ``Must Have'' to be
                reasonable and proper.
                 Having specified the ``characteristic functions'' in his model,
                Professor Willig derives the algebraic expression of the Shapley Values
                for each party in the negotiation styled by the Shapley Value
                methodology. Id. ] 33 & app. C. Applying the ``characteristic
                function'' concepts he delineated earlier, Professor Willig notes that
                his algebraic analysis identifies ``[t]he difference between the
                characteristic function for a subset of the parties without the
                [noninteractive service] and the characteristic function for that
                subset with the [noninteractive service] added . . . .'' Id. at 33.
                Applying this mathematical difference, Professor Willig states that his
                model allows for the implementation of the applicable ``Shapley Value
                algorithm.'' Id. app. C at C-5 (] 9 therein). This algorithm allows
                Professor Willig to evaluate ``every possible arrival ordering'' and
                determine the negotiating parties' ``incremental value.'' Id.
                 He then utilizes his model to determine the ``incremental value''
                contributed by each ``arriving'' negotiating party identified in his
                model, relative to the value created by the parties that preceded the
                ``arriving'' party. Professor Willig then averages the sum of these
                incremental contributions for each negotiating party across all 720
                arrival orderings.\227\ Id. Each party's average incremental
                contribution constitutes its individual Shapley Value.
                ---------------------------------------------------------------------------
                 \227\ Given the presence of six ``players'' in his model, there
                are 6! (i.e., 720) arrival orderings.
                ---------------------------------------------------------------------------
                 Professor Willig next explains how his model makes the link between
                Shapley Values and the royalties to be paid to the record companies:
                 [O]nce Shapley Values are derived, the corresponding royalties
                from the two noninteractive distributors to the record companies can
                be computed. These are the payments that result in each party's
                bottom line equaling its Shapley Value.
                 For each [noninteractive service], the total royalty payments it
                makes to the record companies must equal the difference between its
                profits from its market operations and its Shapley Value.
                 For each record company, the total royalty payments it receives
                must equal the difference between its Shapley Value and the total
                compensation it receives from its other sources of distribution,
                less its costs of operation.
                Id. ] 34; see also id. app. C, p. C-6 (] 10 therein).
                b. The Empirical Inputs in Professor Willig's Shapley Value Model
                 Having specified his Shapley Value Model, Professor Willig then
                identifies the following necessary categories of data inputs:
                 1. Royalty rates that record companies earn from other forms of
                music distribution;
                 2. noninteractive distributors' audience sizes;
                 3. diversion ratios reflecting the amount of a noninteractive
                distributor's audience that would switch to other forms of music
                distribution and generate royalties if that noninteractive distributor
                were unavailable;
                 4. record company play shares; and
                 5. noninteractive distributors' fixed costs and marginal profit
                rates.
                Willig WDT ] 35. He then explains how he selected the data for each of
                these
                [[Page 59525]]
                five input categories, as described below.
                i. Royalties From Other Forms of Distribution
                 Professor Willig uses ``currently observable'' sound recording
                rates as proxies for the sound recording royalty rates that will
                prevail during the rate period, 2021-2025. Id. ] 36. The first
                alternative category of distribution he considers is comprised of
                subscription on-demand streaming music and video services. Professor
                Willig obtains the royalty payment data detail for eight such services
                \228\ from the royalty statements of the three Majors and Merlin
                Network (Merlin), a digital rights agency for independent record
                labels. Id. ] 37.\229\ This royalty data reflected payment over the 12-
                month period ending March 2019, the most recent four-quarter period for
                which data was available to Professor Willig. Id. The average monthly
                royalties paid by these eight services, weighted by each service's
                subscriber count, was approximately $[REDACTED] per subscriber. See id.
                app. D at ex. D.1.
                ---------------------------------------------------------------------------
                 \228\ The eight services are: [REDACTED]. Willig WDT app. D, ex.
                D.1.
                 \229\ Merlin is a non-profit association for independent labels
                with more than 800 members representing tens of thousands of labels
                from 63 countries, including the United States. Orszag WDT ] 25.
                ---------------------------------------------------------------------------
                 The second alternative rate/service category Professor Willig
                considers is comprised of ad-supported on-demand streaming music and
                video services. He obtained the royalty payment data detail for three
                such services--Spotify, YouTube (free version) and Vevo. Id. ] 38. The
                royalty data was produced by the same four entities that provided the
                royalty data for subscription on-demand services, and covered the same
                four-quarter time period. The average amount of royalties these three
                services paid over this period, weighted by each service's total plays,
                was approximately $[REDACTED] per play. See id. app. D at ex. D.2.
                 The third alternative rate/service category Professor Willig
                considers is Sirius XM satellite radio transmission. He obtained data
                on effective royalty rates, over the same 12-month period identified
                above, from: (i) Statements of Account provided by Sirius XM to
                SoundExchange showing the dollar value of royalties paid for satellite
                radio performances; and (ii) Sirius XM's SEC Forms 10-K and 10-Q
                filings setting forth its subscriber counts. Id. ] 39 & n.21 (and
                exhibits referenced therein). Professor Willig uses these data to
                compute average monthly subscriber counts, and then divides that count
                into average monthly royalties. Id. This division results in Sirius XM
                monthly royalties per subscriber of $[REDACTED].\230\
                ---------------------------------------------------------------------------
                 \230\ Professor Willig asserts that the royalty rates he
                calculated for Sirius XM are ``artificially'' low, because they do
                not account for: (i) Royalties paid through licenses directly
                negotiated between Sirius XM and certain record companies; or (ii)
                royalties that--only since the October 2018 enactment of the Music
                Modernization Act--SiriusXM must pay for its performance of sound
                recordings fixed prior to February 15, 1972. See id. n.22 (and
                accompanying text). However, because Professor Willig does not
                provide a basis for the Judges to make an actual or estimated
                adjustment based on this assertion, the Judges make no such
                adjustment.
                ---------------------------------------------------------------------------
                 The fourth alternative royalty-bearing category Professor Willig
                considers is generated not by royalty payments from intermediaries, but
                rather by consumer payments to purchase digital downloads and physical
                music (i.e., CDs and vinyl records). Id. ] 40. He relies on 2018
                wholesale and retail sales data from the Recording Industry Association
                of America (RIAA) and from a 2018 Annual Music Study by an industry
                research firm, MusicWatch, prepared for the RIAA. These data provide
                information on the average dollar amount spent by purchasers of sound
                recordings in these formats. Id. Professor Willig also relies on
                additional 2018 RIAA data on the percent of the retail prices of
                digital downloads, CDs and vinyl records, respectively, that is paid as
                royalties on sales in these three categories. Id. ] 40 app. D at ex.
                D.3. He then multiplies each retail revenue amount by the applicable
                royalty percentage, to generate the following calculation of ``average
                monthly royalties per purchaser'':
                $[REDACTED] for digital download purchasers
                $[REDACTED] for CD purchasers
                $[REDACTED] for vinyl record purchasers
                Professor Willig then calculates an average royalty per purchaser of
                $[REDACTED], weighted by retail revenue percentages across these three
                sales formats. Id. app. D at ex. D.3.
                 The fifth (and final) alternative category of distribution
                Professor Willig considers is comprised of AM/FM broadcasts (to be
                clear, these are broadcasts via terrestrial radio rather than
                ``simulcasts'' over the internet) and a miscellaneous category for all
                other forms of music. Id. at 41.
                 The royalty rates calculated by Professor Willig for the foregoing
                categories are set forth in the figure below:
                Figure 4--Royalty Rates for Outside Distributors (RESTRICTED)
                [REDACTED]
                Willig WDT fig.4.
                 Professor Willig testifies that in his Shapley Value Model, for the
                outside distributors identified in the above table, ``[e]ach of their
                respective royalty rates are taken as they actually are or are expected
                to be.'' Willig WDT ] 28. Accordingly, ``the options of listening to
                broadcast AM/FM radio or not listening to music . . . are modeled
                realistically as not producing any royalties for the record
                companies.'' Id.; see also 8/5/20 Tr. 406 (Willig) (``I took those
                elements of opportunity costs from the market data as they are.''); id.
                at 378-79, 488-89 (Willig). SoundExchange notes that Professor Willig's
                treatment of ``outside distributors,'' including those that do not
                generate any royalties, such as AM/FM radio, is ``[c]onsistent with the
                ``fork in the road'' approach taken by Professor Willig and adopted in
                SDARS III.'' SX PFFCL ] 625 (citing SDARS III, 83 FR at 65328).
                ii. Noninteractive Distributors' Audience Sizes
                 In order to estimate the extent of diversion to alternative
                distribution methods and thus the value of the record companies'
                opportunity cost in licensing to noninteractive services (in the
                hypothetical market), Professor Willig also needs to estimate audience
                sizes for the noninteractive distributors. He identifies ``total
                numbers of plays per month'' as an appropriate measure to use in order
                to gauge audience size. Willig WDT ] 43.
                 To make this calculation, Professor Willig relies on Pandora's
                publicly reported financial projections to estimate its audience size,
                see id. ex. D.6, and he relies on SoundExchange's royalty statements
                and other data to estimate Pandora's play share of the noninteractive
                markets. These data indicate that Pandora which has approximately
                [REDACTED]% of the play share of the ad-supported noninteractive market
                and an [REDACTED]% play share of the subscription noninteractive
                market. See id., app. D at ex. D.4. Professor Willig uses this play
                share percentage data as a proxy, to estimate Pandora's audience share
                percentage of the noninteractive ad-supported and subscription markets.
                He further assumes that Pandora will have the same shares of these
                markets throughout the 2021-2025 rate period as it did over the recent
                12-month period ending March 2019. Willig WDT ] 43.
                 Using these Pandora's market shares, Professor Willig grosses up
                the Pandora audience size to reflect the total size of the
                noninteractive audience in these markets. By this method, he estimates
                that the ad-supported noninteractive
                [[Page 59526]]
                market has an audience of [REDACTED], and that the subscription
                noninteractive market has an audience of [REDACTED]. Id. ] 44 & Fig. 5.
                 To adapt his audience size analysis to his opportunity cost
                analysis, Professor Willig converts the play count data into play-per
                user and play-per subscriber metrics.\231\ Using Pandora's public
                financial projections, see id. app. D, ex. D.6, he divides the
                projected average monthly play counts for Pandora's two tiers
                (respectively, for the ad-supported and subscription tiers) by the
                projected number of active users (for the ad-supported tier) and by the
                projected number of subscribers (for the subscription tier). By this
                exercise, Professor Willig estimates that ``users of Pandora's ad-
                supported service are projected to listen to approximately [REDACTED]
                plays per month and subscribers to Pandora's subscription
                noninteractive service (i.e., Pandora Plus) are projected to listen to
                approximately [REDACTED] plays per month over the 2021-2025 period.''
                Id. ] 45.
                ---------------------------------------------------------------------------
                 \231\ Professor Willig converts this data into a per-user metric
                in order to apply it in conjunction with the per-user information
                derived from the survey results upon which he relies in the
                development of his opportunity cost estimates.
                ---------------------------------------------------------------------------
                iii. Estimating Opportunity Costs With Diversion Ratios
                 Professor Willig utilizes the dollar value of the previously
                discussed alternative distribution methods--``if a noninteractive
                distributor were no longer available in the marketplace''--to estimate
                the ``opportunity cost that record companies experience by licensing to
                noninteractive distributors instead of only licensing to all the
                outside forms of music distribution'' Id. ]] 46, 47. More particularly,
                he multiplies these dollar values by the diversion ratios indicated by
                the survey work undertaken by another SoundExchange expert, Professor
                Gal Zauberman (the Zauberman Survey).\232\ Professor Willig's
                opportunity cost estimates for each alternative method of distribution
                are set forth in the figure below:
                ---------------------------------------------------------------------------
                 \232\ See Zauberman WDT. Professor Zauberman's survey testimony
                is discussed elsewhere in this Determination.
                [GRAPHIC] [TIFF OMITTED] TR27OC21.007
                Willig WDT ] 47 & fig. 6.\233\
                ---------------------------------------------------------------------------
                 \233\ Professor Willig provides a detailed explanation of how he
                incorporated Professor Zauberman's survey results as inputs in his
                calculation of diversion ratios needed to estimate record company
                opportunity costs.
                ---------------------------------------------------------------------------
                iv. Record Company Play Shares in the Noninteractive Market
                 Because Professor Willig constructed his Shapley Value Model to
                identify the separate values attributable to each of the Majors and to
                his aggregation of Indies, he must identify their separate ``play
                shares'' in the noninteractive markets. To estimate these ``play
                shares,'' he relies on ``the royalty statements that music streaming
                and video services provide to record companies when operating under
                directly negotiated license agreements.'' Id. ] 48. More particularly,
                he analyzes the most recent monthly royalty statements available for
                the 12-month period ending March 2019, from: (i) Nonstatutory streaming
                music and video services (with varying degrees of interactivity); (ii)
                statutory noninteractive services; and (iii) Pandora's and iHeart's
                noninteractive play counts ([REDACTED]).\234\
                ---------------------------------------------------------------------------
                 \234\ Even more granularly, Professor Willig evaluates all tiers
                of service (with varying degrees of interactivity) on the following
                services: Apple Music, Amazon Music Unlimited, Amazon Prime, Google
                Play, iHeart (both interactive and noninteractive tiers), Pandora
                (both interactive and noninteractive tiers), Napster, Spotify, Vevo,
                and YouTube. He notes that play share data from two other
                distribution methods--satellite via SiriusXM and physical retail and
                digital downloads--were ``not available'' to him. However, he
                testifies that he has ``no reason to think the content of any of the
                record companies is played with more or less frequency on these
                distribution methods, when compared to the distribution methods
                (interactive and noninteractive streaming) for which I did have
                data.'' Thus, he asserted that he had ``no reason to believe this
                additional data would materially change'' his play share estimates.
                Willig WDT ] 48 n.26.
                ---------------------------------------------------------------------------
                 Professor Willig explains that these royalty statements set forth
                the total plays on each service in any given month, itemized by the
                record company that owned each copyrighted sound recording. He also
                states that he has no reason to believe these shares would be
                [[Page 59527]]
                substantially different over the 2021-2025 rate period, compared to the
                data he had applied. Id.
                 From this data, Professor Willig calculates the relative
                proportions of plays of sound recordings whose copyrights are owned by,
                respectively, Sony, Warner, and Universal, as well as from his grouping
                of Indies. More specifically, he computes each Major's play share, and
                then computes the Indies' play share as equal to 100% minus the sum of
                the Majors' shares. Id. at ] 48 & app. D at ex. D.5.
                 Professor Willig summarized these play shares in the following
                figure:
                Figure 7: Estimated Play Shares (RESTRICTED)
                [REDACTED]
                v. Noninteractive Services' Fixed Costs and Marginal Profit Rates
                 As noted supra, Professor Willig's Shapley Value Model also
                requires data quantifying: (i) Each record company's ``fallback
                value''; and (ii) the surplus value brought by each of the negotiating
                parties to the notional Shapley market negotiations. With specific
                regard to the noninteractive services, Professor Willig states that the
                value they bring to the notional Shapley negotiations depends on their
                ability to generate profits, which subtract out from revenues variable
                costs, including the royalties noninteractive services pay for musical
                works (but not the sound recording royalties, which, to repeat, are the
                outputs of the Shapley Value Model). Willig WDT ] 49. To make this
                calculation, Professor Willig compiles categorical data relating to
                ``fixed costs, variable or marginal costs and the associated marginal
                profit rates of noninteractive distributors . . . .'' Id.
                c. Professor Willig's Chosen Source of Financial Data
                i. Financial Statements vs. Financial Projections
                 Professor Willig relies on the ``Pandora Merger Proxy,'' dated
                December 20, 2018, and filed with the Securities and Exchange
                Commission (SEC), Trial Ex. 5045, that described the proposed merger
                (subsequently consummated) between Pandora and Sirius XM. Id. & app. D,
                ex. D.6 (p.3 therein). Professor Willig utilizes Pandora data
                exclusively to represent the noninteractive services because: (i)
                Pandora was the only noninteractive service for which he could find
                ``forward-looking estimates'' of the data that he required; and (ii)
                Pandora is the largest noninteractive distributor in the market,
                accounting (as noted supra) for more than [REDACTED]% of total plays in
                the noninteractive market. Id. & app. D at ex. D.4.
                 Perhaps in (correct) anticipation of the Services' rebuttal,
                Professor Willig explains in detail why he decides to rely on the
                ``Pandora Merger Proxy''--which included predictions (what he
                characterized as ``forward-looking estimates'') of Pandora's future
                financial performance, and which Pandora sent to its shareholders in
                connection with the then-proposed (and subsequently consummated)
                acquisition of Pandora by Sirius XM. More particularly, he explains why
                he favored these projections, rather than older data in Pandora's most
                recent financial statements contained in its 2017 Form 10-K (annual
                report) filed with the Securities & Exchange Commission (SEC), Trial
                Ex. 5043, or data even more current than the proxy statement data in
                Pandora's financial statements for the first half of 2019. Trial Ex.
                5054. See Willig WDT, app. D (] 2 therein).
                 Professor Willig acknowledges Pandora's ``recent history of
                operating losses'' (before and after Sirius XM's proposed acquisition
                of Pandora). However, he opines that such operating losses do not
                ``accurately reflect expectations about the incremental value'' that
                Pandora could bring to the notional Shapley Value negotiation
                concerning royalty rates for the 2021-2025 period. Willig WDT app. D (]
                2 therein). Rather, he states, it is more appropriate to rely on: (i)
                Financial projections that undergird ``the approximately $3.5 billion
                purchase price paid by Sirius XM'' to acquire Pandora; and (ii)
                Pandora's substantial market capitalization of approximately $2.4
                billion immediately prior to the announcement of the Sirius XM
                acquisition . . . .'' Id. According to Professor Willig, these are
                market-based values, and therefore the data on which they were based--
                utilized by Pandora's investment bankers as an input into their merger
                fairness opinions--are more probative of Pandora's likely financial
                performance over the forthcoming 2021-2025 rate period. Willig WDT app.
                D (]] 2-3 therein).
                 Although Professor Willig states a preference for projections as
                opposed to the most recent historical financial information, he also
                chose to ignore different financial projections created for Pandora by
                Sirius XM after it had acquired Pandora. He acknowledges that these
                newer financial projections ``[REDACTED].'' Regardless, as a basis for
                rejecting these projections, Professor Willig states: ``I
                ``understand'' Pandora . . . produced [these] additional projections .
                . . for these proceedings . . . .[,]''--but he does not attribute his
                understanding to any source. Id. ] 3 n.4.\235\
                ---------------------------------------------------------------------------
                 \235\ As discussed elsewhere in this Determination, Pandora
                vigorously denies the unattributed assertion that it created these
                newer projections, labeled ``Long Run Scenarios'' by Sirius XM, for
                the purpose of these proceedings.
                ---------------------------------------------------------------------------
                ii. Professor Willig's Reliance on Merger ``Scenario 2'' Data
                 The Proxy Statement on which Professor Willig elects to rely
                contains two different sets of projections, denoted as ``scenarios,''
                regarding Pandora's predicted financial future. ``Scenario 1a''
                projected a relatively lower value for Pandora, whereas ``Scenario 2''
                projected a relatively higher value. Professor Willig elected to
                utilize the higher-value Scenario 2 projections, ignoring the lower-
                value Scenario 1a projections. He made this decision because he
                understood that Pandora's investment bankers relied on the Scenario 2
                projections to produce their valuation of Pandora in connection with
                the Sirius XM acquisition, and those projections were ``in-line with
                the $3.5 billion market price paid by Sirius XM to acquire [Pandora].''
                Willig WDT app. D, ] 3 & n.5.\236\ He notes that, by contrast, the
                Scenario 1a projections implied valuations substantially below this
                $3.5 billion market price.'' Id.
                ---------------------------------------------------------------------------
                 \236\ Professor Shapiro concedes that the Scenario 2 data needs
                to be taken ``seriously'' and are ``a big deal,'' because they were
                included in the ``merger proxy documents . . . used as part of the
                acquisition.'' 8/19/20 Tr. 2732-33 (Shapiro).
                ---------------------------------------------------------------------------
                 Using the higher-valued Scenario 2 projections, Professor Willig
                estimates Pandora's annual fixed costs at $397 million for its Pandora
                Free ad-supported service, and annual fixed costs of $85 million for
                its Pandora Plus subscription service. He then converts these annual
                figures into monthly fixed costs. To convert these monthly Pandora
                fixed cost estimates into noninteractive service industrywide data, he
                grosses them up by dividing by Pandora's market share (as he did when
                grossing up the audience size). Through this method, Professor Willig
                estimates monthly fixed costs of $40.4 million for ad-supported
                noninteractive services, and $8.9 million for subscription
                noninteractive services. Willig WDT app. D, ] 4 & n.6.
                 Having identified and segregated the fixed costs, Professor Willig
                then utilizes the Scenario 2 data for his estimate of Pandora's
                variable costs.\237\
                [[Page 59528]]
                In this regard, Professor Willig also relies on other information,
                including a September 24, 2018 report by an investment banking firm
                (JMP Securities, engaged to analyze Sirius XM's acquisition of
                Pandora), that projected ``content acquisition costs'' for Pandora's
                three service tiers (Pandora Free, Pandora Plus and Pandora Premium).
                Willig WDT app. D at ex. D.6 (nn.8, 11 and 14 therein).
                ---------------------------------------------------------------------------
                 \237\ As noted supra, these variable costs are necessary inputs
                in the Shapley Value model because these are costs that must be
                subtracted from revenue in order to estimate the ``surplus'' that
                can be the shared by the participants in the notional Shapley
                arrival orderings.
                ---------------------------------------------------------------------------
                 Generally, Professor Willig allocates Pandora's multi-tier variable
                costs on a per-tier basis proportionate to each tier's share of
                projected total (all-tier) revenue, through 2025, except where he
                identifies specific per tier costs. Specifically, these other
                identifiable variable costs include: (i) ``Cost of Goods Sold''
                (including musical works royalties (performance right and mechanical
                rights royalties)); (ii) ``Operating Expenses''; (iii) ``Product
                Development Expenses''; (iv) ``Sales and Marketing''; (v) ``General and
                Administrative Expenses'' and ``Stock Based Compensation.'' Willig WDT
                app. D, ex. D.6 (at 3 therein).
                 Professor Willig also makes the following revenue-related
                assumptions regarding Pandora: \238\
                ---------------------------------------------------------------------------
                 \238\ Revenue data is necessary in the Shapley Value Model
                because revenue minus variable costs yields the surplus that can be
                allocated among the negotiating parties according to their
                respective Shapley Values.
                ---------------------------------------------------------------------------
                 (i) Revenue growth per subscriber annually from 2021-2025;
                 (ii) monthly revenue per subscriber for Pandora Plus in 2020;
                 (iii) annual revenue growth per subscriber for years 2021 to 2025;
                 (iv) monthly revenue per subscriber for Pandora Plus in 2020; and
                 (v) continued existence of the 2018 ad-supported and subscription
                noninteractive per-play royalty rates from 2021-2025 equal to the
                current statutory rates plus an annual 2% inflation rate.
                Id. He bases his calculations of these five types of revenue
                information on ``the assumptions accompanying the Proxy Scenario 2
                projections and recent history which indicate that Pandora Premium is
                expected to grow faster than Pandora Plus.'' Id.\239\
                ---------------------------------------------------------------------------
                 \239\ Professor Willig also assumes that the number of ad-
                supported users for years 2021-2024 should be ``calculated based on
                a liner [sic] user growth trend between the 2018 actual and 2025
                projected figure. Id.
                ---------------------------------------------------------------------------
                 Based on the data upon which he relies, and the assumptions he
                makes in connection with that data, Professor Willig estimates an ad-
                supported marginal profit rate of $0.0042 per play, and a subscription
                marginal profit rate of $0.0048 per play. Willig WDT app. D, ex. D.6
                (at 2 therein).\240\
                ---------------------------------------------------------------------------
                 \240\ For the avoidance of confusion, the Judges point out that
                these figures are not Professor Willig's proposed royalty rates, but
                rather his estimated marginal profit rates. His calculation of
                royalty rates is discussed infra.
                ---------------------------------------------------------------------------
                iii. Professor Willig's Caveat Regarding the Foregoing Cost and Profit
                Data
                 Although Professor Willig elects to rely in his corrected written
                direct testimony on the Scenario 2 data, he recognizes that the data
                sets he then possessed when drafting that direct testimony did not
                contain granular cost and revenue information regarding Pandora.
                Accordingly, the assumptions he was compelled to make, as itemized
                supra, were necessarily tentative in nature. Specifically, Professor
                Willig acknowledged:
                 [C]ertain key inputs to the Pandora projections were not
                disclosed in Pandora's proxy statements (e.g., projected ad-
                supported user and subscriber counts, projected plays, and a
                breakdown of subscription revenue into its underlying Pandora Plus
                and Pandora Premium component parts). Accordingly, certain
                allocation assumptions were required to estimate key parameters from
                Pandora's projected financial information. Estimates derived from
                these projections may require amendment following the completion of
                discovery.
                * * * * *
                 The Pandora projections on which these estimates are based do
                not disclose certain key inputs that were used to create the
                projections. For instance, the projections do not include a
                breakdown of subscription revenue into the portions related to its
                Pandora Plus noninteractive and Pandora Premium on-demand services,
                respectively, and therefore require an allocation assumption to
                exclude Pandora Premium revenue and costs from the analysis.
                Moreover, the projections do not include the projected subscriber
                counts, active user counts, and play counts underlying the
                projections, requiring these figures to be derived so that profit
                rates can be computed. Accordingly, the assumptions required to
                estimate key parameters for use in my Shapley Value model may need
                to be updated following the completion of discovery.
                Willig WDT ] 50 n.30, app. D at D-3. Professor Willig did not amend his
                direct testimony to update these ``key parameters.''
                 In Pandora's rebuttal testimony, it criticizes Professor Willig's
                assumptions, and demonstrates that the more granular data provided an
                accurate description of Pandora's economic condition that served as the
                basis for the Scenario 2 projections on which Professor Willig elected
                to rely. See Trial Ex. 4109 (WRT of Jason Ryan) (Ryan WRT); Shapiro WRT
                (applying Mr. Ryan's economic data).
                 Later, in his written rebuttal testimony, Professor Willig utilizes
                the more granular economic data underlying the Scenario 2 projections
                to amend his direct testimony by substituting that data for the
                assumptions he had made in his direct testimony. Specifically, he
                testified as follows regarding the ``updates'' he made in his rebuttal
                testimony (at Appendix L):
                 These revised profit rate estimates adopt certain of Professor
                Shapiro's cost allocation assumptions, his definition of variable
                costs, and make use of further details relating to the projections
                publicly disclosed in Pandora's merger proxy . . . (including
                subscriber counts, Pandora Plus revenues, advertising hours, and
                operating expense synergies).
                Willig WRT ] 75 n.138.
                 Further, Professor Willig essentially adopted the analysis
                undertaken by Pandora's Vice President of Financial Planning and
                Analysis, Jason Ryan, regarding the allocation of advertising revenues;
                projected growth of subscription revenue; classification of certain
                sales and marketing expenses; classification of product development
                costs; and projected number of users, subscribers and plays. See 8/5/20
                Tr. 525 (Willig) (``[W]hen you check the numbers that [Mr. Ryan] says
                are right against the numbers I use in my rebuttal report, they are
                exactly the same.''); see also Willig WRT app. L at 1, 3-4 & nn.2-4, 11
                55-58 & 72-74; 8/5/20 Tr. 361-62, 520-25, 527-528 (Willig); SX PFFCL ]]
                669-674 (noting that Professor Willig's testimony, mooted many of the
                issues raised by Mr. Ryan and Professor Shapiro). Accordingly, the
                Judges adopt Mr. Ryan's analysis of the more granular cost and revenue
                data necessary to generate Pandora's profit margins on its subscription
                and ad-supported services. Additionally, the Judges find that Mr. Ryan,
                as a financial executive at Pandora, is a more competent witness to
                make the necessary categorizations and allocations of revenue and costs
                than Professor Willig.\241\
                ---------------------------------------------------------------------------
                 \241\ Thus, the Judges do not rely on Professor Willig's
                assertion that the more granular revenue and cost information did
                require him to materially change his royalty rate calculations. Id.
                More particularly, Pandora asserts that Professor Willig's analysis
                is still erroneous in two respects because he: (1) Misallocates
                product development costs across the ad-supported and Pandora Plus
                services by applying revenue proportions; and (2) fails to deduct
                non-music revenue from his calculation of Pandora's margin. Services
                PFFCL ]] 277-286 (and record citations therein). These disputes do
                not require extended analysis. Suffice it to say, with regard to the
                first issue, the Judges repeat their finding that Professor Willig's
                attempt--for the first time in rebuttal testimony--to justify his
                allocation of product development costs across Pandora's services,
                is less credible than the analyses made by Mr. Ryan, who is a fact
                witness with direct knowledge of these details regarding Pandora's
                product development costs. However, with regard to the second
                numbered issue above, Professor Willig explained persuasively that
                Pandora's criticism of his treatment of non-music revenue did not
                impact the royalty rate he calculated, because he made his profit
                calculations on a per-play basis that was unaffected by the
                treatment of non-music revenue, in that ``non-music revenue and non-
                music listening travel together in roughly equal proportion,'' with
                each representing approximately [REDACTED]% of revenue and
                listening.'' SX RPFFCL (to Services) ] 284 (and record citations
                therein). Moreover, because the amount of listening and revenue at
                issue in this allocation is only [REDACTED]% of each metric, the
                allocation of this revenue would have only a de minimis impact on
                the royalty rate ultimately estimated by Professor Willig's Shapley
                Value Model.
                ---------------------------------------------------------------------------
                [[Page 59529]]
                d. Professor Willig's Calculation of the Record Companies' Opportunity
                Costs
                 As noted supra, Professor Willig assumes that each of the three
                Majors in his Shapley Value Model provides a ``Must Have'' repertoire
                for a noninteractive service. Willig WDT app. C at C-1 (] 1 therein).
                Therefore, his modeling assumes that ``only when all three [Majors] are
                present in a coalition can the [noninteractive service] begin making
                profits.'' Id. at C-3 (] 5 therein). This means that ``in any other
                case''--including when a noninteractive service obtains licenses from
                only one or two Majors--Professor Willig's Shapley Value Model assumes
                that the noninteractive service ``cannot operate.'' Id. at C-5 (] 8
                therein).
                 Professor Willig acknowledges that the assumed ``Must Have'' status
                of each Major generates ``complementary oligopoly power'' in the
                market. However, he understands that the Judges' determination in a
                prior proceeding, Phonorecords III, ``credited a Shapley Value analysis
                as one way of addressing concerns about complementary oligopoly power
                [because] the analysis performed in the proceeding eliminated this
                `walk away' power by valuing all possible orderings of the players'
                arrivals.'' Willig WDT ] 14 (quoting Phonorecords III, 84 FR at 1933
                n.69).\242\
                ---------------------------------------------------------------------------
                 \242\ The Judges again discuss the issue of whether the
                repertoire of each Major is a ``Must Have'' infra, in connection
                with Pandora's assertion that its Label Suppression Experiments
                (LSEs) demonstrate that no one Major's repertoire is a ``Must
                Have.''
                ---------------------------------------------------------------------------
                e. The Noninteractive Services' Shapley Values Derived by Professor
                Willig
                 By inserting the data inputs, discussed above,\243\ into the
                Shapley Value formulas,\244\ Professor Willig derives Shapley Values
                and corresponding royalty rates for ad-supported and subscription
                noninteractive services, respectively. Id. at 51 & fig.9. These results
                are set forth below:
                ---------------------------------------------------------------------------
                 \243\ See also Willig WDT app. D.
                 \244\ See Willig WDT app. C.
                 [GRAPHIC] [TIFF OMITTED] TR27OC21.008
                
                 Because the royalty rates derived by Professor Willig are based in
                part on the diversion ratio results obtained from the Zauberman Survey,
                i.e., a survey of a sample from the larger population, the royalty
                rates are statistically inexact.
                [[Page 59530]]
                Accordingly, Professor Willig calculates a confidence interval for his
                results, utilizing a ``bootstrap procedure'' \245\ that produces a 95
                percent confidence interval. This confidence interval establishes
                ranges for the royalties from $0.00290 to $0.00299 for the ad-supported
                noninteractive royalty rate and of $0.00299 to $0.00316 for the
                subscription noninteractive royalty rate. Willig WDT ] 51 & app. E.
                ---------------------------------------------------------------------------
                 \245\ The Judges have previously described the ``bootstrap''
                procedure in the survey context as ``a sampling of the survey
                respondents [that is] itself randomly selected and thereby create[s]
                a confidence interval around each of the reported survey results''--
                in this case the entirety of the Zauberman Survey. SDARS III, 83 FR
                at 65232 n.90. There is no challenge by any of SoundExchange's
                adverse parties to this process.
                ---------------------------------------------------------------------------
                 Professor Willig emphasizes and explains several features of his
                results. First, he points out that ``the resulting Shapley Value for
                the ad-supported noninteractive [service] is near zero.'' Id. ] 51. The
                reason for this near-zero Shapley Value, he opines, is that ``the
                record companies' opportunity costs are high relative to the total
                projected profits of [the ad-supported noninteractive services].'' Id.
                Stating this point in commercial terms, Professor Willig explains that
                it reflects the alleged fact that ``the vast majority of those profits
                are necessary to compensate the record companies for the ad-supported
                noninteractive distributors' cannibalization of listeners that would
                otherwise consume music via other compensatory forms of music
                distribution.'' Id.\246\
                ---------------------------------------------------------------------------
                 \246\ Professor Willig also finds support for these high
                opportunity costs and royalties in: (i) Pandora documents that he
                understands [REDACTED]; and (ii) testimony from record company
                witnesses that [REDACTED]. See Willig WDT ]] 52-54.
                ---------------------------------------------------------------------------
                f. The Royalty Rates Derived From Professor Willig's Shapley Value
                Model
                 Based on the foregoing analysis, and as stated at the outset of
                this description of Professor Willig's modeling, he opines that his
                Shapley Value Model generates a royalty rate for ad-supported
                noninteractive services of $0.0028 per play for 2021 and for
                subscription noninteractive services of $0.0030 per play for 2021.\247\
                ---------------------------------------------------------------------------
                 \247\ Professor Willig also uses a different set of survey
                results as a check on his Shapley Values and royalty rates.
                Specifically, he utilizes data from market research conducted by
                Edison Research--known as the ``Share of Ear'' study--that analyzes
                the share of time Americans spend listening to all different forms
                of music distribution. He concludes that this alternative data set
                confirms the royalty rates he derived from the Zauberman Survey
                results. Willig WDT ]] 56-60 & ex.F. The Judges analyze this
                alternative approach in their discussion of the Services' criticisms
                of Professor Willig's Shapley Value modeling, infra section
                IV.C.1.g.
                 Additionally, Professor Willig tested the sensitivity of his
                Shapley Value model using a Nash-in-Nash (N-I-N) bargaining
                framework, another approach for modeling a multi-party negotiation.
                Willig WDT ]] 61-67); 8/6/20 Tr. 738-39 (Willig). Under that
                framework, each potential negotiating record company/noninteractive
                service pair reaches a ``Nash'' bargain in which the record company
                receives its fallback value and each counterparty receives one half
                of the surplus created by the deal. Willig WDT ] 62. In these Nash-
                in-Nash (N-I-N) negotiations, the parties assume that all other
                pairs of parties have reached (or will reach) an equilibrium
                agreement. Id. A solution is reached when there is no negotiating
                pair with an incentive to change its agreement. See id. ]] 65-66 &
                fig.11, app. G. His N-I-N model produces royalty rates similar to
                those obtained from Professor Willig's Shapley Value model--royalty
                rates for 2021 of $0.0030 per play for ad-supported noninteractive
                services and $0.0030 per play for subscription noninteractive
                services. Willig WRT ] 82 n.147; 8/6/20 Tr. 739 (Willig).
                ---------------------------------------------------------------------------
                g. The Services' Criticisms of Professor Willig's Shapley Value Model
                Approach and the Judges' Analysis and Findings
                i. Is Professor Willig's Shapley Value modeling appropriate for setting
                noninteractive rates?
                (A) Professor Willig's Shapley Value Model is Inconsistent With the
                Shapley Modeling in Phonorecords III and Thus Fails to Generate
                Effectively Competitive Rates
                 Professor Willig's Shapley Value Model--like all Shapley modeling--
                incorporates all potential ``arrival orderings.'' Therefore, unlike in
                the actual market, the modeling does not include any scenario in which
                a Major record company can leverage a threat to ``Walk-Away'' from
                negotiations into a royalty rate that includes the effect of its
                complementary oligopoly status. As noted supra, Professor Willig--
                relying on Phonorecords III--thus opines that a Shapley Value analysis
                is ``one way of addressing concerns about complementary oligopoly power
                . . . .'' Willig WDT ] 14. Therefore, in his opinion his Shapley Value
                Model is ``an appropriate approach for assessing rates that would be
                negotiated in the hypothetical marketplace for noninteractive
                webcasting.'' Id. ] 24.
                 However, notwithstanding the fact that Shapley modeling includes
                all possible ``arrival orderings,'' expert economic witnesses for
                Pandora and Google, respectively, argue that Professor Willig's Shapley
                Value Model nonetheless incorporates complementary oligopoly power. See
                Shapiro WRT at 52, 57 (Jan. 10, 2020); Peterson WRT ]] 82, 85, 100
                n.103 (Jan. 10, 2020). As a second criticism, Professor Shapiro further
                asserts that Professor Willig misapplies the Shapley Value analysis in
                Phonorecords III. Shapiro WRT at 57.
                 Dr. Peterson summarizes his first criticism and that of Professor
                Shapiro regarding the purported presence of a complementary oligopoly
                effect in Professor Willig's Shapley Value Model:
                 Professor Willig explicitly assumes that the major record labels
                are essential to a noninteractive streaming service. This implies
                that a single label can shut down the service, which allows the
                label to guarantee itself a high value or monetary payoff when
                acting alone.
                * * * * *
                 [Because] Professor Willig's Shapley Value model explicitly
                models the major record labels as being essential . . . each [Major]
                can individually extract the value that a monopolist would extract
                from the streaming service or distributor. In the Shapley Value
                model, this set up allows the essential labels to extract the
                monopoly value of their recordings from the streaming service . . .
                .
                Peterson WRT ] 87.
                 There is no dispute that in Professor Willig's Shapley Value
                Model--when the last arriving party is assumed to be a ``Must Have''
                Major--that this last arriving Major will generate the entire value
                generated by noninteractive streaming. That monopoly value is repeated
                for each of the three Majors when it is the last to arrive in a Shapley
                ordering. Thus, when the modeling assumes the presence of complementary
                oligopolists--as does Professor Willig's modeling--it preserves a
                substantial measure of the Majors' ``Must Have'' power and translates
                it into higher shares of the Shapley surplus and, ultimately, higher
                royalty rates.
                 The validity of this criticism is made obvious by the following
                simple example, which reveals the different Shapley Values that arise
                even though all arrival orderings are present in a Shapley model: \248\
                ---------------------------------------------------------------------------
                 \248\ The following examples assume only one service, in order
                for the example to be tractable and simply to demonstrate that,
                ceteris paribus, changing the number of licensor record companies
                alone will change the relative Shapley Values and resulting
                royalties. Cf. Phonorecords III, 84 FR at 1950 n.119 (discussing the
                practical value of attempting to model effective competition by
                limiting the number of ``arrival orderings'' via a reduction in the
                number of licensees rather than an increase in the number of
                licensors). The Judges are not suggesting that an appropriate
                Shapley Value Model would necessarily contain only a single service,
                unless supported by the marketplace facts.
                Assume the total Shapley Surplus = 12
                Assume 2 Majors (``1'' & ``2'') with ``Must Have'' repertoires (i.e.,
                complementary oligopolists)
                Assume 1 Noninteractive Service, ``S''
                [[Page 59531]]
                ----------------------------------------------------------------------------------------------------------------
                 Contribution Contribution Contribution
                 Arrival orderings by S by #1 by #2
                ----------------------------------------------------------------------------------------------------------------
                1, 2, S......................................................... 12 0 0
                2, 1, S......................................................... 12 0 0
                S, 1, 2......................................................... 0 0 12
                1, S, 2......................................................... 0 0 12
                S, 2, 1......................................................... 0 12 0
                2, S, 1......................................................... 0 12 0
                ----------------------------------------------------------------------------------------------------------------
                Shapley Value for S = 4 (24/6); Shapley Value for #1= 4 (24/6); Shapley
                Value for #2 = 4 (24/6)
                 So, in a Shapley Value model with complementary oligopoly, Service
                S pays 8/12 of surplus (67%) toward royalties to Record Companies #1
                and #2.
                 But, compare below the royalty payment by the service if there was
                no complementary oligopoly structure, and instead one record company
                (#1) owned all the copyrights for sound recordings:
                ------------------------------------------------------------------------
                 Contribution Contribution
                 Arrival orderings by S by #1
                ------------------------------------------------------------------------
                1, S.................................... 12 0
                S, 1.................................... 0 12
                ------------------------------------------------------------------------
                Shapley Value for S = 6 (12/2); Shapley Value for #1 = 6 (12/2)
                 So, in the Shapley Model with monopoly instead of complementary
                oligopoly, Service S pays only 6/12 of surplus (50%) toward royalties
                to Record Companies #1 and #2, substantially less than if a
                complementary oligopoly exists.
                 Alternatively, the Judges note that, if the market structure
                contains two substitute oligopolies that compete with each other
                (rather than complementary oligopolies) and each is able to satisfy 50%
                of market demand, the Shapley modeling would look as follows:
                ----------------------------------------------------------------------------------------------------------------
                 Contribution Contribution Contribution
                 Arrival orderings by S by #1 by #2
                ----------------------------------------------------------------------------------------------------------------
                1, 2, S......................................................... 12 0 0
                2, 1, S......................................................... 12 0 0
                S, 1, 2......................................................... 0 6 6
                1, S, 2......................................................... 6 0 6
                S, 2, 1......................................................... 0 6 6
                2, S, 1......................................................... 6 6 0
                ----------------------------------------------------------------------------------------------------------------
                Shapley Value for S = 6 (36/6); Shapley Value for #1 = 3 (18/6);
                Shapley Value for #2 = 3 (18/6)
                 So, in the Shapley Model with substitute competing oligopolies
                instead of complementary oligopoly, Service S pays only 6/12 of surplus
                (50%) toward royalties to Record Companies #1 and #2, again
                substantially less than if a complementary oligopoly exists.\249\
                ---------------------------------------------------------------------------
                 \249\ The purpose of these examples is to demonstrate the
                significant limitations of a Shapley Value Model that simply takes
                as a given the complementary oligopoly structure of the market being
                modeled. Monopolies or oligopolies may well exist because of their
                ``efficiencies and economies of scale and/or their superior
                operations.'' Web IV, 81 FR at 26368. Whether any such entity
                utilizes such power in a manner that generates rates that are
                inconsistent with the workings of an effectively competitive market
                is a separate issue not addressed in the application of the Shapley
                Value Model in this proceeding. See Web IV, 81 FR at 26335
                (distinguishing between ```[c]omplementary oligopoly' power
                exercised by the Majors designed to thwart price competition and
                thus inconsistent with an `effectively competitive market,' [and]
                the Majors' non-complementary oligopolistic structure not proven to
                be the consequence of anticompetitive acts or the cause of
                anticompetitive results.''). The narrow point here is that the
                complementary oligopolistic market structure is not well-modeled via
                the Shapley approach, without an adjustment to offset the
                complementarity of the ``Must Have'' repertoires, as was done by
                Professor Marx in Phonorecords III and adopted by the majority in
                Phonorecords III in its application of the Shapley approach.
                ---------------------------------------------------------------------------
                 In sum, these examples demonstrate how Shapley Value modeling is
                sensitive to the number of participants, the number of orderings,
                substitutability and perfect complementarity of the services, even
                though in each case all arrival orderings are generated by the Shapley
                modeling.
                 With regard to the second criticism, Professor Shapiro claims:
                 [T]he Shapley Value models used in Phonorecords III explicitly
                avoided complementary oligopoly power among separate copyright
                holders for each set of rights by removing the oligopoly. Professor
                Willig does not follow that approach to removing complementary
                oligopoly power among the major record companies in his Shapley
                Value model. As a result, for the very reasons given by the Judges
                in Phonorecords III, Professor Willig's model gives additional
                returns to the major record companies by endowing them with
                complementary oligopoly power.
                Shapiro WRT at 57.
                 In this regard, in Phonorecords III, the Judges analyzed two
                Shapley Value models and one ``Shapley-inspired'' model in the same
                context of perfect complements/complementary oligopoly. Ultimately, the
                Judges combined elements of all three approaches, but, importantly
                here, they credited the Shapley Value model of Professor Leslie Marx
                for the purpose of calculating the total amount of royalties. In
                determining that total, Professor Marx first equalized the number of
                licensees in order to reduce the complementary oligopoly effect that is
                embodied in a Shapley Value approach, even though the use of Shapley
                ``arrival orderings'' eliminates the complementary oligopolists'
                ``walk-away'' (hold-out'') power. In this manner, she intentionally
                altered the number of arrival orderings in which one of the
                complementary oligopolists provided the entirety of the additional
                value. Phonorecords III, 84 FR at 1948-50 (``Professor Marx . . .
                offset the concentrated market power that the rightsholders possess,
                separate and apart from any holdout power, which the Shapley ordering
                algorithm would address . . . address[ing] an issue--market power--that
                the Shapley Analysis does not address.'').\250\
                ---------------------------------------------------------------------------
                 \250\ In this regard, it should be noted that the Phonorecords
                III dissent was in accord with the Majority. The dissenting opinion
                pointed to expert testimony and evidence making clear that there is
                a distinction between: (1) The ``abuse of market power'' that arises
                when a ``Must Have'' licensor holds-out (or threatens to hold out)
                during negotiations, in order to earn economic rents arising from
                the fragmentation of ownership of ``Must Have'' inputs; and (2) the
                presence of existing market power disparities that may otherwise be
                implicit in Shapley Value modeling. The former ``abuse'' of market
                power is indeed ameliorated by the Shapley Value approach, whereas a
                complementary oligopoly effect inconsistent with effective
                competition can only be mitigated in Shapley Value modeling if the
                modeler adjusts for that market power disparity. See Phonorecords
                III, 84 FR 2023 & n.342 (dissenting opinion) (applying consistent
                testimony from, and evidence regarding, four economic expert
                witnesses, Professors Watt, Marx, Katz and Gans).
                ---------------------------------------------------------------------------
                [[Page 59532]]
                 Professor Willig's Shapley Value Model specifications deviate in
                another important manner from those in the Shapley modeling in
                Phonorecords III. In that case, all the economists' Shapley modeling
                aggregated the record companies as a single entity, eliminating their
                complementary oligopoly power. Moreover, one of the economists who
                utilized Shapley Value modeling in that case, Professor Leslie Marx,
                utilized two different market structure models--her ``baseline'' model
                in which these two perfectly complementary (``Must Have'') rights (for
                sound recordings and musical works) were assumed to be owned by a
                single collective, and her ``alternative'' model in which these
                complementary rights were assumed owned by two separate entities. She
                used these two models (like the Judges use their examples above) as a
                pedagogical demonstration of how the fragmentation of ownership of
                complementary rights leads to higher and more inefficient royalty
                rates, even in Shapely modeling that includes (by definition) all
                possible arrival orderings.\251\ See Phonorecords III, 83 FR at 2022
                (dissenting opinion) (Professor Marx ``made this adjustment to offset
                the concentrated market power that the rights holders possess . . .
                that the Shapley value approach does not address.''). By contrast,
                Professor Willig here models each Major as a separate ``Must Have,''
                which incorporates the complementary oligopolists' pricing power,
                notwithstanding the inclusion of all arrival orderings.
                ---------------------------------------------------------------------------
                 \251\ That is, Professor Marx demonstrated precisely what the
                Judges have shown in the example in the text, supra.
                ---------------------------------------------------------------------------
                 Professor Willig did not address this aspect of Phonorecords III,
                either in his WDT or WRT. At the hearing, the Judges asked Professor
                Willig if he had read the Phonorecords III Determination before he
                wrote those written testimonies, and he responded: ``Portions of it,
                yes [but] I must confess, not the whole thing.'' 8/25/20 Tr. 3863
                (Willig). (In both of his written testimonies, though, he identified
                the Phonorecords III Determination as a document upon which he relied,
                without noting that he did not read it in its entirety. Willig WDT,
                app. B at B-2; Willig WRT, app. I. at I-1.).\252\
                ---------------------------------------------------------------------------
                 \252\ Professor Willig was also unable to recall, and did not
                address, an article on which the Judges expressly relied in Web IV
                for the proposition that ``even economists quite unwilling to assume
                that a given monopoly or oligopoly structure is inefficient and
                anticompetitive bristle at the idea that supranormal pricing arising
                from a complementary oligopoly is reflective of a well-functioning
                competitive market. Web IV, 81 FR at 26368 (citing Francesco Parisi
                & Ben DePoorter, The Market for Intellectual Property: The Case of
                Complementary Oligopoly, in The Economics of Copyrights:
                Developments in Research and Analysis (W. Gordon and R. Watt eds.
                2003).
                ---------------------------------------------------------------------------
                 The Judges then asked Professor Willig if he had read the portions
                regarding ``the distinction between holdout power and market power . .
                . that was . . . actually adopted by way of adjustments by the majority
                . . . in Phonorecords III, [or] discuss that Phonorecords III issue in
                either of your written testimonies?'' 8/25/20 Tr. 3864 (Willig).
                Professor Willig's response made it clear that he had not addressed
                that specific issue. Rather, he provided a discursive answer in which
                he repeated that his Shapley Value Model ``has at least a prominent
                virtue on this very subject that you are mentioning of eliminating any
                special hold out power, or market power that derives from the ability
                to be a holdout . . . .'' 8/25/20 Tr. 3864-65 (Willig) (emphasis
                added). But the usefulness of the Shapley Value approach in eliminating
                ``hold out power'' was not ``the very subject'' of the Judges'
                question. Rather, their inquiry was whether Professor Willig had
                addressed the issue in Phonorecords III as to whether the ``arrival
                orderings'' themselves embedded the complementary oligopoly power of
                the Majors.
                 Continuing his response to the Judges' inquiry, Professor Willig
                further stated that it is necessary to ``to distinguish between the
                holdout power and the value that a party to the negotiations brings to
                the enterprise. And if one of the parties is a must-have, because it's
                so important, well, it shouldn't be denied the value that it brings . .
                . you don't want to strip away the value because that's part of the
                marketplace and part of the incentives to the parties to do what they
                need to do to provide that value.'' 8/25/20 Tr. 3865 (Willig).
                 But, this too does not resolve the issue of whether the arrival
                orderings in his Shapley Value model embed complementary oligopoly
                power into his Shapley Values and thus, ultimately, inflate the royalty
                rates. Moreover, his answer essentially states that a ``must have''
                licensor should retain the value of that status, even though it is an
                artifact of the fragmented ownership of the ``must have'' nature of
                their repertoires, leading to a consequence where the Shapley Value
                modeling would provide the Majors with the value of this artifact,
                beyond the considerable value of their repertoires. See Web IV, 81 FR
                at 26368 (noting that eliminating the ``must have'' power of
                complementary oligopoly does not ``diminish the firm-specific monopoly
                value of each Major's repertoire taken as a whole.''). Moreover, the
                perfect complementarity generates market consequences that are even
                worse than monopoly. See Web IV, 81 FR at 26342 (relying on the ``logic
                first identified by Antoine Cournot in 1838, firms offering
                complementary products tend to set higher prices than would even a
                monopoly seller . . . .'') (emphasis added); see also id. at 26368 &
                n.142); 8/18/20 Tr. 2642-43 (Shapiro); 8/25/20 Tr. 3655-56
                (Peterson).\253\
                ---------------------------------------------------------------------------
                 \253\ Professor Willig did address the type of adjustment made
                by Professor Marx to her Shapley Value model in Phonorecords III, in
                response to a general question from the Judges. He testified as
                follows:
                 I think it would matter if somehow the majors were collapsed
                into a single major. That would affect the results, but in a way
                that would deviate from the features of the marketplace that are
                realistic and important.
                 8/5/20 Tr. 323 (Willig). However, the Judges find that changing
                the structure of the licensor-side of the market to eliminate
                complementary oligopoly effects is necessary. Although the Judges do
                not dispute Professor Willig's characterization of that
                complementary oligopoly power as ``realistic'' or ``important'' in
                an actual market for the licensing of noninteractive services, they
                find, as they did in Web IV, that a rate formula incorporating
                complementary oligopoly power is antithetical to an effectively
                competitive rate.
                ---------------------------------------------------------------------------
                 Accordingly, the Judges agree with Professor Shapiro's criticism of
                Professor Willig's approach for failing to ``remov[e] complementary
                oligopoly power among the major record companies in his Shapley Value
                model,'' and ``for the very reasons . . . in Phonorecords III, giv[ing]
                additional returns to the major record companies by endowing them with
                complementary oligopoly power.'' Shapiro WRT at 57.\254\
                ---------------------------------------------------------------------------
                 \254\ To be clear, the Judges do not disagree with Professor
                Willig as to the ``Must Have'' status of each Major as a ``Must
                Have.'' Rather, as noted in the Judges' prior discussion in this
                Determination regarding ``effective competition,'' they continue to
                find that an appropriate downward adjustment must be made to royalty
                rates that reflect the effects of a complementary oligopoly market
                structure. The Judges consider infra whether the record provides a
                basis for making the necessary effective competition adjustment to
                Professor Willig's Shapley Value Model.
                ---------------------------------------------------------------------------
                ii. Did Professor Willig correctly reject the 2019 ``Long Range
                Scenario'' (LRS) for Pandora prepared by Sirius XM?
                 Pandora also criticizes Professor Willig's decision to ignore the
                data contained in Sirius XM's LRS, Trial Ex. 4010, in his calculation
                of Pandora's profit margins over the 2021-2025 rate period. Although
                Professor Willig
                [[Page 59533]]
                contends (with no attribution) that this LRS was prepared solely for
                this proceeding, Pandora's Vice President of Financial Planning and
                Analysis, Jason Ryan, describes the LRS as a document ``generated by
                Sirius XM in the ordinary course of business,'' and is intended, inter
                alia, to ``guide management in the preparation of its operating budget
                and business plan for the next year.'' Ryan WRT ] 36 (emphasis added).
                According to Mr. Ryan, the budgets created through Sirius XM's LRS
                process ``are also a tool that the Board of Directors of Sirius XM uses
                throughout the year to gauge the health of the business and at the end
                of the year when assessing performance-based compensation of executive
                officers and employees.'' Id. More particularly, Mr. Ryan explains that
                the LRS process proceeds in the following manner:
                 The [REDACTED] flow from our reasonable efforts to plan and
                predict the trajectory (contraction or growth) of the business.
                Id. ] 38.
                 Mr. Ryan's testimony is uncontroverted on this point. Further,
                there is no record evidence to support Professor Willig's
                ``understanding'' that Sirius XM's purpose in creating this particular
                LRS was to use it as evidence in this proceeding. See Willig WDT app. D
                ] 3 n.4. There is also no evidence to suggest that Sirius XM
                manipulated the financial information in this June 2019 LRS in order to
                affect the financial analyses undertaken in this proceeding.\255\
                ---------------------------------------------------------------------------
                 \255\ When asked by the Judges why he included this language in
                his WDT, Professor Willig testified:
                 I'm not sure that that's what I had in mind with those words.
                Rather, that it had been produced recently relative to the timing of
                the submission by me, and it was produced for these proceedings, and
                I didn't mean, as I recall, unless there's something that I'm
                forgetting, which is always possible, that the LRS data were
                actually created just for these proceedings as opposed to produced
                for these hearings. . . . I may have had some evidence of the
                specialization of the purpose, but I don't recall that now. But what
                I surely meant was, at least, that the production was for these
                hearings. And I'm well aware that LRS is something that Sirius had
                been preparing for its own purposes going back years . . . . So I
                don't remember whether it was really produced specifically for these
                purposes . . . .
                 8/5/20 Tr. 366-67 (Willig) (emphasis added). The Judges find
                this response equivocal at best, and incomprehensible at worst.
                ---------------------------------------------------------------------------
                 Nonetheless, as noted supra, Professor Willig independently
                justifies his reliance on the Scenario 2 merger financial data on the
                fact that ``Pandora's investment bankers prepared discounted cash flow
                valuation analyses using these Scenario 2 projections, which produced
                valuations in-line with the $3.5 billion market price paid by Sirius XM
                to acquire the company.'' Id. Accordingly, the Judges must examine on
                its own merits the Scenario 2 data upon which Professor Willig relies
                to compute Pandora's profit margins.
                 Professor Shapiro takes issue with Professor Willig's claim that
                the price paid to Pandora shareholders by Sirius XM is supported by the
                Scenario 2 financial projections, noting that the acquisition price was
                determined ``in part by synergies not included in Scenario 2 which
                considers Pandora as a standalone company.'' Consequently, Professor
                Shapiro asserts that the ``discounted cash flow'' set forth in the
                Scenario 2 materials does not generate the acquisition price paid by
                Sirius XM. Shapiro WRT at 72-73.
                 The Judges find that Professor Shapiro's criticism neither
                compromises the probative value of the Scenario 2 data nor Professor
                Willig's reliance on it to support his Shapley Value Model. Although
                the ``discounted cash flow'' contained in the Scenario 2 materials,
                standing alone, may not generate the actual acquisition price paid by
                Sirius XM, Professor Shapiro does not dispute that such information was
                relied upon by the investment bankers in their development of an
                appropriate price--one that ultimately was accepted by Pandora
                shareholders. That purchase price is not disconnected from projections
                based on Pandora's economic condition as of the date of the
                acquisition.\256\
                ---------------------------------------------------------------------------
                 \256\ Professor Shapiro does not assert that the inclusion of
                synergistic value necessarily disqualifies financial projections as
                useful inputs into a Shapley model in this proceeding. In fact, he
                points out that the alternative and subsequent financial projection
                in the LRS, on which he relies, explicitly includes ``anticipated
                synergies'' in its financial projections. Shapiro WRT at 73.
                ---------------------------------------------------------------------------
                 Moreover, the price that willing sellers (here, Pandora
                shareholders) agree to pay to a willing buyer (here, Sirius XM),
                reflects a price established in a market--the market for corporate
                control. See Henry G. Manne, Mergers and the Market for Corporate
                Control, 73 J. Pol. Econ. 110, 112 (1965) (``[C]ontrol of corporations
                may constitute a valuable asset'' and is purchased and sold in ``an
                active market for corporate control. . . .''). The fact that the
                purchase price incorporates not only Pandora's capitalized discounted
                cash flow, but also the synergistic value assigned to Pandora by the
                investment banks and Sirius XM, upon the consummation of the merger,
                does not negate the evidentiary usefulness of the financial data
                underlying that acquisition price. A company's shares, like any assets,
                are appropriately valued at their highest and best use. Given that the
                acquisition of Pandora by Sirius XM indeed occurred, it is reasonable
                to conclude that Pandora's highest and best use, in terms of market
                value, was as a division of Sirius XM.
                 Accordingly, the Judges find that Professor Willig's reliance on
                Scenario 2 data was reasonable.\257\
                ---------------------------------------------------------------------------
                 \257\ And as explained infra, the Judges' adoption of certain of
                Professor Shapiro's itemized critiques of Professor Willig's data
                applications essentially equates the rates generated by Professor
                Willig's reliance on the Scenario 2 data and Professor Shapiro's
                reliance on LRS data.
                ---------------------------------------------------------------------------
                iii. Professor Shapiro's Calculation of Scenario 2 ``Marginal Profit''
                After Applying the Foregoing Criticisms
                 Professor Shapiro combines the foregoing criticisms based on
                Professor Willig's Shapley Value Model data inputs into a recalculation
                of marginal profits that is otherwise consistent with Professor
                Willig's Scenario 2 approach. The recalculation with regard to the
                subscription service is set forth in Figure 6 of Shapiro WRT at 47, and
                the recalculation with regard to the ad-supported service is set forth
                in Figure 7 of Shapiro WRT at 48. Each figure is reproduced below:
                Figure 6: Pandora Projected Margins: Pandora Plus Subscription Service
                [RESTRICTED]
                 [REDACTED]
                 Figure 6 shows that substituting Professor Shapiro's changes for
                Professor Willig's original estimated data inputs results in a
                significantly lower per-performance margin at Pandora Plus, the
                subscription service. Shapiro WRT at 47. (As noted supra, Professor
                Willig also made most of these adjustments in his WRT.) Specifically,
                whereas Professor Willig calculated a per-performance margin of
                $0.0048, Professor Shapiro re-calculated a per-performance margin of
                $[REDACTED].\258\
                ---------------------------------------------------------------------------
                 \258\ The impact of these adjustments on the royalty estimates
                generated by Professor Willig's Shapley Value Model, together with
                the impact of the adjustments to Professor Willig's opportunity cost
                calculations, is set forth infra.
                ---------------------------------------------------------------------------
                Figure 7: Pandora Projected Margins: Advertising-Supported Service
                [RESTRICTED]
                 [REDACTED]
                 Figure 7 shows that substituting Professor Shapiro's changes for
                Professor Willig's original estimated data inputs results in a
                significantly lower per-performance margin at Pandora Plus, the
                subscription service. Shapiro WRT at 46-47. (As noted supra, Professor
                Willig also made most of these adjustments in his WRT.) Specifically,
                whereas Professor Willig calculated a per-performance margin of
                $0.0042, Professor Shapiro re-calculated a per-
                [[Page 59534]]
                performance margin of $[REDACTED].\259\
                ---------------------------------------------------------------------------
                 \259\ The impact of these adjustments on the royalty estimates
                generated by Professor Willig's Shapley Value Model, together with
                the impact of the adjustments to Professor Willig's opportunity cost
                calculations, is set forth infra. The Judges also note that Figures
                6 & 7 show that Professor Shapiro's adjustments and corrections to
                the original profit margins in Professor Willig's Shapley Value
                Model result in Scenario 2 profit margins that are essentially
                identical to the profit margins estimated by Professor Shapiro in
                the ``alternate forecasts'' based on the LRS and Merger Proxy
                Scenario 1A. Shapiro WRT, Figs. 6 & 7 (last two columns).
                Accordingly, there is no necessity to consider those alternatives as
                necessary to establish different royalty rates in this proceeding.
                ---------------------------------------------------------------------------
                 The Judges adopt these adjustments to Professor Willig's profit
                margin calculations in his Shapley Value Model.\260\
                ---------------------------------------------------------------------------
                 \260\ The Judges explain in text accompanying note 241, supra,
                that they rely on Mr. Ryan's categorizations and allocations of
                revenues and costs because of his competency with regard to these
                issues, given his role as a financial executive, and because of the
                Judges' perception of his credibility as a witness. By contrast,
                SoundExchange did not proffer an accounting or financial expert to
                testify regarding these categorization and allocation issues,
                leaving these issues to an economist, Professor Willig. Although
                Professor Willig is without question an esteemed economist, the
                Judges find that he is not nearly as competent as Mr. Ryan to give
                testimony regarding Pandora's financial and accounting issues. See
                also 8/5/20 Tr. 306-08 (Willig) (Professor Willig was qualified as
                an expert in this case in ``microeconomics, industrial organization,
                the use of statistics in economics, and the use of survey research
                and economics,'' and was previously qualified in other matters also
                as an expert in the economics of antitrust and intellectual property
                issues.). Finally, the Judges note that Professor Willig himself, in
                his role as an expert economic witness, explained that the
                differences in Pandora's marginal profits did not drive his Shapley
                Value Model results, because the opportunity costs of the record
                companies were so great as to dominate the royalty payout due to
                them pursuant to his modeling. Id. at 555 (``the opportunity costs
                almost exhaust[] the pre-royalty distributor profits
                [because][a]fter the distributor pays out to the labels their
                opportunity costs, there is not very much left . . . to split among
                the parties.'').
                ---------------------------------------------------------------------------
                iv. Alleged Errors in Professor Willig's Scenario 2 Opportunity Cost
                Calculations
                 Professor Shapiro alleges that Professor Willig made several errors
                in his calculation of opportunity costs that resulted in an
                overestimation of the opportunity costs incurred by record companies in
                his Shapley Value Model.\261\ More particularly, Professor Shapiro
                addresses Professor Willig's calculation of these opportunity costs
                through the latter's application of the ``diversion rate'' \262\
                estimations in the survey undertaken by Professor Gal Zauberman
                (Zauberman Survey) to estimate the extent to which listeners to
                noninteractive services reported they would divert their listening to
                alternative forms of music listening if noninteractive services were no
                longer available.
                ---------------------------------------------------------------------------
                 \261\ To be clear, the opportunity cost issues addressed in this
                section of the Determination do not involve Professor Shapiro's
                broader economic argument regarding the asserted ``Must Have''
                status of each Major, and the impact of that status on the
                calculation of opportunity costs.
                 \262\ A ``diversion rate'' as used in the Zauberman Survey and
                as applied by Professor Willig is the percentage of surveyed
                listeners to a noninteractive service who would switch (divert) to
                another form of listening to music if the noninteractive service was
                not available. Professor Willig multiplies each percentage diversion
                rate by the royalty generated per-subscriber (or per-user, for the
                ad-supported service) by that other form of listening. The sum of
                those products equal Professor Willig's opportunity cost estimate.
                Willig WDT ] 47 & fig.6. As discussed supra, that opportunity cost
                estimate constitutes an economic cost that record companies must
                recover (i.e., as a fallback value). The usefulness of the Zauberman
                Survey to calculate such switching, in the face of the Services'
                criticism, is separately discussed, elsewhere in this Determination.
                ---------------------------------------------------------------------------
                 Professor Shapiro calculates a lower estimated opportunity cost
                than calculated by Professor Willig through the latter's application of
                the Zauberman Survey. Specifically, Professor Shapiro alleges that
                Professor Willig made errors that inflated the opportunity costs
                attributable to purchases of CDs, vinyl records (vinyl) and digital
                downloads that the survey data indicated would occur if noninteractive
                services were unavailable.
                (A) Royalties per Purchaser of CDs, Vinyl & Digital Downloads
                 First, Professor Shapiro alleges that Professor Willig erroneously
                calculates the ``CD/Vinyl/Digital Download Royalties per Purchaser''
                presented in Exhibit D.3 of the Willig WDT. Professor Willig first
                separately calculates these monthly per-purchaser royalties for each of
                the three product subcategories--CDs ($[REDACTED] monthly per
                purchaser), Vinyl ($[REDACTED] monthly per purchaser) and Digital
                Downloads ($[REDACTED] monthly per purchaser). Willig WDT, app. D, ex.
                D.3 (Row ``I'' therein). The Zauberman Survey reported the diversion to
                all three of these purchases as a single diversion. But to calculate
                opportunity costs accurately, Professor Willig needs to unbundle the
                monthly per purchaser royalties for each of these three products
                separately. Accordingly, in order to generate his estimated opportunity
                cost calculation from the bundled categorization in the Zauberman
                Survey, Professor Willig attempts to calculate the ``Weighted Average''
                of these three royalty figures. Id. (Row ``I,'' Column 4 therein). He
                calculates his opportunity cost total for this category--a monthly per
                purchase royalty of $[REDACTED]--by weighting each of these three
                categories by their share of retail revenue, inter se. Id. (Row ``G'' &
                n.4 therein).
                 According to Professor Shapiro, weighting by share of retail
                revenue is incorrect. The correct weighting, he asserts, is by the
                number of units purchased per buyer of each of the three formats.
                Shapiro WRT, app. D at 81. To demonstrate that weighting by units
                purchased is the appropriate method, Professor Shapiro presents a step-
                by-step example:
                1. Assume 10 individuals buy CDs and 10 individuals buy Digital
                Downloads
                2. Assume each CD buyer spends an average of $3 per month for CDs
                3. Assume each Digital Download buyer spends $9 per month for Digital
                Downloads
                4. So, total retail revenues are $30 per month for CDs ($3 x 10 people)
                5. And, total retail revenues are $90 per month for Digital Downloads
                ($9 x 10 people)
                6. Assume net royalties paid are 50% of retail revenue for each unit of
                either product
                7. So, CD monthly royalties equal $15 (50% of $30)
                8. And, Digital Download royalties equal $45 (50% of $90)
                9. Total royalties are therefore $60 ($15 + $45)
                10. Because there are 20 assumed buyers (10 for each product) average
                monthly royalties per buyer = $3 ($60 / 3)
                11. But under Professor Willig's approach, the answer is NOT $3.
                12. Professor Willig instead weights the monthly royalties by the share
                of retail revenue attributable to each product, CDs or Digital
                Downloads.
                13. For CDs, this represents 25% of total retail revenue ($3 x 10
                people = $30 = 25% of $120)
                14. For Digital Downloads, this represents the remaining 75% of total
                retail revenue ($9 x 10 people = $90 = 75% of $120)
                15. The 25% of total retail revenue attributable to CDs is one-third of
                the 75% of total retail revenue attributable to Digital Downloads
                16. So, weighting monthly royalty via retail revenue would be done via
                the following ratio:
                 $30 CD revenue x ($1.50 royalty per buyer) + ($90 Digital Download
                revenue x $4.50 royalty per buyer) / 30 + 90 = ($45 + $405) / ($120) =
                $450 / $120 = $3.75
                17. $3.75 is 25% greater than $3.00.
                Shapiro WRT at 81-82.
                 Professor Willig acknowledges that Professor Shapiro's approach is
                the correct way to calculate opportunity
                [[Page 59535]]
                costs for these physical royalties. 8/5/20 Tr. 504 (Willig)
                (``Professor Shapiro pointed out that maybe I wasn't perfectly logical
                in where I applied my weights, and I think there was some merit to that
                point that Professor Shapiro made, so I went back and I changed that. .
                . .'').\263\
                ---------------------------------------------------------------------------
                 \263\ Professor Willig attempted to add new testimony at the
                hearing regarding what he asserted was an unrelated but offsetting
                error made by Professor Shapiro in his calculations of these
                particular opportunity costs that, combined with Professor Willig's
                admitted error, generated a higher opportunity cost of $[REDACTED]
                for this category. However, Pandora's counsel interposed a prompt
                objection, arguing that this proffered testimony would constitute
                ``new analysis . . . that's out of bounds.'' SoundExchange's counsel
                did not respond when Pandora's counsel asserted this objection, and,
                after a scheduled 15 minute mid-afternoon recess, SoundExchange's
                counsel proceeded to question Professor Willig on other matters. The
                Judges then, sua sponte, afforded SoundExchange's counsel an
                opportunity to respond to the objection by Pandora's counsel that
                had prevented Professor Willig from testifying on this topic before
                the recess, so that the Judges could decide whether to sustain or
                overrule the objection raised by Pandora's counsel. However,
                SoundExchange's counsel declined to address the objection, claiming
                (incorrectly) that the testimony that was the subject of the
                objection ``is already in the record.'' 8/5/20 Tr. 504-05; 514-15
                (colloquy). Thus, no such testimony regarding an alleged offset as
                to Professor Shapiro's physical opportunity cost correction
                (accepted by Professor Willig) is in the record. (In SX PFFCL ]]
                635-636, SoundExchange attempts to rely on counsel's own analysis of
                the record to substitute for the missing testimony by Professor
                Willig on this subject. That is plainly unacceptable.).
                ---------------------------------------------------------------------------
                 The Judges find Professor Shapiro's re-calculation of these royalty
                weights--agreed to by Professor Willig--to be appropriate. The purpose
                of this opportunity cost analysis is to estimate the number of units of
                each subcategory of product (CDs, Vinyl and Digital Downloads) that
                would be purchased by each listener to a noninteractive service if that
                service was no longer available, and then multiply the number of units
                attributable to each subcategory by the royalty attributable to each
                item purchased. This exercise does not implicate retail prices.
                Accordingly, Professor Willig's use of retail prices as weights
                introduces an irrelevant factor.
                 Applying the foregoing principles, the weighted average opportunity
                cost for these three products is $[REDACTED], rather than the
                $[REDACTED] in the Willig WDT, app. D, D.3 (Row ``I,'' column 4
                therein). See Shapiro WRT, app. D at 82 (Figure D.1: Correction to
                Exhibit D.3 in the Willig WDT, Revised Exhibit D.3 (Row J therein).
                (B) Alleged Overestimation of Incremental Expenditures on CDs/Vinyl/
                Digital Downloads
                 Professor Shapiro's next criticism with regard to Professor
                Willig's opportunity cost analysis is that it ``overestimates the
                incremental expenditures that listeners would make on CDs, Vinyl, and
                Digital Downloads if statutory webcasting were no longer available.''
                Shapiro WRT at 83. More specifically, Professor Shapiro asserts that
                Professor Willig makes two errors in this computation: First, he avers
                that Professor Willig allegedly overestimates the amount of money
                individuals would spend on CDs, Vinyl and Digital Downloads, an alleged
                error that causes Professor Willig to inflate the opportunity cost
                input into the Shapley Value Model. Second, according to Professor
                Shapiro, Professor Willig allegedly underestimates the number of
                individuals who would switch from a noninteractive service and to CDs,
                Vinyl and Digital Downloads, an alleged error by which Professor Willig
                actually incorrectly reduces the opportunity cost input in the Shapley
                Value Model. Id.
                 With regard to the allegation of overestimating the amount of
                spending on these three products, Professor Shapiro understands that
                Professor Willig assumes that people who switch some of their listening
                from noninteractive to CDs, Vinyl and Digital Downloads will then
                incrementally ``spend as much as the average consumer who purchases
                those media types.'' Id.\264\ As Professor Shapiro notes, this
                assumption carries with it the implicit assumption that these switching
                consumers did not buy any of these three products when they were
                listening to a noninteractive service, but then bought the same amount
                of these music formats as an average user subsequent to the
                hypothetical elimination of noninteractive services. Id. In fact,
                Professor Willig acknowledges that he treats these substitutions in the
                same all-or-nothing manner as the binary choice of whether to subscribe
                to an interactive streaming service if noninteractive services were
                unavailable. See Willig WDT, app. E, ] 13 (``I estimate incremental
                royalties from diversion to [CDs, Vinyl and Digital Downloads] in the
                same way as for [subscriptions to] Paid-[On Demand] and [Sirius
                XM].'').
                ---------------------------------------------------------------------------
                 \264\ As explained above, according to Professor Willig, the
                weighted average per consumer is $[REDACTED] per month. However, as
                corrected by Professor Shapiro and credited by the Judges, the
                properly weighted average monthly spending for these products in the
                Scenario 2 analysis is $[REDACTED] per month.
                ---------------------------------------------------------------------------
                 Professor Shapiro opines that the proper approach is to treat the
                purchase of each of these three products in a manner analogous to the
                use of an ad-supported service, where the listener makes marginal
                listening decisions on a per performance basis. In support of his
                argument, Professor Shapiro enlists a useful supporter--Professor
                Willig himself--who, in SDARS III, converted royalties from incremental
                purchases of these three products on a per performance basis. Shapiro
                WRT at 83 n.205 (citing Professor Willig's SDARS III Written Direct
                Testimony at B-5 to B-6). In further reliance on Professor Willig's own
                analysis (in the present proceeding), Professor Shapiro points out that
                a document on which Professor Willig relied, Trial Ex. 5039, showed
                that on-demand listeners spend less per month on these three products
                than the average purchaser, generating only $[REDACTED] in monthly
                royalties, substantially less than the $[REDACTED] weighted average per
                month calculated by Professor Willig or the $[REDACTED] recalculated
                weighted monthly average computed by Professor Shapiro. Professor
                Shapiro opines that it is unreasonable to conclude (as did Professor
                Willig), that noninteractive listeners--with their revealed lower
                Willingness-to-Pay for a streaming service--would spend multiple times
                more money than on demand listeners on CDs, Vinyl and Digital
                Downloads. Shapiro WRT at 83 n.206.
                 Professor Shapiro further relies on SoundExchange's own survey
                expert to support his critique of Professor Willig's estimation of
                opportunity cost emanating from the shift by some listeners to
                purchases of these three products. That survey expert, Professor
                Zauberman, reports that such diverted ad-supported listeners would
                allocate only 14.1% of their diverted time to these three products, and
                such diverted subscribing listeners would allocate even less of their
                diverted time, 9.9%, to these three products. Shapiro WRT at 84 n.207.
                According to Professor Shapiro, it is untenable for Professor Willig to
                assume that listeners and subscribers who divert such small fractions
                of their diverted time to these three products would also purchase
                these products in the same quantities (generating the same royalties)
                as all consumers who purchase these three products. Shapiro WRT at 84.
                 Instead, Professor Shapiro claims that it is more reasonable to
                assume that people who switch from noninteractive services to these
                three products ``would generate incremental royalties consistent with
                the proportion of time they divert. . . .'' Id. Once more, he enlists
                Professor Willig in support of his position, noting that, in SDARS III,
                Professor Willig's opportunity cost calculation applied the same
                assumption--estimating incremental
                [[Page 59536]]
                royalties from CDs and downloads as proportional to incremental
                listening to these products. Id.
                 Professor Shapiro attempts to apply this ``proportionate
                diversion'' assumption by applying data from the ``Share of the Ear''
                survey to his spending calculations. First, he incorporates in this
                analysis his calculation of the weighted average spending of
                consumers--$[REDACTED] per month--on all three products. Second,
                Professor Shapiro calculates the incremental share of time that people
                would devote to these three products after switching from
                noninteractive services. Here, he relies on the ``Share of the Ear''
                survey, which reports that Pandora subscribers allocate about
                [REDACTED]% of their music listening time to streaming music services,
                of which [REDACTED]% is spent listening to Pandora. Thus, Pandora
                subscribers spend [REDACTED]% ([REDACTED]% x [REDACTED]%) of their
                music listening time on Pandora. And, as noted above, according to the
                Zauberman Survey, listeners to ad-supported noninteractive services
                will divert an average of 14.1% of their time to these three products,
                and noninteractive subscribers will divert an average of 9.9% of their
                time to these three products.
                 Putting these data points together, Professor Shapiro explains that
                ``[t]he product of the share of time allocated to Pandora and the
                diversion rate to these three products [yields] the incremental time
                allocated to these [three products] in the absence of webcasting. Id.
                at 85. So, he calculates that users of the ad-supported service will
                allocate an incremental [REDACTED]% (i.e., [REDACTED]% x [REDACTED]%)
                of their listening time to these three products and, in the same
                manner, subscribers will allocate [REDACTED]% (i.e., [REDACTED]% x
                [REDACTED]%) of their listening time to these three products. Id.
                 The final step in Professor Shapiro's analysis is his comparison of
                this incremental listening time to the average time listening to these
                three products. To take this step, Professor Shapiro applies additional
                data from the ``Share of the Ear Survey.'' That survey reports that the
                average music consumer spends [REDACTED]% of his or her listening hours
                listening to ``Owned Music,'' which is another way of referring to CDs,
                Vinyl and Digital Downloads. As Professor Shapiro notes, this implies
                that, for listeners switching away from the ad supported noninteractive
                services, incremental spending increases for these three products by
                approximately [REDACTED]% (i.e., [REDACTED]%/[REDACTED]%), and, for
                listeners switching away from subscriptions to noninteractive services,
                the increase is about [REDACTED]% (i.e., [REDACTED]%/[REDACTED]%).
                Shapiro WRT app. D at 84-85.\265\
                ---------------------------------------------------------------------------
                 \265\ Professor Shapiro acknowledges that the data in the
                ``Share of Ear'' survey is sufficient only to render his estimates
                informed approximations, because that survey [REDACTED]. However,
                Professor Shapiro believes this latter point makes his approximation
                more favorable to SoundExchange, because he posits that Pandora
                Premium subscribers listen to more songs than Pandora Plus
                subscribers (apparently because their willingness to pay a higher
                subscription price reveals their relatively greater preference to
                listen to songs). Thus, because the switching subscriber group in
                the survey includes such increased listening, their switching
                decisions would be greater than the switching behavior of Pandora
                Plus subscribers alone, raising the reported diversion ratio for
                these three products, raising the calculated opportunity cost and,
                accordingly, increasing the proposed royalty rate for subscription
                services derived by Professor Willig's Shapley Value Model. Id. at
                85 n.210. The Judges acknowledge these limitations in the Share of
                Ear survey, but they agree with Professor Shapiro that these issues
                are insufficient to reject his criticisms based on that survey's
                data.
                ---------------------------------------------------------------------------
                 Professor Shapiro acknowledges that he is using data on switches in
                listening time (from noninteractive services to these three products)
                in order to estimate changes in the total monthly amount spent on those
                three products. Id. at 85. However, he considers increases in listening
                to be a reasonable proxy for increased purchases, rather than a
                confounding conflation of two data sets. Id. The Judges agree, and find
                his use of this change in listening to be a reasonable window into the
                likely changes in purchases. People who would increase their listening
                to music via these three products would need to purchase such
                products,\266\ and it would be highly irrational for people to purchase
                these new products but not ``consume'' them, in order to substitute for
                their lost listening to noninteractive services.
                ---------------------------------------------------------------------------
                 \266\ People who would choose instead to substitute (in whole or
                part) listening to their already-owned CDs, Vinyl and Digital
                Downloads would not necessarily purchase new quantities of these
                three products, but because that potential behavior is ignored in
                Professor Shapiro's analysis here, the opportunity cost is skewed
                higher by his decision to ignore such consumer behavior in this
                context. (However, Professor Shapiro does attempt to adjust for the
                additional purchases by switchers who also switch by listening to
                their existing collections of these three products, as discussed
                below.)
                ---------------------------------------------------------------------------
                 Applying the foregoing changes, Professor Shapiro makes the
                following revisions to Professor Willig's calculation of per person
                monthly incremental royalties for people who switched from
                noninteractive services to these three products:
                 For switching from ad-supported noninteractive services,
                Professor Shapiro calculates incremental royalties of $[REDACTED]
                (i.e., $[REDACTED] x [REDACTED]% x ([REDACTED]%/[REDACTED]%), less
                than Professor Willig's calculation of $[REDACTED]; and
                 For switching from subscription noninteractive services,
                Professor Shapiro calculates incremental royalties of $[REDACTED]
                (i.e., $[REDACTED] x [REDACTED]% x ([REDACTED]%/[REDACTED]%), less
                than Professor Willig's calculation of $[REDACTED].
                Id. at 85-86.
                 The Judges find Professor Shapiro's foregoing corrections to be
                reasonable and appropriate.
                 Professor Shapiro's next opportunity cost adjustment, relating to
                these three products pertains to what he alleges is Professor Willig's
                failure to address incremental purchases by ``consumers who already
                listen to [owned] CDs, Vinyl, and Digital Downloads . . . .'' Id. at
                86. As noted supra, this correction is contrary to Pandora's interest
                because it increases the opportunity cost associated with diversions to
                these three products, and, ceteris paribus, increases the royalties
                paid by Pandora under Professor Willig's Shapley Value Model.
                 Professor Shapiro notes that the Zauberman Survey finds that 69% of
                listeners to an ad-supported noninteractive service and 67% of
                listeners to a subscription noninteractive service would divert some of
                their time to these three products in the absence of such
                noninteractive services. However, Professor Willig does not estimate
                any opportunity cost associated with these listeners.\267\ This result
                suggests that these individuals would divert some time to buying and
                listening to new purchase of these three products, thereby creating an
                additional opportunity cost that would generate incremental royalties
                to the record companies under Professor Willig's Shapley Value Model.
                Shapiro WRT, app. D at 86.
                ---------------------------------------------------------------------------
                 \267\ Professor Willig classifies respondents in the Zauberman
                survey as ``new'' buyers of these three products only if they
                indicate both that they have not listened to CDs, Vinyl, and Digital
                Downloads in the previous 30 days and that they would listen to
                these media in case the webcaster went away. Under this definition,
                Professor Willig finds that [REDACTED]% of the listeners to the
                advertising-supported webcasters and [REDACTED]% of listeners to the
                subscription-based webcasters qualify as new buyers of CDs, Vinyl,
                and Digital Downloads. See Willig WDT, Fig.6.
                ---------------------------------------------------------------------------
                 According to Professor Shapiro, the correct opportunity cost
                associated with these purchases can be estimated as the product of: (1)
                These listener shares ([REDACTED]% for ad-supported listeners and
                [REDACTED]% for
                [[Page 59537]]
                subscribers, multiplied by (2) the incremental monthly royalties per
                buyer of these three products, which Professor Shapiro (as discussed
                above) calculated as $[REDACTED] for ad-supported switching and
                $[REDACTED] for subscription switching.
                 Professor Shapiro therefore adjusts the opportunity cost associated
                with switching to these three products to $[REDACTED] (i.e.,
                $[REDACTED] x [REDACTED]%) for switching ad-supported users and to
                $[REDACTED] (i.e., $[REDACTED] x [REDACTED]%) for switching
                subscribers. Shapiro WRT, app. D at 86; see also id.at Fig. 8.
                 The Judges find Professor Shapiro's adjustments in connection with
                the three products (CDs, Vinyl and Digital Downloads) to be reasonable
                and appropriate bases to increase the opportunity cost arising from
                diversions to these products.
                (C) The Treatment of Non-Music and AM/FM Diversion in Professor
                Willig's Opportunity Cost Analysis
                 Google's economic expert witness, Dr. Peterson, finds fault with
                Professor Willig's application of the results of the Zauberman Survey,
                by which he assumes that all the plays diverted from noninteractive
                services would be recaptured through listeners' accessing of royalty-
                bearing plays. Specifically, Dr. Peterson testifies as follows:
                 [Professor] Willig's model assumes that the entire ad-supported
                non-interactive statutory streaming business can be shut down, and
                the music industry won't lose a single performance. So that's
                inconsistent with how economists think of choice, and it's
                inconsistent with commonsense. If there are people whose favorite
                way to listen to music is through a Pandora-like service, we would
                certainly expect them to expand their listening hours as well and
                find opportunities to use that service when they would not listen to
                another service.
                 And . . . the evidence for this is . . . in the Zauberman
                surveys, where if you take the service away, some people say they
                will spend some of their day doing something other than listening to
                music. So it is incorrect to assume that all of the performances are
                preserved if you shut down the service.
                8/25/20 Tr. 3734-35 (Peterson). This point ties in directly to the
                calculation of opportunity cost. As Dr. Peterson further notes, because
                the Zauberman Survey asks respondents how they would replace time spent
                listening to noninteractive services, those who would substitute non-
                royalty bearing activities would, necessarily, if noninteractive
                services were available, substitute away from the non-royalty bearing
                activities and listen to royalty-bearing noninteractive services. 8/25/
                20 Tr. 3735 (Peterson) (``[T]he consequence . . . of course, is that if
                you join the [noninteractive] service, [the label] gain[s] . . .
                performances and the opportunity cost of the performances on the
                services is reduced as a result [and] this leads to an overstatement of
                opportunity costs.'') (emphasis added).
                 During cross-examination, Dr. Peterson made this point in greater
                detail in a manner that is well-worth quoting in full:
                 Q. And do you recall that one of the [Zauberman Survey]
                switching options was do something other than listen to music?
                 A. That is an option in the Zauberman Survey that I think is not
                properly reflected in Dr. Willig's model.
                 Q. Well, just looking at the survey, since the survey does
                contemplate people doing something other than listening to music, if
                a . . . free non-interactive service was taken away, some people
                would go back to doing things other than istening to music, right?
                 A. That's correct.
                 Q. And doesn't that account for the idea that free non-
                interactive services could expand listening overall?
                 A. That free non-interactive services would expand listening
                overall?
                 Q. Right.
                 A. Oh, that's exactly my point. So . . . Dr. Willig's model says
                if there are a million plays on the service, and the must-have
                labels shut it down, a million plays are diverted and a million
                plays are collected in the aggregate by the labels . . . . That's
                the assumption that's built into his model. And I'm asserting, I
                think what you just said, which is that that's not a very good
                assumption because some people would say, well, I loved Pandora but
                since I can't have Pandora . . . I'm going to read a book. And so
                there would be fewer performances overall. And so that aspect of Dr.
                Zauberman's survey is not at all reflected in the mathematics of Dr.
                Willig's model. And that's--that's a problem.
                 Q. But looking at the survey, it does allow for the possibility
                that the--that the service could expand listening or not expand
                listening? That option is there in the survey, right?
                 A. But not in his model. I mean, it--and it actually doesn't
                really play into his opportunity cost either, which is very
                important here. So I disagree wholeheartedly with what you're
                saying.
                8/25/20 Tr. 3799-3800 (Peterson) (emphasis added).
                 The Judges agree with Dr. Peterson. The Shapley Value Model
                constructed by Professor Willig overstates the opportunity costs
                because it does not consider the ``opportunity benefits'' \268\
                generated by listeners to noninteractive services who would otherwise
                divert to a non-royalty bearing activity, such as reading a book, as
                Dr. Peterson notes. But this defect in Professor Willig's opportunity
                cost calculation goes further, extending to any non-royalty bearing
                activity undertaken by a diverted listener, including listening to AM/
                FM (terrestrial radio).
                ---------------------------------------------------------------------------
                 \268\ See Ferraro and Taylor, supra, at 7 (``An avoided benefit
                is a cost, and an avoided cost is a benefit. Thus, the opportunity
                cost . . . is . . . the net benefit forgone.'') (emphasis added).
                ---------------------------------------------------------------------------
                 As noted supra, AM/FM (terrestrial) radio stations do not pay
                royalties for their performances of sound recordings (because the
                Copyright Act does not confer a general public performance right on
                sound recording copyright owners). However, if noninteractive services
                attract listeners who would otherwise divert to terrestrial radio (as
                survey data in evidence indicate), there is a ``negative opportunity
                cost'' (i.e., an ``opportunity benefit'') foregone by the record
                companies if they were to refuse to license noninteractive services.
                For example, at current statutory rates, the foregone ``opportunity
                benefit'' would be $0.0018 per play listened to by terrestrial
                listeners who would have otherwise accessed music via an ad-supported
                noninteractive service if it existed, and $0.0023 per play listened to
                by terrestrial listeners who would have otherwise accessed music via a
                subscription noninteractive service if it existed.
                 These ``opportunity benefits'' foregone are likely not de minimis,
                as the surveys in evidence in this proceeding indicate a significant
                amount of diversion to these alternatives by respondents who completed
                the survey. See, e.g., Zauberman Survey ]] 24-27 (85% of ad-supported
                noninteractive listeners would spend 27% of their diverted time
                listening to AM/FM radio over-the-air, and 79% of noninteractive
                subscribers would spend 18% of their diverted tine listening to AM/FM
                radio in this royalty-free manner--if their form of noninteractive
                services were unavailable). See also id. (48% of ad-supported
                noninteractive listeners would spend 16% of their diverted time doing
                something other than listening to music and, for subscribers to
                noninteractive services, 50% would spend 10% of their diverted time in
                these non-royalty-bearing activities). As noted supra, the
                ``opportunity benefit'' of these lost listeners is $0.0018 and $0.0023
                for the plays diverted during such time periods from the ad-supported
                and subscriber noninteractive services, respectively.
                 SoundExchange notes though that Professor Willig engaged in a
                similar treatment of AM/FM listening, with his so-called ``fork in the
                road approach,'' that the Judges adopted in SDARS III, leaving
                interactive royalties unadjusted downward (thus not adjusting
                [[Page 59538]]
                downward to correct for their complementary oligopoly power and not
                adjusting upward to reflect the absence of sound recording royalties
                for AM/FM plays). But, the NAB points out, although Professor Willig's
                ``fork in the road'' testimony in SDARS III went unchallenged on cross-
                examination and in Sirius XM's proposed findings, see SDARS III, 83 FR
                at 65238, the Services are challenging the point here. Thus, the NAB
                asserts that the appropriateness of that approach is properly at issue
                in this proceeding.
                 The Judges agree with the NAB in this regard. All rate proceedings
                are conducted de novo, and any factual determinations made in a prior
                proceeding therefore certainly can be considered anew now.
                 The Judges find that Professor Willig's ``fork in the road''
                approach does not adequately address the opportunity cost issue raised
                by Dr. Peterson. It is insufficient and off-point to treat lost
                listeners who divert to any non-royalty bearing alternatives as simply
                irrelevant to the complementary oligopoly premium attached to
                interactive opportunity costs. In fact, as Dr. Peterson makes clear,
                such non-royalty bearing alternatives--because they substitute for
                royalty-bearing noninteractive plays--generate what can be called
                ``opportunity benefits.''
                 In addition to the ``opportunity benefit'' point addressed above,
                the NAB makes a separate legal criticism of Professor Willig's ``fork
                in the road'' approach. Specifically, the NAB argues:
                 [T]o the extent including supracompetitive royalty inputs in an
                opportunity cost analysis yields supracompetitive outputs, those
                outputs are inconsistent with the established legal standard
                requiring the rates set here to reflect effective competition. Web
                IV, [81 FR 26316] at 26332. Further, as a legal matter, there is a
                fundamental difference between complementary oligopoly rates for
                sound recording rights in interactive services and the lack of
                royalties for terrestrial radio play. The latter is a function of a
                Congressional judgment enshrined in federal copyright law. See 17
                U.S.C. 106(6); id. sec. 114(a). The existence of complementary
                oligopoly power, in contrast, has never been blessed by Congress. To
                the contrary, this body has always regarded the majors'
                complementary oligopoly power as a feature of the market that must
                be corrected in establishing rates here. There is no sense in which
                it would be legally appropriate for the Judges to similarly
                ``correct'' lack of royalties resulting from the lack of a legally
                recognized public performance right for terrestrial radio play of
                sound recordings.
                NAB PFFCL ] 136 n.34. In response, SoundExchange argues as follows:
                 For the first time at any point in this proceeding, NAB offers a
                lengthy argument against the ``fork in the road'' analysis offered
                by Professor Willig and endorsed by the Judges in SDARS III. See [83
                FR 65210] at 65238. This is completely inappropriate argumentation
                that, despite being offered as a ``finding of fact,'' is tellingly
                bereft of even a single supportive citation to the record in this
                case. See NAB PFFCL p.1 n.1. Notably, both Dr. Leonard and Professor
                Shapiro made explicit at trial that they were not challenging this
                concept.
                SoundExchange's Corrected Replies to NAB's Proposed Findings of Fact
                and Conclusions of Law ] 136 (footnote) (SX RPFFCL (to NAB)).
                 SoundExchange's reply is unavailing. The NAB's argument is not in
                the form of a proposed ``finding of fact.'' Rather, it quite clearly is
                in the nature of a proposed ``conclusion of law.'' \269\ Further,
                SoundExchange has not substantively replied to the NAB's argument.\270\
                ---------------------------------------------------------------------------
                 \269\ The NAB did not label ] 136 n.34 of its PFFCL as a
                conclusion of law. See NAB PFFCL at 1 n.1. However, the parties'
                labeling of separate portions of their post-hearing filings as
                proposed ``findings of fact'' or ``conclusions of law'' does not
                prevent the Judges from independently considering whether a
                particular proposal is either factual or legal, based upon the
                substance of the proposal. Indeed, because these submissions are
                merely proposals, neither the substance nor labeling of the
                submissions by the parties is binding on the Judges. Here, the NAB
                specifically argues that it would not be ``legally appropriate'' for
                the Judges to offset the complementary oligopoly effect based on the
                lack of a ``legally recognized public performance right for
                terrestrial radio play of sound recordings.'' NAB PFFCL ] 136 n.34
                (emphasis added). Clearly, as a matter of substance, this assertion
                is a proposed legal conclusion.
                 \270\ SoundExchange neither responded substantively to this
                legal argument in its post-hearing Reply to the NAB, nor during
                closing arguments that followed the submission of the Proposed
                Findings of Fact and Conclusions of Law. See 11/19/20 Tr. 6062 et
                seq. (closing arguments).
                ---------------------------------------------------------------------------
                 Moreover, the Judges conclude that the legal substance of the NAB's
                argument is persuasive. The absence of a public performance right for
                sound recordings on terrestrial radio--and hence the absence of any
                attached royalty obligation--was a statutory decision by Congress. The
                Judges identify no legal authority by which they may use that
                Congressional decision as an offset against the effect of complementary
                oligopoly power on the rate setting process. Moreover, because there is
                no royalty paid by terrestrial broadcasters for playing sound
                recordings, there is no basis for the Judges to simply assume either
                the existence or extent of a positive royalty, if such a public
                performance right actually existed. Indeed, regardless of the economic
                merits, the issue of whether such a public performance right and an
                associated royalty obligation should be created remains a matter of
                dispute in the legislative arena. Compare https://www.soundexchange.com/advocacy/closing-the-amfm-radio-royalty-loophole/
                (asserting that ``the reality is that AM/FM radio--terrestrial
                broadcast radio--uses music to draw an audience that in turn allows
                broadcasters to bring in $14.5 billion/year of revenue from
                advertising. While paying nothing for their primary product!'') with
                https://www.nab.org/documents/newsroom/pressrelease.asp?id=4130
                (asserting the allegedly ``tremendous benefits of free, promotional
                airplay for musicians and labels.'').
                 Finally, the Services also make a further factual challenge
                regarding Professor Willig's ``fork in the road approach.'' While not
                directly challenging that approach as a device for offsetting
                complementary oligopoly effects from the zero terrestrial royalty
                payments, Dr. Leonard, the NAB's economic expert witness, asserts that
                this ``fork in the road'' approach does not address the complementary
                oligopoly impact of the ``Must Have'' nature of the Majors, which makes
                a noninteractive service's ``no license'' negotiating strategy
                untenable. 8/24/20 Tr. 3411-13 (Leonard).
                 The Judges find Dr. Leonard's point to be helpful. Elsewhere in
                this determination, the Judges make essentially the same point
                regarding the imbedding of a complementary oligopoly effect in the
                ``arrival orderings'' in Professor Willig's Shapley Value Model. Dr.
                Leonard's testimony in this regard is helpful because it makes clear
                that the ``fork in the road'' approach simply does not address this
                separate inclusion of a complementary oligopoly effect on the rates
                derived from Professor Willig's Shapley Value Model.
                v. The Adjusted Opportunity Costs in Professor Willig's Shapley Value
                Model, Incorporating the Foregoing Changes in the Opportunity Cost
                Attributable to Music Purchases
                 Based on the foregoing adjustments accepted by the Judges,
                Professor Willig's opportunity cost calculation must be adjusted, as
                set forth in the figure below:
                Figure 8: Correcting Professor Willig's Opportunity Cost Calculations
                [RESTRICTED]
                 [REDACTED]
                Shapiro WRT at 50, Fig.8.
                 As the above table shows, Professor Shapiro's adjustments reduce
                the opportunity cost for ad-supported services from $[REDACTED]
                (Professor Willig's estimate) to $[REDACTED] (Professor Shapiro's
                adjusted estimate).
                [[Page 59539]]
                For subscription services, these adjustments would reduce Professor
                Willig's opportunity cost estimate from $[REDACTED] to Professor
                Shapiro's adjusted estimate of $[REDACTED]. Id.; see also Willig WDT ]
                47, Fig. 6.\271\
                ---------------------------------------------------------------------------
                 \271\ In an attempt to find data consistent with his opportunity
                cost derived from the Zauberman Survey and other surveys in this
                proceeding, Professor Willig considered listening information
                generated by the Edison Research ``Share of Ear'' survey. Willig WDT
                ]] 56-60 & app. F. However, on cross-examination, Professor Willig
                admitted that ``it's absolutely my view that the [S]hare of the
                [E]ar study is not nearly as well founded for this purpose . . . .
                [I]n many ways it's really not really comparably informative for the
                issue at hand . . . .'' 8/10/20 Tr. 1100 (Willig); see also Leonard
                WRT ]] 23-29 (explaining that ``royalty calculations based on the
                `Share of Ear' survey are flawed'' because, inter alia, they
                ``ignore[ ] that some users already have subscriptions and already
                own CD/Vinyl/Digital Downloads [so that] [p]lays diverted to these
                options would not represent an opportunity cost to
                SoundExchange.''). When both the proponent of survey evidence and
                the adversary decline to endorse its usefulness, the Judges will not
                consider that evidence as confirmation of other surveys, and the
                Judges place no weight on data generated by the Share of the Ear
                survey.
                ---------------------------------------------------------------------------
                 However, according to Professor Shapiro, the ``Share of Ear''
                analysis by Professor Willig erroneously inflates these opportunity
                costs, by overestimating the diversion rates to new subscriptions and
                new owned media purchases. Shapiro WRT, app. D at 86. Accordingly,
                Professor Shapiro rebuts this alternative approach by explaining the
                alleged limitations in Professor Willig's methodology and presenting an
                adjusted version that Professor Shapiro claims is a superior
                application of the ``Share of Ear'' data.
                vi. The Impact of All of Professor Shapiro's Data Input and Opportunity
                Cost Adjustments to Professor Willig's Calculation of Statutory
                Royalties in the Scenario 2 Approach
                 Applying all of Professor Shapiro's data and opportunity cost
                adjustments to Professor Willig's Scenario 2 approach, the Judges find
                that the royalty rates proposed by Professor Willig must be
                significantly reduced. Specifically, these royalty rate differences are
                as follows: \272\
                ---------------------------------------------------------------------------
                 \272\ Professor Shapiro does not propose that the Judges utilize
                the foregoing royalty rates he calculates as the statutory royalty
                rates. See Shapiro WRT at 60.
                ------------------------------------------------------------------------
                 Ad supported Subscription
                ------------------------------------------------------------------------
                Willig parameters....................... $0.00297 $0.00312
                Shapiro Adjusted Inputs................. $[REDACTED] $[REDACTED]
                ------------------------------------------------------------------------
                See Willig WDT ] 51, Fig.9; Shapiro WRT, Fig.15 at 64.\273\
                ---------------------------------------------------------------------------
                 \273\ As noted supra, note 247, Professor Willig also utilizes a
                N-I-N Model as a sensitivity check to his Shapley Value results. The
                Services assert, correctly, that the opportunity cost, profit margin
                and ``Must Have'' inputs Professor Willig utilizes in his N-I-N
                Model are identical to the inputs he utilizes in his Shapley Value
                Model. Services RPFFCL ] 693 (incorporating by reference the
                Services' critiques of Professor Willig's Shapley Value Model).
                Similarly, the Judges' consideration of the inputs in Professor
                Willig's Shapley Value, supra, are equally applicable to his N-I-N
                Model, and reduce his proposed royalty rates to the same extent.
                ---------------------------------------------------------------------------
                 Additionally, because these adjusted rates are average rates over
                the 2021-2025 rate period, like Professor Willig's proposed rates, they
                need to be discounted back to 2021 to establish rates for that first
                year of the rate period. Professor Willig deflated these rates by a
                factor of 0.96117, applying the U.S. Federal Open Market Committee's
                inflation rate forecast for 2021 of two percent. Willig WDT ] 55 &
                n.43. (The Services have not objected to Professor Willig's application
                of this inflation-adjustment process.). Applying Professor Willig's
                adjustment factor of 0.96117, the Judges' calculate 2021 royalty rates,
                based on their adoption of Professor Shapiro's input-adjusted version
                of Professor Willig's Shapley Value Model parameters, to be $[REDACTED]
                for ad-supported services and $[REDACTED] for subscription
                services.\274\
                ---------------------------------------------------------------------------
                 \274\ For the ad-supported rate, $[REDACTED] x [REDACTED] =
                $[REDACTED] (rounded to $[REDACTED]). For the subscription rate,
                $[REDACTED] x [REDACTED] = $[REDACTED] (rounded to $[REDACTED]).
                ---------------------------------------------------------------------------
                vii. The Impact of Shapley ``Arrival Orderings'' Given the Judges'
                Finding That They Do Not Reflect ``Effective Competition''
                 The Judges must incorporate their prior finding that Professor
                Willig's Shapley Value Model incorporates complementary oligopoly power
                in the number of arrival orderings. There is no record evidence that
                suggests how Shapley Values and resulting royalties would be computed
                if the arrival orderings were changed to ameliorate the market power
                generated by the number of arrival orderings created by the
                fragmentation of copyright ownership of ``Must Have'' repertoires
                across three Majors.
                 The Judges note that Professor Willig's Shapley Value Model does
                not explicitly address the potential impact of steering by a
                noninteractive service, i.e., one that promises to play more sound
                recordings from a record company that agrees to a lower royalty or
                threatens to play fewer sound recordings from a record company that
                declines to agree to a lower royalty.\275\ Accord 8/18/20 Tr. 2638
                (Shapiro) (``The primary focus of competition certainly . . . in
                Professor Willig's model . . . is not steering'').
                ---------------------------------------------------------------------------
                 \275\ As explained in Web IV, such promises and threats can
                result in the absence of actual steering, as all record companies
                agree to reduce their rates in order to avoid being ``steered
                against.'' Web IV, 81 FR at 26366.
                ---------------------------------------------------------------------------
                 Professor Willig maintains that his Shapley Value Model implicitly
                incorporates the value of steering because the characteristic function
                embodies ``the extreme form of steering,'' that is, ``a black-out, non-
                license situation,'' which, as explained supra, would result in the
                commercial demise of the noninteractive service because each Major is a
                ``Must-Have.'' 8/10/20 Tr. 1070-72 (Willig).
                 The Judges find Professor Willig's treatment of a Major blackout to
                be a difference in kind rather than one of degree when compared with
                steering. An essential aspect of steering is that it serves to
                partially disaggregate a record company's repertoire by allowing the
                noninteractive service to modify its song selection to marginally lower
                its royalty costs, while increasing the royalty revenue paid to the
                record company increasing plays via steering and decreasing royalty
                revenue to the record company ``steered against'' by the service. See
                Web IV, 81 FR at 26367. As also explained therein, the noninteractive
                service would not go out of business as it would if it lacked a license
                from a Major, but rather would see an improvement to its bottom line.
                Id. Clearly, therefore, marginal steering is different in kind. The
                characteristic function, on whose features Professor Willig relies,
                does not contemplate this steering-based disaggregation.\276\
                ---------------------------------------------------------------------------
                 \276\ The record does not reflect whether any Shapley Value
                Model even could address the impact of steering, but it is clear
                that Professor Willig's modeling does not. As explained in Web IV,
                supra, the function of steering is a redistribution of value to
                adjust for complementary oligopoly power, whereas the characteristic
                function establishes the maximum value of the coalition.
                ---------------------------------------------------------------------------
                 Thus, because the royalty rates derived from Professor Willig's
                Shapley Value Model reflect complementary oligopoly power (even as
                adjusted supra), they must be discounted to reflect effective
                competition. However, the Judges find nothing in the record to estimate
                the value of an effective competition adjustment to Professor Willig's
                Shapley Model-derived royalty rates (as adjusted herein).\277\
                [[Page 59540]]
                Accordingly, the evidentiary record only allows the Judges to state
                with regard to the royalty rates they have determined--by adjusting
                Professor Willig's Shapley Model-derived rates--that those 2021 rates,
                $[REDACTED] for ad-supported services and $[REDACTED] for subscription
                services, exceed an effectively competitive rate by an indeterminate
                amount. As such, these rates serve only as limited guideposts,\278\
                indicating that effectively competitive rates generated via a Shapley
                Value Model would be less than these levels.\279\
                ---------------------------------------------------------------------------
                 \277\ More particularly, the Judges do not find that the
                effective competition adjustments applied to the benchmark and
                ratio-equivalency rates discussed elsewhere in this Determination,
                particularly those based on steering, can be logically applied to
                Professor Willig's Shapley Value-derived rate. See 8/6/20 Tr. 777-
                79, 8/10/20 Tr. 1077-78 (Willig) (acknowledging he did not conduct
                an analysis based on steering because steering-based competition
                among the Majors would be inconsistent with the maximization of the
                ``characteristic function,'' i.e., the maximization of the surplus
                the bargaining parties can obtain within his Shapley Value Model);
                see also 8/26/20 Tr. 3921 (Shapiro) (``none of our models have
                steering . . . .'').
                 \278\ When ``the Judges are confronted with evidence that,
                standing alone, is not itself wholly sufficient, they may rely on
                that evidence ``to guide the determination,'' i.e., by using it as a
                ``guide post'' when considering the application of more compelling
                evidence. SDARS II, 78 FR at 23063, 23066 (emphasis added).
                 \279\ As discussed supra, Professor Willig's estimated rates are
                also too high because they do not reflect the ``opportunity
                benefit'' of listeners who would substitute noninteractive listening
                for non-royalty bearing activities, including listening to AM/FM
                radio. And, given the legal infirmity of the ``fork in the road''
                approach, also discussed supra, his proposed rates are further
                improperly inflated.
                ---------------------------------------------------------------------------
                2. Professor Shapiro's Nash-in-Nash Model
                 On behalf of Pandora, Professor Shapiro proffers two game theoretic
                bargaining theories to support proposed benchmark rates. In his direct
                testimony, he presents his ``Nash-in-Nash'' (N-I-N) model, and in his
                rebuttal testimony, as a critique of Professor Willig's Shapley Value
                Model, Professor Shapiro advances his ``Myerson Value'' model.
                 Professor Shapiro explains that the licensing of performances of
                sound recordings needs to be analyzed with a ``bargaining model [that]
                account[s] for the multiple bilateral negotiations that would take
                place'' between noninteractive services and record companies. 8/18/20
                Tr. 2654-55 (Shapiro). The dynamic in such a market, he explains, is
                that ``although each record label would negotiate separately with each
                webcaster (assuming no coordination), the outcome of negotiations
                between one label-webcaster pair would be expected to affect the
                outcomes between other pairs.'' Id.; Shapiro WDT at 27.\280\
                ---------------------------------------------------------------------------
                 \280\ In a two-player negotiation, the solution to the model is
                based on assumptions by each party regarding the negotiating
                strategy of the counterparty. In the N-I-N model, this concept is
                expanded to account for the expected outcomes in multiple two-player
                bargaining. Allan Collard-Wexler et al., ``Nash-in-Nash''
                Bargaining: A Microfoundation for Applied Work, 127 J. Pol. Econ.
                163, 165-166 (2019).
                ---------------------------------------------------------------------------
                 The game theoretic approach that best addresses this simultaneous
                competition and bargaining context and is the ``dominant way'' of
                modeling such a market, according to Professor Shapiro, is the N-I-N
                model, a ``non-cooperative'' game theory model which utilizes ``a
                consistent solution to simultaneous [bi-lateral] negotiations between
                multiple pairs of actors.'' 8/18/20 Tr. 2655 (Shapiro).\281\ Using his
                N-I-N model, Professor Shapiro generates an ad-supported royalty rate
                of $[REDACTED] per play, and $[REDACTED] per play for subscription
                services. Shapiro WDT at 28 tbl.4, 32 tbl.7.
                ---------------------------------------------------------------------------
                 \281\ For the difference between such a ``non-cooperative''
                model and a ``cooperative'' model such as Professor Willig's Shapley
                Value Model, see supra note 215. Professor Shapiro opines that a
                ``non-cooperative'' model better describes the bilateral
                negotiations hypothesized by the willing buyer/willing seller
                standard than the ``cooperative'' model invoked by Professor Willig,
                which is better suited for examining the behavior of ``coalitions''
                of participants. Id. 2817-18 (Shapiro).
                ---------------------------------------------------------------------------
                 Professor Shapiro applies his N-I-N bargaining model for both ad-
                supported and subscription webcasting. For both forms of webcasting,
                his N-I-N model includes eight record companies with the largest shares
                of listening on Pandora \282\ plus two ``catch-all'' categories of
                independent record companies. Shapiro WDT at 27-28 & tbl.4; id. at 75-
                76; 8/19/20 Tr. 2742, 2747 (Shapiro).
                ---------------------------------------------------------------------------
                 \282\ The eight record companies are [REDACTED].
                ---------------------------------------------------------------------------
                 In Professor Shapiro's N-I-N modeling ``the first step'' in
                identifying royalty rates ``is to examine the opportunity cost to an
                individual record company of licensing its repertoire to a statutory
                webcaster.'' Shapiro WDT at 4 (emphasis added). He defines record
                company opportunity costs in the same general manner as Professor
                Willig--the royalties foregone by a record company if it licenses its
                repertoire to a noninteractive service rather than to another type of
                service or offers its repertoire for sale as a physical or digital
                product.\283\ However, in performing his opportunity cost analysis,
                Professor Shapiro relies on a fundamental difference in the
                hypothetical unregulated noninteractive market. Specifically, he
                testifies:
                ---------------------------------------------------------------------------
                 \283\ Professor Shapiro describes opportunity cost in the
                present context as follows:
                 The opportunity cost approach recognizes that, when a record
                company licenses its repertoire to a music service, some customers
                will devote additional listening time to that music service rather
                than listening to music in other ways. Because of the decreased
                listening to sound recordings through other media, the record
                company in question will lose some of the royalties it would
                otherwise have earned on performances or sales of recordings through
                these other media, to the extent the record company would have
                received incremental royalties from that listening.
                 Shapiro WDT at 3. In Professor Shapiro's N-I-N model, a record
                company's opportunity cost for licensing a webcaster is the product
                of four factors: (1) The total number of performances on the given
                webcaster's service (referred to as ``N'' in his model); (2) the
                percentage of those performances that would be lost to other forms
                of listening in the absence of a license from the record company
                (referred to as ``L'' in his model); (3) the average per-performance
                royalty the record company would earn from other forms of listening
                (referred to as ``R''); and (4) the record company's share of
                performances on the webcaster and the alternative services (referred
                to as ``S''). Shapiro WDT at 17; 8/18/20 Tr. 2663-65 (Shapiro).
                 [S]ome degree of competition among record companies would also
                arise if a webcasting service can obtain significant bargaining
                leverage by threatening to drop a given record company from its
                service entirely if the royalty rate offered by that record company
                is unreasonably high.
                * * * * *
                 Importantly, my analysis here relies on new evidence that no
                individual record company is even close to being ``must-have'' for
                Pandora's advertising-supported webcasting service.
                Shapiro WDT at 11-12.
                 Accordingly, Professor Shapiro's entire N-I-N Model relies upon
                ``new evidence'' that he asserts demonstrates that no single record
                company in fact is a ``Must Have'' for a noninteractive service.
                Because further application of his N-I-N Model turns on the sufficiency
                of this new evidence, the Judges to turn now to an examination of that
                evidence.
                a. Pandora' ``Label Suppression Experiments''
                 To determine whether each of the Majors is a ``Must Have'' for
                noninteractive services, Professor Shapiro asked Pandora to conduct
                several ``Label Suppression Experiments'' (LSEs) pursuant to general
                instructions he provided to Pandora. Shapiro WDT app. E. The LSEs were
                conducted and supervised by an in-house Pandora economist employed as a
                ``Distinguished Scientist,'' Dr. David Reiley. Trial Ex. 4091 ]] 1-4,
                6, 11-13 (WDT of David Reiley) (Reiley WDT). Dr. Reiley constructed
                LSEs to answer the question: ``What effect, if any, there would be on
                users' listening if Pandora stopped playing the entire catalog of a
                particular record company on Pandora's ad-supported service?'' Reiley
                WDT ]] 11, 13.
                 In an attempt to answer this question, Dr. Reiley and his
                colleagues ran five experimental treatments among listeners
                [[Page 59541]]
                of Pandora's ad-supported tier.\284\ One group in each experiment
                received the ``treatment'' (described below) and the other group in
                each experiment was the ``control'' group, which did not received the
                ``treatment.''
                ---------------------------------------------------------------------------
                 \284\ To be included in either the LSE treatment or control
                groups, users must have listened to Pandora's ad-supported radio
                product during the experimental period, and were not included if
                they did not satisfy that criterion. See 9/1/20 Tr. 4902-03
                (Reiley).
                ---------------------------------------------------------------------------
                 Each treatment intentionally suppressed music from a different
                record company--not totally--but as completely as possible. Two of the
                treatments separately suppressed music from [REDACTED], and three
                separately suppressed music from [REDACTED]. Id. ] 12; 9/1/20 Tr. 4899
                (Reiley).
                 Dr. Reiley then compared the listening behavior of users in the
                five treatment groups to the behavior of the control group, which did
                not receive any suppression treatment. Reiley WDT ] 19. He ran these
                LSEs over a roughly three-month period, from June 4 to August 31, 2019,
                and again for another approximately three-month period concluding
                December 4, 2019. Reiley WDT ] 16; Trial Ex. 4108 ]] 4 (WRT of David
                Reiley) (Reiley WRT).
                 In analyzing the results, Dr. Reiley focused primarily on a
                particular metric: The average hours listened per registered Pandora
                ad-supported user, noting that ``average hours per listener was a
                standard metric for in-house experiments at Pandora. Reiley WDT ] 19.
                According to Dr. Reiley, the LSEs demonstrated that ``for the initial
                three-month experimental period, a near-total suppression of spins of
                any single record company [REDACTED].'' Id. ]] 21-24; 9/1/20 Tr. 4906-
                07. (Reiley). He depicted the results of his three-month run of these
                LSEs in the following figure:
                 [RESTRICTED]
                 [REDACTED]
                Reiley WDT, Fig. 2.\285\
                ---------------------------------------------------------------------------
                 \285\ The figures are probabilistic, because they were derived
                from a survey of Pandora ad-supported listeners, rather than from
                the entire population of such listeners. Dr. Reiley testified that
                the LSE survey size was sufficient to produce, for the listening
                hour reported effects, 95% confidence intervals that would be no
                wider than +/-5% for [REDACTED], and no wider than +/-0.5% for
                [REDACTED]. Reiley WDT ] 18. Accordingly, in the results displayed
                in Figure 2 in the accompanying text, the point estimates are shown
                by the dots, and horizontal lines indicating the width of the 95%
                confidence intervals.
                ---------------------------------------------------------------------------
                 As noted supra, Dr. Reiley also extended these LSEs for an
                additional three months. He reported his cumulative six month totals,
                which, he testified, confirmed his conclusion regarding the three
                months of experiments, viz., that [REDACTED]. Reiley WRT ]] 12-16 &
                Fig.1.\286\
                ---------------------------------------------------------------------------
                 \286\ In a pre-hearing Motion, the Judges disallowed Pandora
                from using the cumulative results of the six month survey, because
                Dr. Reiley's testimony regarding the final three months of the
                survey should have been included in his direct testimony, or in
                timely filed amended direct testimony, rather than in his written
                rebuttal testimony. However, the Judges admitted Dr. Reiley's
                rebuttal testimony for the narrower purpose of attempting to rebut
                SoundExchange's position that the Judges should deem all three
                Majors to be ``Must Haves'' for noninteractive services. To be
                clear, the Judges do not consider the cumulative (six months) data
                for any affirmative purpose.
                ---------------------------------------------------------------------------
                b. SoundExchange's Criticism of Pandora's LSEs, Pandora's Responses,
                and the Judges' Findings and Analysis
                i. The LSEs Are Unreliable and Uninformative
                 According to SoundExchange, the LSEs are not a reliable source of
                evidence, and thus cannot be utilized as an economic analysis to
                calculate Professor Shapiro's input ``L'' in the opportunity cost
                calculation necessary for his N-I-N- modeling. Willig WRT ]] 22-27; 8/
                5/20 Tr. 351-53, 570-72, 574 (Willig). Even at this high conclusory
                level, Pandora offers less than a full-throated defense of the LSEs,
                asserting not that the LSEs are objectively sufficient and persuasive
                evidence, but that, comparatively, they are ``the best, most reliable
                evidence of the effects of a record label blackout on listening on
                Pandora's ad-supported radio tier.'' Services RPFFCL ] 852 (citing 9/1/
                20 Tr. 4927-28 (Reiley).
                 The first criticism levelled by SoundExchange is that the design of
                the LSEs impeded detection by respondents who were exposed to a label
                blackout (the treatment group) of the existence of the blackout. More
                particularly, a SoundExchange economic expert witness, Professor
                Catherine Tucker, criticized the LSEs for making the LSEs'
                participants, ``blind'' to the experiments' nature (see Reiley WDT ]
                7), in that they were not made aware that they had lost access to the
                repertoire of the suppressed record company. Trial Ex. 5605 ] 18 (CWRT
                of Catherine Tucker) (Tucker WRT); 8/17/20 Tr. 2280-81 (Tucker).
                 Pandora responds by pointing to Dr. Reiley's testimony, in which he
                invokes the principal scientific reason for making the study ``blind''
                to participants. Specifically, he identifies what is known in
                experimental work as the ``Hawthorne effect,'' by which participants in
                an experiment modify their behavior simply because they become aware of
                the experiment. 9/1/20 Tr. 4927-28 (Reiley). Moreover, Pandora argues
                that it would have no reason to notify ad-supported users of the
                existence of a real-world label black-out, and that any communication
                Pandora could have attempted to convey to the ``treatment groups''
                would not even ``come close to replicating the sort of real-world
                third-party communications'' disclosing the blackout (discussed below)
                that Professor Tucker claims (wrongly in Pandora's opinion) would
                occur. Services RPFFCL ] 858.
                 The Judges find significant merit in SoundExchange's criticism. The
                failure of the LSEs to provide notice to participants in the
                ``treatment groups'' that they had lost access to the repertoire of a
                given record company is an important omission. Its importance is based
                on the fact that the value of a webcasting service lies not only in the
                sound recordings a listener hears, but the listeners' understanding of
                the repertoire to which the service has access and derivatively, which
                the listener can expect to be included in the sound recordings he or
                she may hear. To be sure, such access likely has more value to an
                interactive (on demand) service than to a noninteractive service, but
                that comparison is hardly dispositive. And the assertion by Pandora
                that it could hardly have provided the same type of notice and
                disclosure that third parties would have disseminated (discussed in
                more detail below), while likely correct, only underscores the
                incompleteness and lack of necessary ``real world'' elements in the
                experiments. That is, the fact that the necessary disclosures of
                information could not possibly have been included in the experiment--by
                Pandora's own admission--indicates to the Judges that the error lies in
                the fundaments of the LSEs, and that Pandora's unavoidable omission of
                such notices is hardly an argument supportive of the use of the LSEs in
                this proceeding.\287\
                ---------------------------------------------------------------------------
                 \287\ The absence of disclosure to the treatment group of the
                loss of access to the repertoire of a record company is inconsistent
                with if not antithetical to, the idea of modeling the hypothetical
                market in a manner consistent with ``effective competition.'' As
                Professor Shapiro concedes, if a Major is blacked-out on Pandora,
                listeners have lost what economists describe as ``access value.'' 8/
                19/20 Tr. 2709 (Shapiro). But without disclosure of that lost value,
                the diminished access is not known to listeners (unless they learn
                of the lost access from some other source, as posited by
                SoundExchange). This informational deficiency is important. One of
                the necessary conditions for a market to be effective is the absence
                of asymmetric information. See Clifford Winston, Government Failure
                versus Market Failure at 27 (2006) (``efficiency . . . requires that
                buyers and sellers be fully informed . . . . If consumers are
                uninformed or misinformed about the quality of a product, they may
                derive less utility from it than they expected.''); Karl-Gustaf
                Lofgren et al., Markets with Asymmetric Information: The
                Contributions of George Akerlof, Michael Spence and Joseph Stiglitz,
                104 Scandinavian J. Econ., no. 2, 195, 205 (2002) (Joseph Stiglitz,
                winner of the Nobel Prize for his work on the economics of
                information, and ``probably the most cited researcher within the
                information economics literature . . . has time and again pointed
                out that economic models may be quite misleading if they disregard
                informational asymmetries [and] that many markets take on a
                different guise in the perspective of asymmetric information . . .
                .''); Diane Coyle, Markets, State, and People 73, 303 (2020) (``The
                absence or presence of information asymmetries can make all the
                difference to how a market functions . . . . The assessment of
                efficiency . . . should account for . . . likely behavioral
                responses.''). But the LSEs tacitly assume a market infected by such
                informational asymmetry regarding the offerings of a noninteractive
                service, and in so doing create an experimental market infused not
                with effective competition, but rather with market failure. See
                Joseph E. Stiglitz & Jay K. Rosengard, Economics of the Public
                Sector 93 (4th ed. 2015) (identifying ``imperfect information'' as
                one of ``six basic market failures''); Anne Steineman,
                Microeconomics for Public Decisions 147 (3d. ed. 2018) (``Market
                failures can also occur because of imperfect information. Efficiency
                requires that all relevant information be available to consumers . .
                . .'') (emphasis added). The irony of this point is not lost on the
                Judges: Professor Shapiro endorses as evidence of a hypothetical
                effectively competitive market an experiment (the LSEs) that
                generate the absence of a condition--adequate information--whose
                presence is necessary to avoid market failure.
                ---------------------------------------------------------------------------
                [[Page 59542]]
                 The Judges also reject Dr. Reiley's reliance on the general
                principle that participants in an experiment should not be made aware
                of the nature of the experiment. Rather, the Judges concur with
                Professor Tucker, who testifies that this principle is inapplicable
                where, as here, ``we're interested in actually measuring what happens
                when people receive and know about receiving a degraded service.'' 8/
                17/20 Tr. 2281 (Tucker).
                 Several SoundExchange witnesses testify that services in
                competition with Pandora (if it was the service blacking-out a label)
                would have strong economic incentives to disseminate and exploit this
                information by: (1) Publicizing Pandora's shrunken repertoire; (2)
                emphasizing their own more complete repertoires; (3) targeting existing
                Pandora users via advertising campaigns; (4) offering promotional
                prices in conjunction with an emphasis on the new gap in repertoires,
                to encourage switching away from Pandora; and (5) expanding their own
                offerings or changing their prices in response to the change offering
                environment. Tucker WRT ]] 48-49; Willig WRT ]] 23-24; Zauberman WRT ]]
                23-25, 30-32; Simonson WRT ]] 21-27, 30; 8/5/20 Tr. 570-74 (Willig).
                Moreover, SoundExchange notes that even Professor Shapiro concedes that
                Pandora's competitors would engage in such messaging if Pandora
                blacked-out a Major. 8/19/20 Tr. 2704-06 (Shapiro). Further, Professor
                Shapiro also concedes that ``there would very likely be external
                sources of information about this that users would receive.'' In an
                attempt to address this likely reality, he simply used the high
                statistical point estimate [REDACTED] as a proxy for the lost
                listening, even though he [REDACTED]'' 8/19/20 Tr. 2703 (Shapiro)
                (emphasis added). In fact, Professor Shapiro broadly acknowledges it is
                ``true'' that ``the experiments [are] imperfect in various respects . .
                . .'' Id. at 2710.
                 Despite its expert making these concessions regarding its own
                experiments, Pandora criticizes SoundExchange for not offering evidence
                beyond its witnesses' testimony regarding the likely industry responses
                to a Major's blackout. The Judges find this criticism is meritless and
                only underscores the inherent deficiencies in the LSEs. Pandora's
                argument is essentially that, although its model does not specify
                necessary elements of reality, the adverse party, SoundExchange, bore
                the burden of producing evidence of how that reality would affect
                noninteractive services in the real world.
                 Quite the contrary, Pandora, as the proponent of the LSE evidence,
                bears the burden of producing sufficient evidence to demonstrate the
                necessary realism of its experimental modeling.\288\ Economic
                experiments are models,\289\ and all economic models need to be
                analyzed through a ``realism filter.'' Dani Rodrik, Economics Rules at
                27 (2015) (noting that the ``critical assumptions'' of an economic
                model must be evaluated through a ``realism filter'' to determine
                whether more realistic assumptions ``would produce a substantive
                difference in the conclusion produced by the model''). Pandora's LSEs
                do not pass through such a ``realism filter.''
                ---------------------------------------------------------------------------
                 \288\ Pandora also casts doubt on whether any ``third party has
                any reliable method for reaching the vast majority of Pandora
                users.'' Services RPFFCL ] 860. Although this, too, is speculation,
                it is noteworthy in that Pandora is specifically making the general
                asymmetric information point the Judges made supra--arguing in
                essence that it has superior information that prevents third parties
                from providing customers of information regarding the service they
                are accessing. This argument hardly supports a finding that the LSEs
                reflect a real world market that would be effectively competitive.
                 \289\ See Uskali M[auml]ki, Models are Experiments, Experiments
                are Models, 12 J. Econ. Methodology 303, 306 (2005) (``experimental
                systems . . . are artificially designed and constructed substitute
                systems, controlled mini-worlds that are directly examined in order
                to indirectly generate information about the . . . world outside the
                laboratory--such as economic systems and behavior . . . . [S]uch
                experimental systems are . . . material models of aspects of the
                rest of the world.'') (emphasis added).
                ---------------------------------------------------------------------------
                 SoundExchange further asserts that the disclosure of the black-out
                would not be made only by Pandora's competitors. It notes that, in the
                real-world, beyond the confines of the experimental world, consumers
                would learn about a Major's blackout on a noninteractive service from a
                number of additional sources, specifically, by artists and managers
                whose sound recordings and musical works would be unavailable and by
                the record company that had been subject to the blackout. SoundExchange
                asserts that these persons and entities would have the economic
                incentive to disseminate information regarding the blackout, and how
                their sound recordings could otherwise be accessed. 8/5/20 Tr. 352-53,
                570-71 (Willig); 8/17/20 Tr. 2285 (Tucker). Other witness testimony
                explained that additional information channels--social media platforms,
                news media and personal networks of friends and family--would also be
                able to inform listeners to a noninteractive service that the
                repertoire of songs to which they have access had been reduced. Tucker
                WRT ]] 19-27; Willig WRT ] 24; Zauberman WRT ]] 25-33; Simonson WRT ]]
                21-30.
                 In response, Pandora again chastises SoundExchange for offering
                only speculation regarding the anticipated response by noninteractive
                listeners upon learning of the blacking out of a Major record company
                from economically motivated industry competitors and stakeholders.
                Pandora further criticizes SoundExchange's witnesses for relying on
                anecdotes pertaining to the reactions of listeners to on demand
                services upon learning that they had lost access to identifiable music
                from a particular Major. As noted above, the Judges agree with Pandora
                that the reactions by noninteractive listeners could be less intense,
                given that they have no expectation of hearing a particular song. But
                again, the market for noninteractive music also involves the promotion
                of access to a large repertoire of music that can be accessed by the
                curators (algorithmic or human) of that repository. A shrinking of that
                repertoire clearly would constitute important relevant information for
                a listener in choosing to remain with, or begin listening to, a
                noninteractive service. And once again, the burden of producing
                evidence regarding the importance, vel non, of such information is
                properly borne by Pandora, as the proponent of the experimental
                evidence, so that its model is sufficiently realistic and useful when
                proffered to set statutory rates with real world impact. Finally, as
                noted supra
                [[Page 59543]]
                regarding the response by Pandora's competitors, Pandora's assertion
                that its experiment could not model third-party dissemination of true
                information and listener reaction thereto is actually a self-criticism
                by Pandora of the usefulness of its experiment, rather than an
                appropriate critique of the SoundExchange witnesses whose testimony
                revealed the insufficiency of the experiment's design. That is, if the
                LSEs could not possibly have been designed to demonstrate real-world
                effects, that evidence is lacking in probative value, and Pandora
                cannot escape that finding by attempting to lay off on its adversary a
                burden of producing contrary evidence.\290\
                ---------------------------------------------------------------------------
                 \290\ Pandora also emphasizes that [REDACTED]. However, the
                record reflects no basis for the Judges to apply the circumstances
                surrounding the launching of a new form of music distribution to the
                overall noninteractive market. Similarly, the Judges give little
                weight to SoundExchange's reliance on the specific example of
                [REDACTED]. See SX PFFCL ] 862; Services RPFFCL ] 862.
                ---------------------------------------------------------------------------
                 Another defect in the LSEs alleged by SoundExchange is that Pandora
                did not prevent listeners in the treatment group from listening to
                songs via Pandora's ``Premium Access'' feature, which allows ad-
                supported users to access on-demand functionality for a limited time in
                exchange for viewing additional video advertisements. Reiley WDT ] 15;
                Phillips WDT ]] 25-26. Pandora entices ad-supported users with repeated
                prompts and an offer to access bespoke songs if an ad-supported user
                ``opt[s] into a Premium Access Session.'' 8/31/30 Tr. 4645-46, 4632-33
                (Phillips).
                 According to SoundExchange, Pandora's decision not to suppress
                content when listeners in a treatment group were using ``Premium
                Access'' had the effect of masking the label blackouts, logically
                leading listeners in the treatment groups to believe that the
                repertoire of the blacked-out label was still available to them. Reiley
                WDT ] 15; Phillips WDT ]] 25-26; Tucker WRT ] 38; 8/17/20 Tr. 2319-20
                (Tucker); 8/31/30 Tr. 4645-46 (Phillips). Moreover, SoundExchange
                maintains that this disguise effect existed regardless of whether ad-
                supported listeners ultimately opted into Premium Access sessions,
                because the offer suggested the accessibility of all repertoires,
                including those of the blacked-out record company. Tucker WRT ]] 37-38.
                 Pandora acknowledges that the non-suppression of the blacked-out
                record company's repertoire on ``Premium Access'' was not an error or
                oversight, but rather intentional. Services RPFFCL ]] 870, 872. It also
                concedes that listeners in the treatment groups heard a ``small
                number'' of tracks from the otherwise blacked-out record company. SX
                PFFCL ] 874. Pandora further asserts that SoundExchange has proffered
                no evidence that such Premium Access was intended to, or in fact did,
                ``disguise'' the absence of a blacked-out repertoire, because such
                limited access would not be confused with access on Pandora's
                noninteractive service. Services RPFFCL ] 873. In sum, Pandora, while
                acknowledging that the LSEs therefore did not generate ``perfect
                suppression,'' notes that [REDACTED]% of the blacked-out record
                companies' recordings were in fact suppressed. Services RPFFCL ] 875
                (and citations therein).
                 The Judges find SoundExchange's criticism of the LSEs in this
                regard well-taken. If listeners heard otherwise blacked-out songs after
                accessing Pandora's ad-supported service, there is no persuasive
                evidence that they would recall, going forward, whether that the songs
                or artists they heard--which included recordings that they selected--
                had been accessed via the noninteractive curation process or via the
                Premium Access feature on that otherwise noninteractive service.
                Rather, Pandora asks the Judges simply to assume that listeners would
                be so attentive as to parse and recall the specific Pandora services
                through which they heard certain recordings. There is simply no reason
                to make such a counterintuitive assumption. Further, because a
                noninteractive service offers a listener the potential to hear music
                from a large repertoire, when a listener hears a sound recording from a
                particular favored artist, the listener has no reason to conclude that
                such recordings are in fact unavailable via the noninteractive service.
                That is, it seems at least equally reasonable to assume that a listener
                would expect to be able to access songs it hears on a service,
                regardless of the precise tier on which the service provided the song
                to the listener--at least without some further sufficient evidence to
                the contrary. Once again, Pandora bears the burden of producing
                sufficient evidence in this regard, and no such evidence is in the
                record.
                 Additionally, Pandora's own experience in conducting experiments
                should have put it on notice that the periodic playing of songs that
                are otherwise suppressed is sufficient to disguise the suppression. In
                its steering experiments relied upon by the Judges in Web IV, Pandora
                explained that by decreasing the frequency of the plays of songs from
                high-royalty record companies, without completely eliminating plays of
                those songs, Pandora could reduce its royalty costs without degrading
                the listener's perception of the repertoire of the service. Here too,
                the playing of otherwise blacked-out record company songs accessed via
                the noninteractive service, in the Premium Access promotional space,
                potentially allowed the listener to assume no such degradation. And
                importantly, Pandora does not provide any reason why it did not turn
                off the Premium Access feature for listeners selected for the LSEs,
                which would have mooted this concern.\291\
                ---------------------------------------------------------------------------
                 \291\ Turning off the Premium Access feature apparently would
                have represented a degrading of the ad-supported service that
                listeners might notice, interfered with Pandora's attempt to market
                its premium product to these ad-supported listeners and perhaps even
                violated its agreements with its licensors (Pandora does not say).
                But Pandora's desire to maintain the Premium Access feature for the
                treatment groups underscores its inability (or unwillingness) to
                construct a sufficiently probative experiment given the nature of
                the ad-supported service.
                ---------------------------------------------------------------------------
                 SoundExchange notes that in light of the foregoing deficiencies in
                the LSEs, even Dr. Reiley and Professor Shapiro make a consequential
                admission: They simply do not know how ad-supported listeners would
                have reacted if they were made aware of the label blackouts. See 9/1/20
                Tr. 4928 (Reiley) (``[I]f we imagine that listeners were informed of
                [the missing content], then I don't know what impact that would have on
                listening.''); Shapiro WDT at 21 (``LSEs ``do not fully capture what
                would happen in the real world in the event of a blackout resulting
                from one of [the] record companies withholding its repertoire from
                Pandora . . . . [L]isteners were presumably not aware of the blackout,
                and they might react more strongly if they were aware.'').
                 SoundExchange further notes that, although Pandora's goal was to
                achieve 100% label suppression in the treatment group (aside from
                allowing Premium Access to plays of suppressed labels), it failed even
                in that endeavor, for several reasons. First, SoundExchange identifies
                what it describes as a ``technical error,'' whereby the suppression was
                turned off for a period of time over several days--June 13-16 and 26--
                during the treatment period because of various software and system
                upgrades. Reiley WDT ] 31; Reiley 9/1/20 Tr. 4956-58 (Reiley). For
                Pandora's 89-day experiment, this five-day period represents
                approximately 6% of the entire experimental period during which the
                suppression was partially interrupted. The Judges find that this
                technical error in the experiment, standing alone, would not invalidate
                the LSEs, but in combination with the other defects, serves to
                eliminate further any
                [[Page 59544]]
                weight the Judges could place on the LSEs.
                 Next, SoundExchange points out that Pandora continued to provide a
                number of ``miscellaneous provider tracks '' \292\ to the treatment
                group, including recordings from the suppressed labels, again causing
                the suppression level to be reduced. Reiley WDT ] 28; Reiley WRT ]] 21-
                23; 8/17/20 Tr. 2321-2322 (Tucker). More particularly, Professor Tucker
                testified that approximately [REDACTED]% of users in the major label
                treatment groups were exposed to at least one ``miscellaneous
                provider'' track during the LSEs. See Tucker WRT app. 1 (Rows 13-14);
                8/17/20 Tr. 2322 (Tucker).
                ---------------------------------------------------------------------------
                 \292\ ``Miscellaneous provider tracks'' are recordings that have
                not yet been identified as covered by Pandora's current direct
                license agreements but are nonetheless played by Pandora ``because
                of the long history of user data associated with those tracks''
                (i.e., they are popular tracks). Reiley WDT ] 28.
                ---------------------------------------------------------------------------
                 [REDACTED] Dr. Reiley's understanding that few spins of these
                ``miscellaneous provider tracks'' constituted plays from the suppressed
                labels. Reiley WDT ] 30; Reiley WRT ] 23 (noting that his team tested a
                sample of miscellaneous provider tracks and determined that only 10-15%
                of them (i.e., 10-15% of 6% of total plays) were from the suppressed
                label); 9/1/20 Tr. 4921-24 (Reiley) (``Most of [the miscellaneous
                provider tracks] are going to be tracks that belong to other owners,
                since [REDACTED]).
                 With regard to Professor Tucker's testimony, Pandora notes that she
                conceded that the fact that approximately [REDACTED]% of users heard a
                miscellaneous provider track during the experimental period does not
                mean that they heard a suppressed label track. See 8/18/20 Tr. 2403
                (Tucker). Also, Pandora points out that the [REDACTED]% figure reported
                here by SoundExchange ([REDACTED]% to be precise) includes
                miscellaneous provider tracks played during Premium Access sessions.
                See Tucker WRT app. 1 at lines 13-14. As explained supra, Premium
                Access sessions had been intentionally excluded from the LSEs.
                 With regard to the number of potential miscellaneous provider
                tracks to which a listener in the treatment group may have been
                exposed, the Judges agree that it is likely that such exposure was
                relatively low. However, even this likely small effect, when combined
                with the other deficiencies in the LSEs, renders the experimental
                results less than conclusive. Moreover, the fact that many of these
                miscellaneous provider tracks may have been provided within the Premium
                Access feature does not mitigate the imperfection. As stated supra,
                Pandora has not offered a sufficient explanation as to why ad-supported
                listeners would accurately parse the difference between songs played as
                ad-supported or as Premium Access songs accessed via the ad-supported
                service, in order to be cognizant of the loss of certain songs on the
                ad-supported tier alone. Further, because these ``miscellaneous
                provider tracks'' are apparently relatively popular,\293\ they may have
                an outsized influence on a listener's satisfaction with the ad-
                supported service compared to less popular songs, and thus a relatively
                greater impact on the accuracy of the experiment.
                ---------------------------------------------------------------------------
                 \293\ See supra note 292.
                ---------------------------------------------------------------------------
                 Another issue raised by SoundExchange is the LSEs' handling of ad-
                supported users who upgraded to Pandora Plus or Pandora Premium
                subscription tiers during the experiment and thus did not receive the
                suppression treatment during the entire experimental period. Despite
                these upgradings, Pandora continued to analyze these upgraded listeners
                as part of the treatment group. See Reiley WDT ] 32 (``[A]lthough
                listeners who upgraded to Plus or Premium no longer received treatment
                after subscribing, I have not excluded those listeners or their
                listening metrics from the analysis . . . . .''); see also Reiley WRT ]
                19. More particularly, the experimental data showed that [REDACTED]% of
                ad-supported users in the [REDACTED] treatment group and [REDACTED]% in
                the [REDACTED] treatment group upgraded to a subscription tier during
                the LSEs. Tucker WRT app. 1; Reiley WDT ] 32. Professor Tucker
                explained that this upgrading has the potential of masking the shift by
                ad-supported users in the ad-supported service. 8/17/20 Tr. 2318
                (Tucker).
                 Pandora does not dispute the accuracy of the data as presented by
                Professor Tucker. Rather, Dr. Reiley states that he did not exclude
                these listeners in part ``because they did receive at least partial
                treatment prior to the upgrade . . . .'' Reiley WRT ] 19. Although that
                is not inherently unreasonable, there is also merit in Professor
                Tucker's assertion. The upgrading individuals may have abandoned the
                ad-supported service (via their upgrading) because of the label
                suppression, which would have justified either the elimination of those
                upgraders from the experiment, or perhaps counting them as having
                abandoned the ad-supported service because of the suppression.\294\
                ---------------------------------------------------------------------------
                 \294\ Professor Reiley responded to this criticism, but his
                testimony in that regard is unclear. However, he did report on the
                minimal level of exposure these participants received of the
                suppressed labels after they had upgraded. Reiley WRT ] 19.
                ---------------------------------------------------------------------------
                 Next, SoundExchange avers that the LSEs cannot estimate how
                consumers would react over a time period longer than the LSEs, such as
                the five-year rate-setting period. See Tucker WRT] 77 (``Consumer
                learning can lead to substantial difference in the measured effect of a
                treatment over time''); 8/17/20 Tr. 2323-25 (Tucker) (``[C]ertainly the
                substance of these critiques does not change when you look at a longer
                time period.).
                 In response, Pandora relies on the testimony of Professor Shapiro
                and Dr. Reiley, in which they extrapolate to the LSEs longer-term
                effects from other experiments that had measured the longer-term impact
                of ad-loads on listening and the impact of steering, respectively.
                Reiley WDT ] 36; Reiley WRT ] 27. More particularly, Dr. Reiley and
                Professor Shapiro found that, by this extrapolation, the three-month
                LSEs should be adjusted by a factor of three, increasing the negative
                impact associated with a label blackout (and finding that the
                adjustment factor should equal two for the six-months of data). Shapiro
                WDT at 21, 24-25, tbl.3; 8/19/20 Tr. 2701 (Shapiro).
                 SoundExchange challenges as ad hoc Pandora's reliance on these
                unrelated experiments. It argues that neither Dr. Reiley nor Professor
                Shapiro provides ``legitimate support for why this relationship, which
                was obtained from a different experiment involving a different
                treatment and a different experimental design, is applicable here.''
                Tucker WRT ] 93; 8/5/20 Tr. 583-84 (Willig). Going more deeply,
                Professor Willig opined that ``there is really no particular reason to
                believe, from a logical basis or an economic basis, that the three
                times or the two times is an accurate correction.'' 8/5/20 Tr. 583
                (Willig). Multiple SoundExchange witnesses further explained that these
                other two experiments are simply too unlike the LSEs to provide useful
                information. Tucker WRT ]] 76-83; Zauberman WRT ]] 40-45, 53-56;
                Simonson WRT ]] 41-45; Willig WRT ] 26.
                 Going even further, Professor Willig distinguished the ad-load
                experiment from the LSEs:
                 [A]d load is a different sort of a degradation of the service
                from the point of view of the listeners than a narrowing of the
                repertoire of the music that's played, and the
                [[Page 59545]]
                ability of a listener to discern that the ad load has increased is
                going to be relatively obvious. And whether or not that's the case
                for the missing music is somewhat less certain . . . . And so the
                applicability of the information from the ad loads study to the LSEs
                is really questionable. It is really rather speculative.
                8/5/20 Tr. 584 (Willig). Finally, with regard to the ad load experiment
                comparison, SoundExchange notes that Dr. Reiley acknowledged the
                absence of any record evidence to support what is essentially nothing
                more than his assumption of a correlation between the effects of ad
                load and label suppression. 9/1/20 Tr. 4970 (Reiley).
                 Regarding the other purportedly comparative experiment--the
                steering experiments conducted by Pandora's Dr. Stephan McBride--
                SoundExchange's witnesses identified an important dissimilarity with
                the LSEs: The McBride steering experiments measured the effects of
                steering only up to a 30% level. See 9/1/20 Tr. 4925, 4990 (Reiley).
                Nonetheless, Dr. Reiley simply assumed that he could extrapolate from
                the results of a steering experiment in order to generate long-term
                effects from a [REDACTED]% suppression of a label. Id. at 4925
                (Reiley).
                 Finally, SoundExchange again relies on the testimony of Professor
                Reiley himself to demonstrate the arbitrariness of his decision to
                multiply the three-month results by three, and the six-month results by
                two. Specifically, Dr. Reiley acknowledged that ``it's impossible to
                know exactly what would happen without running the experiment for a . .
                . much longer period of time,'' and that his comparison to the ad-load
                experiment was a ``best guess at what we think the long-run effects are
                likely to be.'' 9/1/20 Tr. 4910-11 (Reiley).
                 In rebuttal to these criticisms, Pandora relies first on Dr.
                Reiley's testimony that he had the benefit of having been involved in
                Pandora's ad-load experiments, but he acknowledged that Pandora had
                engaged in few other long-term experiments. Reiley WDT ]] 27-28; 9/1/20
                Tr. 4915-16 (Reiley). Based on that experience, he observed a decline
                in listening hours over approximately the first year of the ad-load
                experiments that was linear in nature, which he testified could render
                reasonable and justifiable Professor Shapiro's decision to double the
                effects of the six-month LSE experiment. Reiley WDT ] 28; 8/19/20 Tr.
                2701 (Shapiro).
                 Pandora nonetheless concedes that its ad-load experiment was not
                perfectly correlated with the LSEs with regard to long-term effects.
                Attempting to turn the tables on SoundExchange, Pandora and Dr. Reiley
                chastise SoundExchange (yet again) for not presenting any contrary
                evidence. 9/1/20 Tr. 4907-09 (Reiley).
                 In similar fashion, Pandora relies on Dr. Reiley's conclusion that
                the LSEs were also consistent with longer-run extrapolations of Dr.
                McBride's steering experiments. However, Dr. Reiley acknowledges the
                wider confidence intervals in the LSEs' results compared to the
                steering experiments. 9/1/20 Tr. 4925, 4990 (Reiley). And, as with the
                alleged correlation between the LSEs and the ad-load experiments,
                Pandora points to the absence of any contrary evidence from
                SoundExchange to refute this alleged correlation. Services RPFFCL ]
                961.
                 The Judges agree with SoundExchange that Pandora has failed to show
                the long term effects of a sustained blackout of a Major or other label
                by Pandora. There is insufficient evidence to support a finding that
                the results of two unrelated experiments--testing the impact of
                changing ad-loads and the steering of plays--can be mapped onto the
                LSEs. The fact that these other experiments may be the only available
                potential comparators does not mean that they are useful, or even that
                they are the best comparators.\295\
                ---------------------------------------------------------------------------
                 \295\ Indeed, given Dr. Reiley's acknowledgement that Pandora
                has engaged in few longer-term experiments, and did not identify any
                other such experiments, it is equally true that the ad-load and
                steering experiments may be the ``worst'' comparators available. In
                any event, the concept of ``better' or ``worse'' comparators is
                meaningless--the experiments are simply inapposite and cannot
                support Pandora's attempt to establish credible long-term effects
                arising from the LSEs.
                ---------------------------------------------------------------------------
                 SoundExchange also focuses on an aberrational statistical output
                from the LSEs. The three-month results showed a [REDACTED]--i.e., this
                aspect of the LSEs found that listening [REDACTED]. Reiley WDT ] 22.
                Similarly, after six months, the [REDACTED] treatment group showed
                [REDACTED]. Reiley WRT ]] 12-14 & Fig. 1. Considering these results,
                Professor Willig found it implausible that ``users would listen to
                Pandora more if it lost access to [REDACTED].'' Willig WRT ]] 28-29.
                 According to Dr. Reiley, these results are not statistically
                significant from a zero effect, and therefore should not be considered
                anomalous. Reiley WDT ] 22 & Fig. 2. Nonetheless, Professor Shapiro
                discarded the [REDACTED] data, replacing it with the three-month
                [REDACTED] loss rate, which he noted generated an even greater
                opportunity cost result. 8/19/20 Tr. 2699 (Shapiro); Shapiro WDT at 22,
                27; tbl.4 at 26.
                 Professor Willig explained why, in his opinion, Professor Shapiro's
                substitution of [REDACTED] for [REDACTED] data is inappropriate:
                 [I]t is completely illogical to reject the results of an LSE
                applied to one [REDACTED], while simultaneously claiming the results
                from the same experiment applied to a [REDACTED] are not only
                reliable, but can be extrapolated to the record company for which
                the experiment was deemed to be unreliable. None of the LSEs produce
                results that are statistically different from zero, and as such,
                Professor Shapiro's approach amounts to drawing on the random
                ``noise'' from one LSE and asserting that such noise constitutes a
                better estimate of blackout effects than the random noise from his
                other LSEs. This is completely inappropriate and cannot form the
                basis for reliable results.
                Willig WRT ] 28.
                 The Judges agree with Professor Willig's criticism. Although it was
                ``conservative'' for Professor Shapiro to plug in the [REDACTED] data
                for the [REDACTED]data, that act of purported ``fairness'' does not
                make the LSEs reliable. Indeed, because the LSEs also did not include a
                treatment group blacking-out [REDACTED]'s repertoire (for reasons that
                Pandora did not explain), Pandora is left with the data generated from
                the [REDACTED] results to serve as a proxy for the [REDACTED], when the
                experiment was designed to include [REDACTED]. Although there can be
                circumstances when information gleaned from only one Major is
                sufficient, an expert witness cannot simply discard data sources that
                he believed, ex ante, to be necessary, but which, ex post, cast doubt
                on the usefulness of the experiment, in order to paper-over anomalous
                results.\296\
                ---------------------------------------------------------------------------
                 \296\ Thus, the Judges disagree with Pandora that Professor
                Shapiro's discarding of the [REDACTED] data--leaving the LSEs with
                lost listening data from but one Major ([REDACTED]--is similar to
                the Judge's reliance of industry data from fewer than all three
                Majors. See Services RPFFCL ] 953. Here, Dr. Reiley and Professor
                Shapiro constructed an experimental world and established its
                parameters. When those parameters produced an anomalous result, they
                discarded it, thereby revising their own experiment. That treatment
                by a party of data in conflict with the position it advocates
                resembles a cherry-picking of data, and is quite distinguishable
                from the Judge's reliance on real world data from less than all
                industry participants as probative of the workings of a market.
                ---------------------------------------------------------------------------
                 In fact, SoundExchange takes Professor Shapiro to task for making
                other adjustments to the LSE results that it claims are equally ad hoc
                in nature. First, it criticizes Professor Shapiro for attempting to
                mitigate the real world fall-out (through third-party disclosure of the
                blackout, discussed supra) that would likely ensue upon a blackout of a
                Major by Pandora by simply relying on the upper end of the 95%
                confidence interval from the LSEs. Professor Willig notes that the
                upper end of these confidence intervals would be as tainted by the
                experiments' inability to measure the impact of these real world
                effects as
                [[Page 59546]]
                the point estimates that Professor Shapiro decided to ignore.
                Alternately stated, the confidence intervals, like the point estimates,
                are simply unrelated to the real world dissemination of information
                regarding the blackouts, and thus cannot be invoked as a proxy for the
                effect of such real world events. See 8/5/20 Tr. 581 (Willig); see also
                8/17/20 Tr. 2335 (Tucker) (finding this adjustment to be ``incredibly
                ad hoc and unreliable'' and ``anything but conservative''); Tucker WRT
                ] 92 (finding these adjustments ``untethered to any valid procedure to
                produce reliable field experiment estimates''). Moreover, SoundExchange
                asserts that Professor Shapiro did not present a logical, mathematical
                or statistical justification for this adjustment. Rather, he instead
                multiplied the effect of the treatment four times over, a multiple that
                he testified--in decidedly imprecise language--``[REDACTED]'' 8/19/20
                Tr. 2704-27 (Shapiro).
                 In response, Pandora claims that Professor Shapiro never claimed
                there was a correlation between the impact of the non-disclosure of the
                label suppression and the parameters of the confidence interval.
                Services RPFFCL ] 955. But to the Judges, that response merely
                underscores SoundExchange's broader criticism--no aspect of the data
                arising from the LSEs addresses this non-disclosure problem.
                 Accordingly, the Judges are in agreement with the criticism
                levelled by SoundExchange. The mere fact that Professor Shapiro moved
                in the direction of greater listening loss by relying on the results at
                the upper end of the 95% confidence interval is undeniably uncorrelated
                with the real-world effects of third-party disclosure of the existence
                of the blackout of a label. As the record testimony and evidence
                discussed above demonstrates, Pandora proffered no evidence to counter
                the argument that such a blackout would likely lead to the cratering of
                Pandora's listener base, making even Professor Shapiro's quadruple
                adjustment meaningless.\297\
                ---------------------------------------------------------------------------
                 \297\ And, as noted elsewhere in this Determination, for the
                same reasons, the Judges find that the likely real-world
                disclosures--from multiple interested sources--of an interactive
                service's blacking-out of a Major would cause a rapid collapse of
                the interactive service as well ([REDACTED]).
                ---------------------------------------------------------------------------
                ii. Conclusion Regarding the LSEs and the Implication for Professor
                Shapiro's N-I-N Model
                 For all of the foregoing reasons, the Judges cannot rely on the
                LSEs to support Professor Shapiro's calculation of his input ``L'' in
                his N-I-N model), i.e., the percentage of those performances that would
                be lost to other forms of listening in the absence of a license from
                the record company. The failure (or inability) of the LSEs to address
                the effects of third-party motivated disclosure over the longer-term of
                the existence of the blackouts on Pandora's listenership, is alone a
                fatal defect in the LSEs. The other defects catalogued above constitute
                a further metaphorical ``death by a thousand cuts,'' further supporting
                the Judges' decision to put no weight on the results of the LSEs. The
                Judges are in agreement with Professor Willig's testimony that, after
                considering the foregoing issues, Professor Shapiro's parameter ``L''
                is flawed because it is based on unreliable data from the LSEs. Willig
                WRT ]] 22-27); 8/5/20 Tr. 351-53, 570-74 (Willig) (LSEs are
                ``absolutely not'' a reliable source of evidence for use in economic
                analysis).
                 Because a useful input ``L'' is a sine qua non of Professor
                Shapiro's opportunity cost calculation within his N-I-N Model, the
                Judges' decision to reject the calculation of that value (which was
                intended to show that any one Major is not a ``Must Have'') renders
                Professor Shapiro's N-I-N Model unusable.\298\
                ---------------------------------------------------------------------------
                 \298\ Accordingly, the relative merits and criticisms of the
                other aspects of Professor Shapiro's N-I-N Model are moot.
                ---------------------------------------------------------------------------
                3. Professor Shapiro's Myerson Value Model
                 In his rebuttal testimony, Professor Shapiro utilizes what he
                described as a ``Meyerson Value'' modeling, developed by the economist
                Roger Myerson, which Professor Shapiro claims is a superior to
                Professor Willig's ``Shapley Value'' approach as a form of analysis in
                this proceeding. More particularly, Professor Shapiro testifies that
                Myerson Value modeling is similar in nature to the Shapley Value, and
                in fact can generate values equal to those produced by Shapley Value
                modeling in certain circumstances. Here, however, Professor Shapiro
                maintains that the two values depart from one another. The reason for
                the different outcomes is that the Myerson Value is applicable when
                there are ``contract externalities,'' a complication that is not
                addressed in Shapley Value modeling. Shapiro WRT at 32. By ``contract
                externalities,'' Professor Shapiro is referring to a situation where,
                in the present context, any one notional licensing agreement reached by
                a Major record company with a noninteractive service would affect the
                agreements reached by that noninteractive service with the other two
                Majors. Shapiro WRT at 59.
                 Professor Shapiro opines that these ``contract externalities''
                would occur if the repertoire of each Major was not a ``Must Have'' for
                a noninteractive service.\299\ In this regard, he acknowledges that,
                for his Myerson Value approach to be relevant (as with his N-I-N model)
                the Judges would need to find that the Majors are not ``Must Have''
                licensors for noninteractive services. See 8/19/20 Tr. 2755-56
                (Shapiro) (acknowledging that the differences between the Shapley Value
                modeling results and the Myerson Value modeling results would be
                relatively small if the Majors are indeed ``Must Haves'' for
                noninteractive services). Applying this model, Professor Shapiro
                generates an ad-supported rate of $0.00146 per play, and a subscription
                rate of $0.00155 per play. Shapiro WRT at 63.
                ---------------------------------------------------------------------------
                 \299\ See Shapiro WRT at 63-64. The external effect is that
                Major ``A'' must consider the possibility that agreements between
                Major ``B'' and/or ``C,'' on the one hand, and the noninteractive
                service, on the other, could result in Major ``A's'' inability to
                enter into a license agreement with that noninteractive service
                unless Major ``A'' reduced its royalty demand in order to avoid
                being the ``odd man out.'' But, each Major would be in the same
                position during negotiations, so each Major has the incentive to
                avoid this ``contract externality'' by proposing a lower rate than
                it would in the absence of this bargaining uncertainty.
                ---------------------------------------------------------------------------
                 The dispositive defect in Professor Shapiro's Myerson Value
                modeling is that it too requires the application of the results from
                the LSEs to demonstrate that no one Major is a ``Must Have,'' and that
                bi-lateral negotiations within the model would account for this
                situation. But, as noted above in the Judges' discussion of Professor
                Shapiro's N-I-N model, an approach that is dependent upon a finding
                that the Majors are not ``Must Haves'' for a noninteractive service is
                in conflict with the Judges' finding that such a ``Must Have''
                condition exists. Accordingly, the Judges decline to apply Professor
                Shapiro's Myerson Value modeling and results.
                D. Evaluation of NAB Proposal for a Separate Rate for Commercial
                Simulcasters
                 The NAB participated in this proceeding on behalf of commercial
                radio stations that simulcast their over-the-air broadcasts on the
                internet. In this proceeding, the Judges focus on the internet
                transmissions of these broadcasters.
                 The NAB argues that commercial simulcasting (simulcasting) is
                distinct from other forms of commercial statutory webcasting. Given the
                [[Page 59547]]
                purported differences, the NAB advocates for a separate (lower) rate
                for simulcasters than for other eligible nonsubscription transmissions
                by webcasters. The NAB maintains that simulcasting constitutes a
                distinct submarket in which buyers and sellers would be willing to
                agree to lower royalty rates than their counterparts in the commercial
                webcasting market. It proposes a statutory rate of $0.0008 per play for
                simulcasts and $0.0016 for other eligible nonsubscription
                transmissions. NAB PFFCL ] 10. The NAB's proposal defines a simulcast
                transmission as ``a public performance of a sound recording by means of
                the simultaneous or near-simultaneous retransmission, as part of an
                eligible nonsubscription transmission, of the same sound recording
                included in a `broadcast transmission,' as the term is defined in 17
                U.S.C. 114.'' NAB Proposed Rates and Terms at 8.
                 The NAB broadly contrasts simulcasting with custom radio services,
                which, it asserts, are standalone products, untethered to a
                corresponding radio broadcast. Leonard WDT ] 33. It indicates that
                custom radio provides a personalized experience that reflects a
                specific user's preferences. Leonard WDT ] 33; 8/18/20 Tr. 2430-31
                (Tucker); see also 8/13/20 Tr. 1819 (Orszag). The NAB adds that such
                services also permit more interactivity than simulcasts, such as
                seeding stations, skipping to another song, and thumbing up or down,
                all of which curate the listening experience. 8/24/20 Tr. 3427
                (Leonard); Leonard WDT ] 49; Leonard WRT ]] 41-47.
                 Dr. Leonard, whom the NAB engaged to analyze the appropriate
                statutory royalty for public performance rights for sound recordings
                for webcasting under the Section 114 license and to evaluate the NAB's
                proposal regarding that statutory royalty, set out three types of
                webcasting services subject to the Section 114 license: Simulcast,
                Custom Radio, and internet Radio. Leonard WRT ]] 32-35. His stated
                criteria for simulcasts tracks closely to the proposed regulatory
                definition offered by the NAB. Dr. Leonard characterized custom radio
                as a service that ``streams music to listeners over the internet
                without any simultaneous terrestrial broadcast. Unlike simulcasts,
                custom radio is a `one to one' stream, with a particular listener
                receiving an individualized stream reflecting his or her expressed
                preferences, subject to the limitations on `interactivity' imposed by
                the Section 114 license, as interpreted by U.S. courts.'' Leonard WRT ]
                33.
                 He characterized internet radio as ``a `native digital' service
                [that] does not involve the retransmission of a terrestrial
                broadcast.'' Leonard WRT ] 34. He went on to state that internet radio
                is more similar to custom radio than to simulcast and that, while
                internet radio stations do not vary the music played based on an
                individual listener's preferences, such services nonetheless often
                feature greater user functionality than simulcast, such as allowing
                listeners to pause and skip songs. He also maintained that internet
                radio services do not feature much non-music or localized content, nor
                are they subject to FCC regulation or public interest requirements. He
                also asserted that internet radio services are not a significant part
                of the streaming market and noted that his report does not treat
                internet radio services as distinct from custom radio services. Leonard
                WRT ] 35.
                 As the proponent of a rate structure that treats simulcasters as a
                separate class of webcasters, the NAB bears the burden of demonstrating
                not only that simulcasting differs from other forms of commercial
                webcasting, but also that it differs in ways that would cause willing
                buyers and willing sellers to agree to a lower royalty rate in the
                hypothetical market. Web IV, 81 FR at 26320. As discussed below, based
                on the record in the current proceeding, the Judges find that the NAB
                has not satisfied that burden. Therefore, the Judges do not adopt a
                different rate structure for simulcasters than that which applies to
                other commercial webcasters.
                1. History
                 No prior rate determination has treated simulcasters differently
                from other webcasters. In Web I, the Librarian, at the recommendation
                of the Register, rejected a CARP report that set a separate rate for
                retransmission of radio broadcasts by a third-party distributor and
                adopted a single rate for commercial webcasters. 67 FR at 45252.\300\
                ---------------------------------------------------------------------------
                 \300\ The Librarian also rejected arguments that broadcasters
                who stream their own radio broadcasts should be treated differently
                from third parties who stream the same broadcasts. Id. at 45254.
                ---------------------------------------------------------------------------
                 In Web II, the Judges rejected broadcasters' arguments that rates
                for simulcasting should be different from (and lower than) royalty
                rates for other commercial webcasters. 72 FR 24084, 24095 (May 1,
                2007), aff'd in relevant part sub nom. Intercollegiate Broad. Sys. v.
                Copyright Royalty Bd., 571 F.3d 69 (D.C. Cir. 2009) (Web II).
                 The NAB reached a WSA settlement with SoundExchange prior to the
                conclusion of Web III covering the remainder of the Web II rate period
                and all of the Web III rate period. At the request of the NAB and
                SoundExchange, the Judges adopted the settlement as statutory rates and
                terms binding all simulcasting broadcasters. See 75 FR 16377 (April 1,
                2010). Consequently, simulcasters did not participate in the Web III
                proceeding, in which the Judges determined rates for ``all other
                commercial webcasters.'' Although the Judges did not determine separate
                rates for simulcasters in Web III, because the Judges adopted the NAB
                settlement, simulcasting broadcasters paid different rates than
                webcasters that operated under the rates determined by the Judges.
                 In Web IV, the Judges also rejected broadcasters' arguments that
                rates for simulcasting should be different from (and lower than)
                royalty rates for other commercial webcasters. 81 FR at 26323.
                2. Proposed Benchmark Agreements
                 In the current proceeding, the NAB offered proposed benchmark
                agreements in support of its rate proposal, supplemented by an
                alternative economic analysis. The NAB offered different types of
                voluntary agreements in support of its proposal: Direct license
                agreements between sound recording rights owners and webcaster iHeart
                and license agreements for musical compositions between performing
                rights organizations and webcasters Pandora and iHeart.
                a. The iHeart/Indie Agreements
                 The NAB sets forth as proposed benchmarks a set of 16 renewed
                direct license agreements between iHeart and independent (``indie'')
                record labels that include rights for simulcasting and other
                webcasting. Exs. 2013-2026, 2081-2082 (the iHeart/Indie Agreements).
                The NAB's economist, Dr. Leonard, accurately indicated that the terms
                and conditions of iHeart's direct deals with indies are generally
                consistent across all of these agreements. Leonard WDT ] 63. The NAB
                argues that these agreements provide insight into how willing buyers
                and willing sellers license simulcast and custom radio streams on
                different terms. 8/24/20 Tr. 3355 (Leonard); Leonard WDT ] 65; Trial
                Ex. 2154 ] 14 (WDT of James Russell Williams III (``Tres Williams''))
                (Williams WDT).
                 The NAB maintains that the iHeart/Indie Agreements are the only
                willing buyer/willing seller agreements offered by any participant that
                are between statutory services and sound recording companies for the
                same rights at issue under the section 114/112 licenses. 8/24/20 Tr.
                3375-76 (Leonard); see also id. at 3355; Leonard WDT ] 65. Dr.
                [[Page 59548]]
                Leonard focused his analysis on the renewal agreements because he
                concluded that these agreements indicate that the effective per-play
                rates under those agreements were acceptable to both parties and that
                the iHeart-Indie benchmarks are the best evidence of a willing buyer/
                willing seller transaction at the effective per-play rates that
                predated the renewal. Leonard WRT ] 50; Leonard WDT ] 65; 8/24/20 Tr.
                3357-58.
                 The NAB argues that the iHeart/Indie Agreements reflect licensors'
                views of the relative promotional and substitutional considerations
                associated with licensing iHeart's simulcast and custom radio services
                and generate average rates below the statutory rate. Leonard WDT ] 71,
                75. In the NAB's view, the indie labels' willingness to accept below-
                statutory rates was motivated by steering, including both the ability
                to garner more plays of the indies' catalogs and special relationships
                with top programmers at iHeart. 8/31/20 Tr. 4538-39; 4542-43
                (Williams).
                 SoundExchange asserts that the iHeart/Indie Agreements are not a
                reliable or appropriate benchmark. It points out Dr. Leonard's
                acknowledgement that the iHeart/Indie Agreements account for only
                [REDACTED]%, [REDACTED]%, and [REDACTED]% of iHeart's total simulcast,
                custom radio, and webcast performances, respectively. Leonard WDT ] 72
                & app. A4. SoundExchange maintains that the scope of these licenses
                makes them insufficiently representative to serve as persuasive
                benchmarks, citing the Judges' decision, in SDARS III, not to use as a
                benchmark a far larger number of direct licenses with indie record
                labels, 500 direct licenses representing 6.4% of the tracks on Sirius
                XM playlists because they were not representative of the market. SDARS
                III, 83 FR at 65249.
                 SoundExchange also criticizes the persuasiveness of the iHeart/
                Indie Agreements because the agreements [REDACTED] 8/24/20 Tr. 3492
                (Leonard). SoundExchange adds that all but two of the agreements
                [REDACTED]. Orszag WRT ] 59. SoundExchange also maintains that under
                the iHeart/Indie Agreements, iHeart had little incentive to steer plays
                toward the contracting indie labels' content. It cites to Dr. Leonard's
                acknowledgment that broadcasters' choice of content is driven not by
                simulcasting but by terrestrial radio choices and the considerations
                there. 8/24/10 Tr. 3503 (Leonard).\301\ SoundExchange adds that
                [REDACTED]. SX PFFCL ]] 1181-1182; Orszag WRT ] 59.
                ---------------------------------------------------------------------------
                 \301\ 17 U.S.C. 114(g)(2) requires that SoundExchange distribute
                50% of collected license fees to the copyright owner of a sound
                recording, 45% to recording artist or artists featured on such sound
                recording, and the remaining 5% to independent administrator that
                represents non featured musicians and vocalists who have performed
                on sound recordings.
                ---------------------------------------------------------------------------
                 SoundExchange asserts that the iHeart/Indie Agreements do not fully
                account for the economic value of simulcasting to the parties. It
                maintains that the indie labels that entered into the iHeart/Indie
                Agreements received several other benefits not available under the
                statutory license in exchange for accepting a lower royalty rate.
                Orszag WRT ] 62. It asserts that these motivating factors serve as key
                differentiators between direct license agreements and the statutory
                environment and that taking royalty rates from direct licenses at face
                value would distort the estimate of overall market rates. Orszag WRT ]
                68.
                 SoundExchange indicates that the labels entering into the iHeart/
                Indie Agreements were motivated by [REDACTED]. Orszag WRT ]] 65. The
                agreements include payments that are characterized [REDACTED]. See,
                e.g., Trial Ex. 2013 ]] 1(j), 1(g)(g), and 4(a)(i) The U.S. copyright
                law confers no exclusive right of public performance by means of
                terrestrial radio transmissions for sound recording copyright owners.
                Mr. Orszag [REDACTED] Orszag WRT ]] 66. Mr. Orszag argued that a label
                whose catalog performs better on terrestrial radio than it does on
                simulcasting or custom webcasting might expect [REDACTED]. Id. He added
                that several indie labels generally [REDACTED], or [REDACTED]. Orszag
                WRT ]] 66 n.139. Mr. Orszag also indicated that in addition to the
                financial benefits, this [REDACTED] served as an [REDACTED]. Id. ] 65;
                8/31/20 Tr. 4606-07 (Williams) (acknowledging that ``[REDACTED]'').
                 SoundExchange also argues that the labels entering into the iHeart/
                Indie Agreements direct license were motivated by royalties for pre-
                1972 catalog, something the labels were not otherwise entitled to prior
                to the passage of the Music Modernization Act in 2018. Orszag WRT ]]
                67.
                 SoundExchange notes that the iHeart/Indie Agreements enabled indie
                labels to both avoid deduction of SoundExchange's administrative fee
                and capture the full amount of royalties owed by iHeart, without any
                mandatory share of royalties under the iHeart/Indie Agreements going
                directly through SoundExchange to featured or non-featured performing
                artists, as would have been the case under the statutory license. 8/13/
                20 Tr. 1852-53 (Orszag); Orszag WRT ] 63. The NAB elicited testimony
                from Mr. Orszag indicating that he was aware of only one of the indie
                labels that agreed to the iHeart/Indie Agreements, [REDACTED], which
                primarily focuses on budget classical music, that [REDACTED]. 8/13/20
                Tr. 1853 (Orszag). Mr. Orszag indicated that one of the indie labels
                that agreed to the iHeart/Indie Agreements, [REDACTED], may still
                employ splits with certain artists, equal to or proximate to the 50/50
                split due to performing artists under the statutory license. However,
                he did not represent that he knew know all of [REDACTED]'s deals with
                its artists, or the share of royalties that artists may be due. 8/13/20
                Tr. 1855-57 (Orszag).\302\
                ---------------------------------------------------------------------------
                 \302\ The iHeart/Indie Agreements include substantially similar
                language indicating that the relevant label ``[REDACTED].''
                 All but one of the iHeart/Indie Agreements, the [REDACTED]
                Agreement, Trial Ex. 2027, went on to clarify that ``[REDACTED]''
                See, e.g., [REDACTED] Agreement, Trial Ex. 2013 ] 4b.
                ---------------------------------------------------------------------------
                b. The PRO Agreements
                 The NAB offers agreements licensing public performance rights in
                musical works to webcasters as a providing evidence to reinforce the
                conclusion that simulcast should receive a lower royalty rate than
                custom radio. Leonard WDT ] 83, 89. The NAB argues that agreements
                between performance rights organizations and webcasters indicate that
                simulcast and custom radio exist as distinct products subject to
                different rates in voluntary agreements. 8/24/20 Tr. 3389-91 (Leonard);
                Leonard WDT ] 81.
                 Dr. Leonard referenced a 2017 ASCAP Radio Station License Agreement
                with iHeart. He represented that the license includes coverage for
                simulcasts and certain non-simulcast webcasts but excludes coverage for
                custom radio webcasts that offers music programming customized for any
                specific user or enables a user to provide feedback to customize the
                music programming made available to such specific user. Leonard WDT ]]
                85-86. Dr. Leonard maintained that this ASCAP license is informative
                because: The radio stations licensees offering simulcast services are
                the same licensees at issue in this proceeding; the license covers
                analogous rights, for performance of musical compositions as compared
                to performance of sound recordings; the license covers simulcast and
                non-simulcast (non-custom) internet radio, [REDACTED]; the agreement is
                a transaction negotiated under the competitive protections of the ASCAP
                antitrust consent decree; and it functions as an industrywide
                agreement.
                [[Page 59549]]
                Leonard WDT ] 87. Dr. Leonard testified [REDACTED], so he compared the
                ASCAP license's percentage of revenue rate for simulcasts with an
                effective Pandora royalty, which he calculated as a percentage of
                revenue. Leonard WDT ] 88; 8/24/20 Tr. 3390 (Leonard). His analysis
                indicated that the ratio of the ASCAP royalty rate as a percentage of
                revenue for simulcast to the ASCAP royalty rate as a percentage of
                revenue for Pandora ranges from 38% to 48%. Leonard WDT ] 88.
                 Dr. Leonard represented that BMI has offered to the Radio Music
                License Committee \303\ a percentage of revenue royalty rate for
                terrestrial broadcasts simulcast and certain limited non-simulcast non-
                custom streaming. He maintained this is an indication that BMI treats
                simulcasting as equivalent to radio stations' terrestrial broadcasts.
                Leonard WDT ] 89. He also acknowledges that the RMLC did not request
                and BMI did not offer a rate for custom radio. Leonard WDT ] 90. Dr.
                Leonard also indicated that a group of radio stations represented by
                the RMLC entered into licenses with the PRO SESAC covering the period
                from January 1, 2016 to December 31, 2018 that provided a percentage of
                revenue royalty rate for terrestrial broadcasts and simulcast. Leonard
                WDT ] 91.
                ---------------------------------------------------------------------------
                 \303\ The Radio Music License Committee represents the interests
                of the commercial radio industry on music licensing matters.
                ---------------------------------------------------------------------------
                 The NAB also argues that litigation with ASCAP and BMI over the
                royalty rates it was required to pay to those PROs for its custom radio
                product indicates that custom radio services are not similarly situated
                to radio stations' product, and that the two services are not
                ``similarly situated'' under the ASCAP consent decree but are
                ``different types of services.'' SX PFFCL ]] 90-91; see In re Pandora
                Media, Inc., 6 F. Supp. at 320; BMI v. Pandora Media, Inc., 140 F.
                Supp. 3d 267, 270 (S.D.N.Y. 2015).
                 SoundExchange counters the NAB's arguments regarding the PRO
                agreements by asserting that it is not informative that custom
                webcasting is generally licensed separately and at a higher rate
                because licensees pay the PROs on a percentage of revenue basis. 8/24/
                20 Tr. 3534-35 (Leonard). SoundExchange notes that Dr. Leonard
                acknowledges that radio broadcasters typically play less music per hour
                than custom webcasters, and the percentage-of-revenue rates paid to the
                PROs by simulcasters would reasonably be lower than the rates paid to
                the PROs by custom webcasters. See, e.g., Leonard WDT ] 39 & app. C2-
                C18; see also 8/24/20 Tr. 3535-36 (Leonard); Orszag WRT ] 48.
                SoundExchange maintains that the different intensities of music use
                explain the different effective percentage of revenue rates in PRO
                agreements for simulcast and custom radio. Orszag WRT ]] 50-51.
                 SoundExchange adds that the NAB did not actually submit into the
                record any operative agreement between any PRO and any webcaster that
                covers custom radio and that NAB's claimed evidence about what custom
                radio pays is from unseen agreements between Pandora and two PROs is
                inadequate. SX PFFCL ]] 1096-97; 8/24/20 Tr. 3541, 3542 (Leonard).
                SoundExchange argues that Dr. Leonard does not know what the agreements
                may actually say and he cannot say whether the rates for custom
                webcasting reflect potential tradeoffs on other terms. SX PFFCL ]]
                1097-99. SoundExchange adds that Dr. Leonard admitted that he did not
                know if there were such tradeoffs or how they were negotiated because
                he had not actually seen the agreements. 8/24/20 Tr. 3542, 3551
                (Leonard).
                 SoundExchange then argues that the definitions regarding
                ``similarly situated'' licensees in the ASCAP and BMI consent decrees
                include factors that are distinct from the provisions of 17 U.S.C.
                114(f)(1)(B). SoundExchange maintains that the differences between the
                consent decrees and the statute explain why PROs treat custom radio
                differently from broadcast and simulcast. It notes that the ASCAP
                consent decree expressly identifies, ``the nature and frequency of
                musical performances'' as a factor to identify whether services are
                similarly situated, and states that similarly situated services ``use
                music in similar ways and with similar frequency.'' SX RPFFCL (to NAB)
                ] 102, citing United States v. ASCAP, No. 41-1395 (WCC), 2001 WL
                1589999, at *3 (S.D.N.Y. June 11, 2001).
                3. Conclusions Regarding Benchmark Evidence for Simulcasting as
                Distinct From Other Forms of Statutory Webcasting
                a. iHeart/Indie Agreements
                 Based on the entirety of the record, the Judges do not accept the
                iHeart/Indie Agreements as sufficiently probative of the relevant
                market to accept them as meaningful or persuasive benchmarks, or
                therefore as adequately persuasive to establish a separate rate for
                simulcasting. Importantly, these direct licenses cover only a small
                portion of the sound recordings performed by iHeart, and an even
                smaller portion of the entire market for simulcast, custom radio, and
                internet radio performances. The Judges also find that the record is
                insufficiently informative as to the effect of steering on the agreed
                upon royalty rates because none of them contain [REDACTED]. In
                addition, because U.S. copyright law confers no exclusive right of
                public performance by means of terrestrial radio transmissions for
                sound recording copyright owners, or prior to passage of the MMA a
                right to royalties for pre-1972 sound recordings, the Judges have
                misgivings regarding the extent to which the royalties under the
                agreements accurately reflect the myriad of motivations, and value
                received, for labels to enter into them. In sum, the characterization
                of part of the compensation in these agreements [REDACTED] is suspect,
                as it is not economically rational for a licensee to pay a royalty for
                an activity for which no license is required. The NAB has not sustained
                its burden to provide an adequate basis in evidence or economic theory
                that would permit the Judges to allocate this compensation
                accurately.\304\
                ---------------------------------------------------------------------------
                 \304\ While Dr. Leonard's analysis of the iHeart/Indie
                Agreements offered adjustments that considered allocating various
                levels of revenue [REDACTED]. The Judges would need further evidence
                to determine whether and the extent to which, as an economic matter,
                [REDACTED] should be treated as compensation for simulcasting, in
                contrast to custom webcasting.
                ---------------------------------------------------------------------------
                 The Judges find that SoundExchange offered compelling indications
                that the indie labels that entered into the iHeart/Indie Agreements
                were motivated by non-monetary benefits that undermine the application
                of the agreements as reliable benchmarks. The Judges find that the NAB
                did not adequately counter or account for these concerns.
                 SoundExchange also raised legitimate concerns that several indie
                labels generally [REDACTED], or [REDACTED], on the [REDACTED] of the
                direct licenses across multiple monthly royalty statements, thus
                skewing the motivations of the Indie labels, especially in the context
                of payments for unrecognized rights under U.S. copyright law. The NAB
                did not present the Judges with adequate evidence to address or account
                for these legitimate concerns.
                 The Judges observe, and find concern with the fact that while the
                NAB's proposal seeks to contrast simulcasting with all other statutory
                webcasting, the NAB chose to more consistently draw a contrast between
                simulcasting and custom radio services, by treating internet radio,
                without adequate justification, as indistinct from custom radio. The
                Judges find that this conflating of internet radio and custom
                [[Page 59550]]
                radio services was not adequately supported by the record evidence, and
                that therefore the proper comparison between simulcasting and all other
                statutory commercial webcasting was insufficiently established.\305\
                ---------------------------------------------------------------------------
                 \305\ The Judges also observe, but do not necessarily rely upon,
                the apparent ability of the [REDACTED]. While there was an
                indication that some labels and artists agreements, in particular a
                notably successful recording artist group, may employ artist share
                splits equal to or proximate to the 50% share due to performing
                artists under the statutory license, the Judges have sparse
                indication regarding the range or frequency of actual artists'
                shares that may be equal to or proximate to the statutory 50/50
                split. The Judges also note that the [REDACTED] Agreements
                [REDACTED]. See e.g., [REDACTED] Agreement, Ex 2013, ] 4b. This is
                in contrast to at least one other agreement in evidence covering
                webcasting uses eligible for the 114 statutory license, the 2016
                Pandora/UMG agreement, which indicates an obligation for UMG to
                ``[REDACTED],'' Ex 5013, SOUNDEX_W5_000010111.
                ---------------------------------------------------------------------------
                b. PRO Agreements
                 Based on the entirety of the record, the Judges find that evidence
                regarding agreements between performance rights organizations and
                webcasters is insufficiently persuasive to establish that simulcast and
                custom radio exist as distinct products subject to different rates in
                voluntary agreements. As an initial matter, the Judges note that PRO
                negotiations and agreements cover different rights, and involve
                different parties from those at issue in this proceeding. It is also
                relevant that the rights at issue are often subject to detailed on-
                going government oversight via consent decrees. The Judges are in
                agreement with SoundExchange that the definitions regarding ``similarly
                situated'' licensees in the ASCAP and BMI consent decrees include
                factors that are distinct from the provisions of 17 U.S.C.
                114(f)(1)(B).
                 In addition, the Judges find it troubling that the NAB did not
                actually submit into the record any operative agreement between any PRO
                and any webcaster that covers custom radio. The Judges find the NAB's
                claimed evidence about what custom radio pays, purportedly derived from
                unseen agreements between Pandora and two PROs, to be inadequate and
                unreliable. SoundExchange correctly points out that neither the NAB nor
                the Judges can know what the agreements actually say, and whether the
                agreements may reflect tradeoffs on other terms.
                4. Qualitative Arguments Regarding a Separate Rate for Simulcasters
                 In addition to its proposed benchmarks, the NAB offers several
                qualitative arguments why willing buyers and sellers would agree to
                lower simulcasting rates. For the reasons set forth below, and based on
                the entirety of the record, the Judges are not persuaded that the
                offered qualitative arguments sufficiently establish that willing
                buyers and sellers would agree to separate, lower simulcasting rates.
                a. Degree of Interactivity
                 The NAB argues that simulcasters should pay a lower royalty because
                simulcast transmissions are among the least interactive form of
                webcasting. NAB PFFCL ]] 147-153. It asserts that in establishing a
                digital performance right for sound recordings and the statutory
                license at issue, Congress recognized that ``interactive services are
                most likely to have a significant impact on traditional record sales''
                while noninteractive services were more promotional and less
                substitutional. NAB PFFCL ] 148 (citing H.R. Rep. No. 104-274, at 14).
                The NAB suggests that this legislative history indicates Congress's
                recognition that a service's interactivity is a good proxy for its
                ability to substitute or interfere with other streams of revenue.
                Leonard WDT ] 49. It points to the Copyright Office's recognition that
                ``it may be appropriate [for the Judges] to distinguish between custom
                and noncustom radio, as the substitutional effect of personalized radio
                on potentially competing interactive streaming services may be greater
                than that of services offering a completely noncustomized experience.''
                NAB PFFCL ] 149 (citing Copyright and the Music Marketplace, supra at
                178). The NAB also offers the testimony of Aaron Harrison, Senior Vice
                President, Business and Legal Affairs of UMG Recordings, who agreed
                that typically ``[REDACTED]'' 9/3/20 Tr. 5691 (Harrison).
                 As a record company executive, Mr. Harrison's testimony provides
                some evidence that record companies [REDACTED] because those services
                are less likely to displace sales of sound recordings. However, the
                value of his statements for determining whether a differential rate is
                justified for simulcasters is limited. First, Mr. Harrison was not
                addressing specific negotiations or transactions. Second, the series of
                questions Mr. Harrison was responding to were focused on additional
                functionality of directly licensed interactive services. 9/3/20 Tr.
                5690-92 (Harrison). Mr. Harrison clarified this in his testimony
                stating his understanding that UMG has only licensed ``[REDACTED].'' 9/
                3/20 Tr. 5691 (Harrison).
                 While the NAB posits that simulcasting is less interactive than
                custom webcasting, it has not established that simulcasting, as a rule,
                is materially less interactive than the full scope of noninteractive
                webcasting, all of which would be subject to the general commercial
                webcasting rates. The statutory license is available to services that
                offer a continuum of features, including various levels of
                interactivity, which are offered in a manner consistent with the
                license. While the Judges recognize, as have others, that a variety of
                factors may support a separate rate, on the record before them, the
                Judges find insufficient basis for parsing the interactivity across
                statutory services as proposed, or to set a customized rate structure
                among categories of commercial webcasters based on statutorily
                permissible levels of interactivity.
                b. Promotional Effect
                 The record includes numerous statements concerning the specific
                promotional value to copyright owners of terrestrial radio plays for
                stimulating revenue for sound recordings, thus leading to a licensee's
                willingness to accept lower rates for such plays. See, e.g., 9/3/20 Tr.
                5734 (Harrison); Trial Ex. 2153 at 7-19 (WDT of Tom Poleman) (Poleman
                WDT); 9/9/20 Tr. 5944 (Sherwood); Leonard WRT ]] 97-101. The record
                also indicates that characteristics that enhance promotional value
                include tight playlists with limited recordings and repeated plays of
                recordings on those playlists. Additionally, the record includes some
                indication that labels may not distinguish the between terrestrial
                radio versus simulcasting in terms of promotional benefit. Poleman WDT
                ]] 7; 8/27/20 Tr. 4418-19.
                 The bulk of the evidence is persuasive that labels perceive a
                distinct promotional value in over the air radio play of their
                recordings, including participation in certain promotional programs and
                opportunities to enhance their ability to leverage promotional plays on
                terrestrial radio, with some necessary tie-in to simulcast plays.
                However, the record provides little persuasive indication that labels
                similarly, affirmatively, seek plays over simulcasts for purposes of
                promotion. The indications that labels may not distinguish the between
                terrestrial radio versus simulcasting in terms of promotional benefit
                is reasonably indicative that labels simply do not consider the
                promotional value of simulcasts (which reaches a relatively small
                number of listeners) in their pursuit of the promotional value of
                terrestrial radio plays. The NAB fails to analyze adequately the degree
                to which labels assign promotional value, or take actions motivated by
                promotional value
                [[Page 59551]]
                of simulcasts in relation to the promotional value labels seek via
                terrestrial plays.
                c. The Value of Non-Music Content as a Differentiator
                 The NAB points to simulcasts' differentiated use of music versus
                non-music content, compared to custom radio, which is geared more
                toward music content. NAB PFFCL ]] 165-167. It sets forth that
                terrestrial radio and simulcasters play relatively few songs compared
                to custom radio services. NAB PFFCL ] 167; Leonard WDT ] 47; 8/24/20
                Tr. 3427:3-8 (Leonard) (``[terrestrial broadcasters and simulcasters]
                use forms of non-music content to compete in the marketplace . . . in
                contrast, a custom radio station is basically 100 percent music.''). It
                adds that terrestrial radio and simulcasters play relatively small
                catalogs of songs compared to custom radio services and that as a
                result any particular sound recording is not significantly important
                for the transmitted programming. NAB PFFCL ] 167; 9/3/20 Tr. 5734
                (Harrison); Leonard WDT ] 45. The NAB also offers that radio stations
                receive the most ad revenue during parts of the day where they play the
                least music, as an indication that terrestrial radio and simulcasters
                value non-music content less. 8/24/20 Tr. 3429-31 (Leonard). It also
                suggests that audience surveys and proposed benchmark agreements
                (addressed above) indicate that listeners place a relatively high value
                on non-music content. The NAB maintains that taken together this
                ``evidence suggests music content has less value per minute, and
                therefore less value per-play, on simulcast than on custom radio.'' NAB
                PFFCL ] 172.
                 Like the NAB's proposed analysis of promotional value, its
                arguments regarding differentiated use of music versus non-music
                content by terrestrial radio and simulcasters compared to custom radio
                are insufficient. Both analyses fail adequately to address the relative
                motivations behind programming choices as they may apply to terrestrial
                radio versus simulcasting, and extent to which each transmission method
                plays a role in programming choices. Additionally, the bulk of the
                evidence and analysis regarding differentiated use of music versus non-
                music content involves comparison of simulcasts and custom radio, the
                latter of which is merely a subset of other eligible nonsubscription
                transmissions. This type of evidentiary comparison does not match with
                the proposal to differentiate rates between simulcast and all other
                eligible nonsubscription transmissions. While the NAB posits that
                simulcasts are able to differentiate by use of non-music content and
                that simulcasters play relatively few songs compared to custom radio,
                it has not adequately established that simulcasting, as a rule, is
                materially less music intensive than the full scope of noninteractive
                webcasting, all of which would be subject to the general commercial
                webcasting rates.
                d. Competition With Other Commercial Webcasters
                 SoundExchange argues that simulcasters and other commercial
                webcasters compete for listeners and revenue in the same submarket and
                therefore should be subject to the same rate. It cites to numerous
                statements in government filings submitted by broadcasters and the NAB
                in support of this position. See, e.g. NAB 2018 comments filed with the
                FCC (Trial Ex. 5472) (acknowledging radio broadcasters have myriad
                competitors for streaming audiences); Cumulus Media, Inc. December 31,
                2019 SEC filing Form 10-K (Trial Ex. 3042) at 8 (discussing competition
                with various digital platforms and services, including streaming music
                and other entertainment services for both listeners and advertisers).
                Additionally, SoundExchange points to internal NAB and iHeart documents
                indicating that broadcasters view digital music services as
                competitors. See, e.g. NAB Board Meeting Minutes from January 29, 2018
                (Trial Ex. 5196) at 3 (discussing ``[REDACTED]''). SoundExchange also
                offers evidence that certain webcasters affirmatively seek to compete
                with simulcasters as well as terrestrial radio, including [REDACTED].
                Trial Ex. 5056 at 73. The Judges find these indications of mutual
                competition between simulcasters and other commercial webcasters to be
                a compelling indication that simulcasters and other commercial
                webcasters operate in the same, not separate submarkets.
                5. Survey Evidence Regarding Separate Rate for Simulcasters
                a. The Hauser Survey
                 The NAB engaged Professor John Hauser to determine the degree to
                which listening to simulcasts substitutes for various alternative
                activities, the importance of different types of content to simulcast
                listeners, and how much consumers listen to simulcasts. See Trial Ex.
                2151 ]] 6-7, app. E (WDT of John Hauser) (Hauser WDT); 8/27/20 Tr.
                4333-35 (Hauser). Professor Hauser's survey results are expressed as a
                series of ``diversion ratios'' reflecting the percentage of respondents
                that, in the absence of simulcasts, would consume content from the
                potential alternative activities presented in the survey. Hauser WDT
                app. R.
                 Professor Hauser indicated that his survey employed standard
                scientific methods to maximize reliability. The method included
                Screening Questions to ensure an appropriate target audience and
                attention checks to verify that respondents read the survey questions
                carefully. He also used a double-blind methodology and included
                question and response options unrelated to the study's objective and
                used filters and randomization of response options (when appropriate)
                to avoid certain biases. Hauser WDT ]] 14, 22-24, 39.
                 After screening for the appropriate target sample audience, 536
                respondents moved to the main survey. Of that group of qualified
                respondents, 532 completed the survey. Professor Hauser testified that
                this sample size was adequate to enable him to provide statistically
                significant results. Hauser WDT ] 76.
                 In an introduction to the survey, the respondents were instructed
                that ``There are various ways in which you can listen to content, some
                of which are defined below. Please read these definitions carefully,
                and keep them in mind when responding to questions in this survey.''
                The descriptions of the listening options were:
                 Live AM/FM radio broadcasts through a radio: Live AM/FM radio is
                broadcast locally, thus allowing listeners to listen to local
                stations that may offer news, sports, weather, talk, and/or music
                through an AM/FM radio that is portable, in the home, or built into
                a car. Stations may broadcast programming created locally (e.g.,
                morning shows with local traffic and weather), or nationally. Radio
                stations may be not-for-profit (e.g., NPR, college radio stations)
                or commercially supported by ad sales (commercial radio).
                 Live AM/FM radio broadcasts over the internet: Live AM/FM radio
                broadcasts over the internet allow listeners to listen to the same
                content through their computers or other internet-capable devices
                that is simultaneously transmitted to AM/FM radios. Live AM/FM radio
                broadcasts over the internet may be accessed by going to the website
                or app of a radio station, or to the website or app for a platform
                such as iHeartRadio or TuneIn.
                 Satellite radio (SiriusXM): Satellite radio is broadcast
                nationwide via satellite, thus allowing listeners to listen to the
                same stations anywhere in the country through a receiver that is
                portable, in the home, or built into a car. Satellite radio is
                available by subscription and offers commercial-free music as well
                as sports, news, talk, and other programming. Satellite radio may
                offer different stations that are not available on live AM/FM radio
                broadcasts through a radio or over the internet.
                 On-demand music streaming services: On-demand music streaming
                services allow
                [[Page 59552]]
                listeners to choose the specific song, artist, or playlist they wish
                to hear, in addition to playlists provided by the service. These
                services may be available for free with ads, or through a paid
                subscription without ads. On-demand music streaming services include
                Apple Music, ad-supported Spotify, Spotify Premium, Google Play
                Music, and others.
                 Not-on-demand music streaming services: Not-on-demand music
                streaming services do not allow listeners to choose the specific
                song or artist they wish to hear, but instead provide a pre-
                programmed list of songs based on listener preferences. The specific
                planned selection and order of songs remain unknown to the listener
                (i.e., no prepublished playlist). These services may be available
                for free with ads, or through a paid subscription without ads. Not-
                on-demand music streaming services include adsupported Pandora,
                Pandora Plus, and others.
                Hauser WDT app. D-6-7. At various points in the survey, respondents
                were informed may click a link to review these definitions. See, e.g.
                Hauser WDT app. D-11.
                 The first question in the main survey, Q1, asked respondents to
                approximate the total number of hours they spent listening to live AM/
                FM broadcasts from commercial radio stations over the internet over the
                prior three days. Hauser WDT ] 93.
                 On average, respondents estimated that they spent 5.3 hours
                listening to internet simulcasts of terrestrial commercial radio during
                the past three days (approximately 1 hour per day). The median
                respondent estimated spending four hours listening to internet
                simulcasts of terrestrial commercial radio during the past three days--
                approximately 1.5 hours per day. A total of 91.6 percent of the
                respondents spent less than twelve hours over three days (i.e., four
                hours per day) and 96.7 percent spent less than eighteen hours over
                three days (i.e., six hours per day). Three respondents spent more than
                ten hours per day and no respondents spent more than forty-eight hours
                over the three-day period. The average estimated number of hours spent
                listening to internet simulcasts of terrestrial commercial radio by day
                of week ranged from 1.7 to 1.8 hours. Hauser WDT ]] 94-95.
                 The next question, Q2, asked respondents about the types of content
                to which they listened on internet simulcasts of terrestrial commercial
                radio. Respondents were prompted to select all of the offered types of
                content to which they listened on internet simulcasts of terrestrial
                commercial radio in the last three days. Hauser WDT ] 96. The offered
                types of content were as follows:
                --Music (all genres, e.g., pop country rock children's music religious
                music)
                --Sports (e.g., game broadcasts commentary)
                --News weather and traffic
                --Religion (nonmusic content, e.g., preaching education)
                --Talk (e.g., live DJ commentary politics personal finance
                --Comedy (e.g., sketch comedy stand up)
                --Kids and family nonmusic content (e.g., educational programs)
                --Other content. Please specify [TEXT BOX DO NOT ALLOW BLANKANCHOR GO
                TO Q4 IF ONLY OTHER IS SELECTED ANCHOR]
                --Don't know/Unsure [EXCLUSIVE ANCHOR] [IF ``DON'T KNOW/UNSURE'' IS
                SELECTED GO TO Q4 OTHERWISE GO TO Q3]
                Hauser WDT app. D-10.
                 On average, respondents indicated that they listened to 2.6 types
                of content on internet simulcasts of terrestrial commercial radio in
                the last three days. The breakdown was as follows: 413 respondents
                (82.4 percent) selected music; 277 respondents (55.3 percent) selected
                news weather and traffic; 248 respondents (49.5 percent) selected talk;
                182 respondents (36.3 percent) selected sports; 89 respondents (17.8
                percent) selected comedy; 34 respondents (6.8 percent) selected
                religion; 32 respondents (6.4 percent) selected kids and family; and 2
                respondents (0.4 percent) selected other content types. Hauser WDT ]
                97.
                 Appendix O, displays a table of the results.
                 If respondents indicated that they listened to one or more types of
                content in the past three days, they were next asked, in Q3, to
                indicate the level of importance each type of content had for them,
                choosing between ``not important,'' ``somewhat important,'' and ``very
                important'' for each type of content. Hauser WDT ] 99.
                 A total of 256 (51.1 percent) indicated music was very important,
                185 (36.9 percent) indicated news, weather and traffic was very
                important, 123 (24.6 percent) indicated talk content was very
                important, 99 (19.8 percent) indicated sports content was very
                important, 45 (9.0 percent) indicated comedy was very important, 22
                (4.4 percent) indicated religious content was very important, and 18
                (3.6 percent) indicated that kids and family content was very
                important. Hauser WDT ] 100.
                 Appendix P, displays a table of the results.
                 The respondents were then asked, in Q4, about options they would
                consider in place of internet simulcasts as follows:
                 Now suppose that live AM/FM radio broadcasts from commercial
                radio stations over the internet were not available for the next
                five years. Assume that everything else would be available for the
                next five years as it is now. Which of the following if anything
                would you consider doing in place of listening to such broadcasts
                over the internet during the next five years? The prices below are
                examples and do not include promotional discounts taxes or fees. If
                you are unable to say whether you would do or would not do a
                particular activity please indicate this by choosing the `Don't know
                Unsure' option. It is important that you do not guess.
                Hauser WDT ]] 101-104, app. E, Q4
                 Then, in Q5, respondents were asked, out of the selected
                consideration set, which option they would choose, as follows:
                 Continue to suppose that live AM/FM radio broadcasts from
                commercial radio stations over the internet were not available for
                the next five years. Assume that everything else would be available
                for the next five years as it is now. Now think about the most
                recent time you listened to live AM/FM radio broadcasts from
                commercial radio stations over the internet. Please consider
                situations similar to that time and the content you listened to at
                that time. Which one of the following would you do in place of
                listening to such broadcasts over the internet in similar situations
                during the next five years. The prices below are examples and do not
                include promotional discounts taxes or fees. If you are unable to
                say which particular activity you would do please indicate this by
                choosing the `Don't know/Unsure' option. It is important that you do
                not guess.
                Hauser WDT ]] 101-105, app. E, Q5.
                 Professor Hauser indicated that the consider-then-choose question
                formulation served two functions. First, the question serves a filter.
                Respondents cannot select a medium if they would not at least consider
                it. By using such a filter, the survey avoids asking respondents to
                guess about which medium they would choose. Second, Professor Hauser
                represented that there is strong scientific evidence that consumers use
                a two-stage consider-then-choose decision process when they make a
                consumption decision, and that this format is more realistic and
                provides a better representation of the decision processes that
                consumers use. Hauser WDT ]] 102.
                 The options in Q4 and Q5 were as follows: \306\
                ---------------------------------------------------------------------------
                 \306\ The question presentation included informing respondents
                that they may click a link to review the definitions for ``Live AM/
                FM radio broadcasts through a radio'' ``Live AM/FM radio broadcasts
                over the internet'' ``Satellite radio (SiriusXM)'' ``On-demand music
                streaming services'' ``Not-on-demand music streaming services''.
                See, e.g. Hauser WDT app. D-11.
                (A) On-demand music streaming services in place of live AM/FM radio
                ---------------------------------------------------------------------------
                broadcasts from commercial radio stations over the internet
                [[Page 59553]]
                 [1] I would listen to on-demand music streaming service(s)
                through the paid subscription(s) I already have (e.g., Apple Music,
                Spotify Premium, Google Play Music).
                 [2] I would purchase new paid subscription(s) to on-demand music
                streaming service(s) that I don't currently subscribe to (e.g., an
                individual subscription to Apple Music, Spotify Premium, or Google
                Play Music at $9.99 per month or $119.88 per year).
                 [3] I would listen to on-demand music streaming service(s) that
                have ads and that I do not need to pay for (e.g., ad-supported
                Spotify).
                 [4] I would listen to music on video site(s) that have ads and
                that I do not need to pay for (e.g., ad-supported YouTube).
                (B) Not-on-demand music streaming services in place of live AM/FM
                radio broadcasts from commercial radio stations over the internet
                 [5] I would listen to not-on-demand music streaming service(s)
                through the paid subscription(s) I already have (e.g., Pandora
                Plus).
                 [6] I would purchase new paid subscription(s) to not-on-demand
                music streaming service(s) that I don't currently subscribe to
                (e.g., an individual subscription to Pandora Plus at $4.99 per month
                or $59.88 per year).
                 [7] I would listen to not-on-demand music streaming service(s)
                that have ads and that I do not need to pay for (e.g., ad-supported
                Pandora).
                (C) Satellite radio (Sirius XM) in place of live AM/FM radio
                broadcasts from commercial radio stations over the internet
                 [8] I would listen to satellite radio through the paid
                subscription I already have (Sirius XM).
                 [9] I would purchase a new paid subscription to satellite radio
                that I don't currently subscribe to (e.g., a Sirius XM subscription
                at $10.99 per month or $131.88 per year for ad-free music, $15.99
                per month or $191.88 per year for ad-free music, news, traffic,
                weather, and other content).
                (D) Other ways of listening to live AM/FM radio broadcasts in place
                of such broadcasts from commercial radio stations over the internet
                 [10] I would listen to live AM/FM radio broadcasts from
                commercial radio stations through a radio.
                 [11] I would listen to live AM/FM radio broadcasts from not-for-
                profit radio stations (e.g., NPR, college radio stations) through a
                radio.
                 [12] I would listen to live AM/FM radio broadcasts from not-for-
                profit radio stations (e.g., NPR, college radio stations) over the
                internet.
                (E) Owned or purchased audio in place of live AM/FM radio broadcasts
                from commercial radio stations over the internet
                 [13] I would listen to digital music files or CDs that I already
                purchased.
                 [14] I would purchase and listen to digital music files or CDs
                that I don't currently own.
                 [15] I would listen to music obtained through peer-to-peer file
                sharing or free download sites.
                 [16] I would listen to non-music digital content that I already
                purchased or downloaded (e.g., podcasts, audiobooks).
                 [17] I would purchase or download and listen to non-music
                digital content that I don't currently own (e.g., podcasts,
                audiobooks).
                (F) Television and video options in place of live AM/FM radio
                broadcasts from commercial radio stations over the internet
                 [18] I would watch video content that I already purchased,
                subscribe to, or have access to (e.g., movies, cable television,
                Hulu, Netflix).
                 [19] I would purchase or subscribe to video content that I don't
                currently own or subscribe to (e.g., movies, cable television, a
                Hulu subscription at $5.99 per month or $71.88 per year, a Netflix
                subscription at $8.99 per month or $107.88 per year).
                 [20] I would listen to music channels through my existing cable
                or satellite television subscription (e.g., Music Choice).
                (G) Print options in place of live AM/FM radio broadcasts from
                commercial radio stations over the internet
                 [21] I would read print or online content that I already
                purchased, subscribe to, or have access to (e.g., books, newspapers,
                magazines).
                 [22] I would purchase or subscribe to print or online content
                that I don't currently own or subscribe to (e.g., books, newspapers,
                magazines).
                Others
                 [23] Other [PIPE IN RESPONSE TEXT FROM Q4]
                 [24] Don't know/Unsure
                Hauser WDT app. D-15-17
                [[Page 59554]]
                 Appendix Q, displays a table of the results to Q4 regarding
                consider options, and is reproduced below.
                BILLING CODE 1410-72-P
                [GRAPHIC] [TIFF OMITTED] TR27OC21.009
                [[Page 59555]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.010
                [[Page 59556]]
                Hauser WDT app. Q.
                 Appendix R, displays a table of the results to Q5 regarding which
                option they would choose, and is reproduced below.
                [GRAPHIC] [TIFF OMITTED] TR27OC21.011
                [[Page 59557]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.012
                [[Page 59558]]
                Hauser WDT app. R.
                 Professor Hauser developed a table to summarize the alternatives
                that were selected by more than 3.0 percent of survey respondents,
                which is reproduced below.
                [GRAPHIC] [TIFF OMITTED] TR27OC21.013
                Hauser WDT ]] 108, table 3.
                 As reflected in the table, ``I would listen to live AM/FM radio
                broadcasts from commercial radio stations through a radio'' was
                selected by 127 respondents (25.3 percent), and was the most commonly
                selected alternative. Other commonly-selected alternatives included ``I
                would listen to on-demand music streaming service(s) through the paid
                subscription(s) I already have (e.g., Apple Music, Spotify Premium,
                Google Play Music),'' which was selected by 37 respondents (7.4
                percent), and ``I would watch video content that I already purchased,
                subscribe to, or have access to (e.g., movies, cable television, Hulu,
                Netflix),'' which was selected by 37 respondents (7.4 percent).
                Fourteen respondents (2.8 percent) selected ``don't know/unsure'' in
                response to this question. Hauser WDT ]] 109.
                 Professor Hauser weighted the results of Q5 by the total number of
                hours each respondent reported listening to internet simulcasts of
                terrestrial commercial radio in Q1 in to evaluate whether the
                alternatives respondents consider as substitutes for internet
                simulcasts of terrestrial radio varied based on the total amount of
                time respondents spend listening to such simulcasts. He explained that
                if a respondent listened to only one hour of such simulcasts over the
                prior three days, his or her response to Q5 would count as one, while
                if a respondent listened to four hours of such simulcasts over the
                prior three days, his or her response to Q5 would count as four. Hauser
                WDT ]] 110.
                [[Page 59559]]
                 Appendix S, displays a table of the weighted results to Q5, and is
                reproduced below.
                [GRAPHIC] [TIFF OMITTED] TR27OC21.014
                [[Page 59560]]
                [GRAPHIC] [TIFF OMITTED] TR27OC21.015
                BILLING CODE 1410-72-C
                Hauser WDT app. S.
                b. Criticisms of the Hauser Survey
                 SoundExchange offers several critiques of the Hauser surveys,
                including those noted below. SX PFFCL ]] 1208-1269.
                [[Page 59561]]
                i. Hypothetical Scenario
                 SoundExchange notes that Professor Hauser's hypothetical scenario
                requires respondents to predict what they would do if ``live AM/FM
                radio broadcasts from commercial radio stations over the internet were
                not available for the next five years.'' Hauser WDT, app. D at D-11. It
                maintains that the hypothetical, which does not mention music content,
                may cause respondents to answer the replacement questions in terms of
                how they would replace non-music content, rather than how they would
                replace music content. Zauberman WRT ] 64. SoundExchange also argues
                that the long, five year, period toward which respondents are directed
                to forecast their behavior can be cognitively taxing and confusing for
                individuals. Zauberman WDT ] 62; see also Simonson WRT ]] 111-112.
                SoundExchange notes expert testimony from Professor Zauberman who
                maintained that the ambiguity of Professor Hauser's hypothetical does
                not adequately follow best practice, which dictates that hypotheticals
                be posed in a way that ensures the maximum relatability so that
                respondents are not confused about the scenario they are asked to
                consider. Zauberman WRT ] 65, See, e.g., Floyd Jackson Fowler, Jr., How
                Unclear Terms Affect Survey Data, 56 Pub. Opinion Q. 218-231 (1992);
                see also, Norbert Schwartz & Daphna Oyserman, Asking Questions About
                Behavior: Cognition, Communication, and Questionnaire Construction, 22
                Am. J. Evaluation, no.2, 127-160 (2001).
                ii. Response Options
                 SoundExchange argues that Professor Hauser did not customize his
                list of Q4 replacement options to match respondents' individual
                circumstances. Instead, SoundExchange notes, all respondents received
                the same list of replacement options, regardless of whether or not all
                of these options were applicable to them. Professor Zauberman noted
                that eight of the 22 specific options that Professor Hauser poses for
                all respondents to consider in Q4 refer to services or content that
                they are told they already own, have access to, or have purchased,
                regardless of whether that is true or not. Professor Zauberman asserted
                that providing such response options to respondents, which do not apply
                to them, is confusing. Zauberman WRT ] 66-67. Professor Zauberman added
                that providing respondents with options regardless of the service/
                content they already own, have access to, or have purchased is poor
                survey design. Zauberman WRT ] 66-67, See, e.g. Questionnaire Design,
                Pew Res. Center, https://www.pewresearch.org/methods/u-s-survey-research/questionnaire-design/(last visited Jan. 8, 2020); see also,
                Don A. Dillman et al., The Fundamentals of Writing Questions, in
                internet, Phone, Mail, and Mixed-Mode Surveys: The Tailored Design
                Method 94, 114-116 (4th ed. 2014).
                 Professor Zauberman explained the potentially troubling impact of
                this question design by considering how a respondent who does not
                already subscribe to a paid on-demand streaming service may react to
                option 1, in Q4 (``I would listen to on-demand music streaming
                service(s) through the paid subscription(s) I already have''), given
                the choices: ``Would consider'' ``Would not consider'' and ``Don't
                know/Unsure?''. Professor Zauberman opined that, in such a scenario,
                none of the available options makes sense. He maintained that the only
                logical answer regarding a service that the respondent does not already
                have would be ``N/A'' or ``I do not have such a subscription'' and
                these choices were not present in the survey. Instead, he suggested
                that respondents may be forced to answer as if they have the service.
                Zauberman WRT ] 68.
                 Professor Zauberman identified another alleged flaw in that
                Professor Hauser's response options are designed in a way that confuses
                respondents. He argued that the Hauser survey presented respondents
                with too many response options, and cited scholarship indicating that
                such choice options may causes cognitive overload and thus unreliable
                responses. Zauberman WRT ] 68; see, e.g., Sheena S. Iyengar & Mark R.
                Lepper, When Choice is Demotivating: Can One Desire Too Much of a Good
                Thing?, 79 J. Personality & Soc. Psychol., no.6, 995-1006 (2000); Elena
                Reutskaja et al., Choice Overload Reduces Neural Signatures of Choice
                Set Value in Dorsal Striatum and Anterior Cingulate Cortex, 2 Nature
                Hum. Behav., 925-935 (2018).
                 Professor Zauberman explained that Q4 presented respondents with a
                list of 22 specific response options, plus an open response ``Other.''
                And, in Q5, respondents are presented with a list of 22 options, plus a
                ``Don't know/Unsure'' option, and a potential ``Other'' option,
                depending on their answers Q4. Professor Zauberman offered his view
                that this is indicative of choice overload. Zauberman WRT ] 70; see,
                e.g., Alexander Chernev et al., Choice overload: A conceptual review
                and meta[hyphen]analysis, 25 J. Consumer Psychol., no.2, 333-358
                (2015).
                 Professor Zauberman argued that Professor Hauser's survey design
                nudges respondents toward choosing free music services and other non-
                royalty-bearing options, over paid music options, and nudges them to
                select low or non-royalty-bearing switching options. He asserted that
                15 out of the 22 specific options in Q4 and Q5 lead to zero new
                royalties for record labels, and that this is disproportionally biased
                towards zero royalties options. Zauberman WRT ] 71. Professor Zauberman
                also opined that the options may confuse respondents by mixing types of
                content (e.g. ``non-music digital content'' or ``music on video
                sites''). He added that providing options that are not mutually
                exclusive (e.g. ``streaming service(s)'' or ``AM/FM radio broadcasts'')
                is troubling. Zauberman WRT ] 71. Professor Zauberman maintained that
                Professor Hauser's descriptions within the response options suffer from
                inconsistent framing and definitions, which he found to privilege free
                options. In Professor Zauberman's view the survey fails to emphasize
                ``free vs. paid'' music listening options in a consistent manner in Q4
                and Q5, namely that the non-monetary cost of the free options is less
                clear or emphasized than the clear indication of the ``paid''
                characteristics. Professor Zauberman pointed out that in Option 3,
                Professor Hauser chose to use the phrase ``have ads and that I do not
                need to pay for'' rather than simply saying ``free'' to contrast
                ``paid'' in Option 2. In Professor Zauberman's view, this wording in
                Option 3, rather than simply saying ``free on-demand music streaming
                service(s),'' makes the cost (or lack thereof) of the option less
                salient than the cost (or lack thereof) of its paid counterpart.
                Zauberman WRT ] 71.
                 Professor Zauberman also found fault with the Hauser survey for
                excluding options to which respondents might reasonably switch. He
                noted that the survey does not, for example, describe or offer
                listening to Sirius XM online as a response option. He argued that if
                legitimate options had been offered as potential choices, respondents
                might have been more likely to select other existing paid
                subscriptions. And, he added, limiting the number of royalty-bearing
                response options available is likely to depress the number of
                respondents who select royalty-bearing options. Zauberman WRT ] 71.
                 Professor Zauberman concluded that the cumulative effect of the
                criticized survey response options is to privilege certain response
                options (e.g., AM/FM radio) over others. He maintained that Professor
                Hauser's survey failed to ensure that the survey hypothetical was as
                clear and well-defined as possible. Zauberman WRT ] 71.
                [[Page 59562]]
                 Professor Simonson also criticized the Hauser survey response
                options, characterizing the survey as burying music within a wide range
                of content alternatives, such as traffic, religion, and sports. He
                pointed out that in the Hauser survey Q2 and Q3, ``music'' represented
                just one out of eight response options, and that all types and genres
                of music were reduced to just one item, listed alongside a wide range
                of equally prominent, unrelated categories. Simonson WRT ] 102-105.
                 Mr. Simonson asserted that respondents tend to choose among the
                options presented to them, citing scholarship on that conclusion:
                 [R]espondents tend to confine their answers to the choices
                offered, even if the researcher does not wish them to do so (Bishop
                et al. 1988, Presser 1990). That is, people generally ignore the
                opportunity to volunteer a response and simply select among those
                listed, even if the best answer is not included.
                Zauberman WRT ] 106 (citing Jon A. Krosnick, Survey Research, 50 Ann.
                Rev. Psychol. 537, 544 (1999)). Mr. Simonson argued that in the context
                of a proceeding about music, including numerous non-music response
                options biases survey results, including through diversification bias,
                order effects, and demand artifacts. Simonson WRT ] 106 (citing Fritz
                Strack, ``Order Effects'' in Survey Research: Activation and
                Information Functions of Preceding Questions, in Context Effects in
                Social and Psychological Research 23-34 (Norbert Schwarz & Seymour
                Sudman eds., 1992), https://doi.org/10.1007/978-1-4612-2848-6_3.
                 He referred to additional research, indicating that the mere fact
                that respondents are presented simultaneously with multiple options
                causes them to spread their choices among the options instead of
                choosing only the option they like most. He argued that a survey
                designer can decrease the percentage of respondents who indicate they
                will switch from one music service to another by presenting respondents
                with a wide range of options, and that the Hauser Survey does that by
                leading respondents to consider a wide set of switching options,
                including options that are unrelated to music. Simonson WRT ]] 106, 67-
                74 (citing Itamar Simonson, The Effect of Purchase Quantity and Timing
                on Variety Seeking Behavior, 27 J. Marketing Res. 150 (1990); Daniel
                Read & George Loewenstein, Diversification Bias: Explaining the
                Discrepancy in Variety Seeking Between Combined and Separated Choices,
                1 J. Experimental Psychol.: Applied 34 (1995); and Schlomo Benartzi &
                Richard H. Thaler, Naive Diversification Strategies in Defined
                Contribution Saving Plans, 91 Am. Econ. Rev. 79 (2001); and Craig R.
                Fox, David Bardolet & Daniel Lieb, How Subjective Grouping of Options
                Influences Choice and Allocation: Diversification Bias and the
                Phenomenon of Partition Dependence, 134 J. Experimental Psychol.: Gen.
                538 (2005); Craig R. Fox, David Bardolet & Daniel Lieb, Partition
                Dependence in Decision Analysis, Resource Allocation, and Consumer
                Choice, 3 Experimental Bus. Res. 229 (2005)). Professor Simonson
                concluded that by offering ``irrelevant options'' the Hauser survey
                misrepresents people's real-world experience, in which other content
                does not generally satisfy a desire for music, and the result is likely
                to lower the likelihood that respondents choose music options. Simonson
                WRT ] 107.
                iii. Two-Stage Decision Making Process
                 SoundExchange argues that Professor Hauser's two-stage decision-
                making structure compounds the alleged errors identified above and
                further depresses diversion to royalty-bearing options.
                 SoundExchange notes that the Hauser survey first asks respondents,
                in Q4, to identify from a list of 22 identified music and non-music
                options all of the alternatives they would ``consider'' switching to in
                place of simulcasts. Then, in Q5, the survey forces respondents to pick
                just one option from this consideration set that they would use if
                ``live AM/FM radio broadcasts from commercial radio stations over the
                internet were not available for the next five years.'' SoundExchange
                alleges that it was inappropriate for Professor Hauser to present his
                replacement questions using this ``consider-then-choose'' structure.
                SoundExchange argues that this two-stage process, in which respondents
                must consider a large set of options before making a final choice, does
                not match the decision-making processes that consumers actually would
                engage in if they were replacing their simulcast listening. Zauberman
                WRT ]] 10-14, 73; Simonson WRT ]] 108-109.
                 SoundExchange also argues that the Hauser survey is flawed because
                Professor Hauser provides no justification for forcing respondents, in
                Q5, to choose only one option to replace their simulcasting over the
                course of the next five years. SoundExchange asserts that in the real
                world consumers can replace music options with multiple substitutes,
                and takes issue with what it characterizes as an unrealistic notion
                that, for the next five years, respondents must limit themselves to
                only one alternative option. Zauberman WRT ] 73; Simonson WRT ]] 112.
                SoundExchange notes that Professor Hauser acknowledges that it is ``not
                uncommon for individuals to have subscriptions to multiple services,
                even within the same service type'' and that some listeners employ
                multiple services ``because different services within the same service
                type may offer different features for listeners and different libraries
                of content.'' Hauser WDT ] 85. SoundExchange also posits that the
                requirement that respondents to the Hauser survey choose only one of
                the offered currently available options stands in contrast to the
                reality of a fast changing market. SX PFFCL ] 1245 (citing Tucker WDT
                ]] 10-15).
                 SoundExchange observes that Professor Hauser attempts to ameliorate
                this concern by focusing respondents on the last three days, and asking
                what one alternative they would choose in situations similar to their
                most recent listening session. Hauser WDT ] 13 & n.8, app. D; 8/27/20
                Tr. 4344 (Hauser). However, SoundExchange asserts that this approach
                fails because, although the survey does mention the last three days,
                the replacement questions themselves do not contain this language. SX
                PFFCL ] 1251 (citing Zauberman WRT ] 74-75 & n.92 (Professor Hauser's
                ``replacement question is for the next five years, not a single
                use'')). SoundExchange also argues that Professor Hauser's replacement
                questions create a winner-take-all problem, which biases his results.
                It offers the example scenario in which Netflix is the primary
                streaming video service for consumers, but that many consumers also use
                Amazon Prime Video to a lesser degree. If asked to name only one
                streaming video service that they use, consumers would choose Netflix.
                SoundExchange maintains that such responses would mask the extent to
                which the secondary choice, Amazon Prime Video, is used. Zauberman WRT
                ] 75. Professor Zauberman testified that this type of the winner takes
                all structure of the replacement questions ``is highly confusing,'' and
                ``tremendously underplays [the] secondary players''. 8/27/20 Tr. 4210-
                11 (Zauberman).
                iv. Time Estimation Question
                 SoundExchange argues that Professor Hauser's time estimation
                question highlights the unreliability of his survey and biases the key
                questions that follow it. SX PFFCL ] 1262. It notes Professor Hauser's
                finding that, on average, respondents estimated that they spent 5.3
                hours listening to AM/FM radio broadcasts from commercial radio
                stations over the internet in the past
                [[Page 59563]]
                three days (or approximately 1.75 hours per day). SX PFFCL ] 1263
                (citing Hauser WDT ] 94). SoundExchange asserts that time estimate does
                not at all match reality, and that this mismatch highlights a bias in
                Professor Hauser's survey population. SX PFFCL ] 1264. It points to
                Professor Zauberman's testimony that, according to The Infinite Dial
                2019, Digital AM/FM (i.e., streaming AM/FM radio) accounts for only 3%
                of time spent listening to music, and the average online audio listener
                spends approximately 16.72 hours per week (or 2.39 hours per day)
                listening to all online audio sources. Professor Zauberman noted that,
                by contrast, Professor Hauser's time estimates, if accurate, would mean
                that AM/FM streamed over the internet accounts for more than 70% of all
                online audio listening time, on average. Zauberman WRT ] 76 (citing
                Edison Research & Triton Digital, The Infinite Dial 2019 at 26; and
                Edison Research, Share of Ear Q2 2019 at 16). Professor Zauberman added
                that Professor Hauser provides no empirical evidence, such as industry
                data, to suggest that respondents are able to provide reliable
                estimates, and that available industry data calls the accuracy of the
                time estimates derived from Professor Hauser's survey into question.
                Zauberman WRT ] 77. Professor Zauberman also argued that qualitative
                pretests in surveys cannot assure that this type of timing question is
                reliable or that the right timeframe is being used. Zauberman WRT ] 77;
                8/27/20 Tr. 4181-82 (Zauberman) (a pretest is ``where you test for
                confusion,'' not an instrument for ``parameteriz[ing] your elements of
                your survey,'' like time); id. at 4291-92, 4293-94 (Simonson) (same).
                 Professor Zauberman argued that because the timing question is the
                first question in the main questionnaire, it has the potential to
                influence responses to all subsequent questions. He cites to
                scholarship indicating that starting with a difficult-to-estimate
                question can influence the way that respondents answer the rest of the
                questions, especially when the rest of the survey is complex and
                difficult to understand. Zauberman WRT ] 78 (citing Shari Seidman
                Diamond, Reference Guide on Survey Research, in Reference Manual on
                Scientific Evidence 359, 395-96 (2011); Seymour Sudman & Norbert
                Schwartz, Contributions of Cognitive Psychology to Advertising
                Research, 29 J. Advertising Res., no.3, 43-53 (1989); Jon A. Krosnick &
                Stanley Presser, Question and Questionnaire Design, in Handbook of
                Survey Research 263, 291-94 (2nd. ed. 2010)).
                 Professor Zauberman also faulted the Hauser surveys for not asking
                respondents to estimate listening time in the future. He maintained
                that absent responses about future use, any inferences made based on
                the offered results must rely on an assumption about the extent to
                which a hypothetical change in the marketplace (i.e., the
                unavailability of AM/FM streaming) would in fact alter both the amount
                of time respondents spend listening to music in total, as well as for
                each of the options they would replace it with. Professor Zauberman
                argues that such an assumption would be problematic without empirical
                support. Zauberman WRT ] 79.
                c. Responses to Criticism of the Hauser Survey
                 The NAB responded to criticism regarding the number and type of
                alternatives offered in the switching questions, by noting that
                Professor Hauser crafted the switching options based on his experience
                from prior rate-setting proceedings in which his surveys were accepted
                (including SDARS III, where the survey had 19 switching options),
                research into the different ways respondents access different types of
                content, industry studies, and the feedback he received in the course
                of conducting qualitative interviews and pretests. 8/27/20 Tr. 4340-44
                (Hauser); Hauser WDT ]] 19-20, 25, 31-33. Professor Hauser testified
                that his pretests confirmed that respondents found the options to be
                comprehensive but not too numerous, and to reflect the full scope of
                options they would consider instead of listening to simulcasts. 8/27/20
                Tr. 4340-43 (Hauser). The NAB adds that SoundExchange has advanced
                arguments and evidence in this proceeding to establish that a wide
                variety of services, including on-demand video services, broadcast
                television, video games, and other forms of media, are in competition
                with each other, and that therefore it was not unreasonable for
                Professor Hauser to include a variety of services as switching options
                in his survey. See, e.g., Trial Ex. 5387 at 28; Trial Exs. 5521, 5353,
                5472; Orszag WRT ] 46 n.96 (citing public financial documents,
                including iHeart 10-Ks).
                 The NAB addresses SoundExchange's criticism of the Hauser survey
                for directing respondents to choose one switching option, when
                consumers in the real world might replace simulcast with more than one
                alternative, by noting that the survey was ``fielded over ten days,
                invitations were released at different times of the day to ensure
                representative by day of week.'' The NAB argues that this approach
                ensures a random draw in time from the distribution of all instances of
                listening to simulcast. 8/27/20 Tr. 4352-53, 4356-57 (Hauser).
                Professor Hauser maintained that under the approach he used, even if
                some respondents would listen to terrestrial radio for 60% of their
                time, but on-demand for the remaining 40%, and listening is reasonably
                randomly distributed, respondents would pick terrestrial radio 60% of
                the time and on-demand 40% of the time when asked about the most recent
                time they listened. 8/26/20 Tr. 4354 (Hauser); Hauser WDT ] 37.
                 The NAB addressed Professor Simonson's concern that the Hauser
                survey asked respondents to pick just one option that they would do for
                the next five years, by maintaining that Professor Hauser question was
                never meant to say that respondents will do the same thing in every
                similar situation. Professor Hauser indicated that the qualitative
                interviews and pretests confirmed that is not how respondents
                interpreted the question. 8/27/20 Tr. 4355-56 (Hauser); see also Hauser
                WDT app. G at 8. He testified that because respondents were primed to
                think of ``situations similar to'' the ``most recent time'' they
                listened to simulcast, their responses reflect what they would do in a
                similar circumstance, not what they would do ``repetitively each day
                over the next five years.'' 8/27/20 Tr. 4356-58 (Hauser).
                 The NAB argues that Professor Hauser's time estimation question is
                not unreliable and does not conflict with results in the Infinite Dial
                2019 and Share of Ear surveys. It asserts that the critique is based on
                an ``apples-to-oranges mistake.'' See, e.g., Zauberman WRT ] 76.
                Professor Hauser posits that his survey was focused on simulcast
                listeners, whereas the Infinite Dial and Share of Ear targeted
                listeners to all online audio. 8/27/20 Tr. 4361 (Hauser). He points out
                that Professor Zauberman's comparison does not take into account
                respondents who listened to zero hours of simulcasts. Professor Hauser
                offered that ``if you put those zeros in, that zero listening, my study
                lines up pretty well with the [I]nfinite [D]ial.'' Id. at 4361.
                d. Judges' Conclusions Regarding the Hauser Survey
                 The Judges accept that there are a variety of choices to be made
                when designing a reliable survey. The selected design choices will
                often be subject to second-guessing. While the Judges are wary of
                unreasonably demanding ideal survey design, many critiques will
                [[Page 59564]]
                inevitably merit consideration, to varying degrees.
                 In this instance, the Judges find that the main hypothetical
                scenario set forth requiring respondents to predict what they would do
                if live AM/FM radio broadcasts from commercial radio stations over the
                internet were not available for the next five years is reasonable.
                While the record reflects some reason to caution against the long, five
                year, prediction timeframe as potentially confusing respondents, the
                Judges do not find that this to be unduly concerning in this instance.
                However, as discussed further below, the Judges find that the critique
                regarding the main hypothetical scenario not honing in on music content
                (thus skewing the results) is worthy of concern.
                 The Judges find that the Hauser survey approach to the time
                estimation question was unduly biased toward simulcast listeners in a
                manner that biased the overall results. The fact that the results of
                the time estimate question diverge so widely from what may be
                considered reasonable in light of available industry data exacerbates
                the Judges' concerns of bias. These concerns ultimately weigh against
                the overall reliability of the survey.\307\
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                 \307\ The Judges are less troubled that the time estimate
                questions in the Hauser survey may be unduly confusing or that any
                confusion caused would unduly skew the overall results of the
                survey.
                ---------------------------------------------------------------------------
                 The Judges find that the ``consider-then-choose'' structure is an
                acceptable design choice in this instance. A case could be made that
                certain consumer choices on specific products or services are ill-
                suited to such a format. However, SoundExchange has not established
                convincingly that the design is inappropriate in this case. The
                decision to offer only one option is more concerning, given that it is
                widely accepted that consumers often choose more than one music (or
                non-music) option, especially over a five year period. The NAB's
                argument that this concern is addressed by the survey being fielded
                over multiple days does little to ameliorate the Judges concern that,
                in this particular switching survey addressing music options, limiting
                respondents' choice to one option may confuse respondents and bias
                results. The NAB's reference to qualitative interviews does not
                establish to t