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Takeaway: Both sides of the trade need to be careful into the next catalyst. P could rip on fool’s gold, but will likely lose out in the end.


  1. THE NEXT CATALYST: SoundExchange (SX) went over the top in its Proposed Conclusions of Law, trying to get the P-Merlin deal thrown out altogether; suggesting that the deal is a derivative of the Pureplay Agreement, which is inadmissible as a benchmark for Web IV.  The CRB judges have punted to Copyright Register, asking if they are allowed to consider a market agreement if it references and/or is influenced by the Pureplay agreement.  The Register will make a decision within 30 days after the last submission from the involved parties (i.e. no later than 9/14). 
  2. NOT SURE WHO WINS HERE: In short, P is arguing that P-Merlin is admissible since the statute only only forbids compromise agreements (e.g. Pureplay) between the receiving agent (i.e. SX)  and the Services (e.g. P) from being considered, and SX was not involved in P-Merlin.  SX is deferring to Congressional intent, suggesting that the broad language of that statue doesn’t allow for a narrow interpretation, otherwise Congress wouldn’t have included qualifiers such as “or otherwise taken into account”.  It’s tough to build conviction either way.
  3. SELL THE NEWS REGARDLESS: Two potential outcomes; both tilted in SX's favor.  1) The Register could rule in favor of Sx, and imply that P-Merlin is inadmissible (game over for P).  2) the Register could punt back to the CRB judges, which the street will mistakenly view as a premature victory for P.  However, the latter only means that the decision falls back to the CRB judges to rule on the P-Merlin deal as a valid benchmark.  The fact that the CRB judges are asking the Register whether it should throw it out to begin with suggests that it already believes that P-Merlin is a weak benchmark. 
  4. P MAY HAVE ALREADY LOST: P has conceded in its initial response to the CRB Judges' questions to the Register that P-Merlin was influenced by the Pureplay agreement, which it is also called the prevailing “statutory rate”.  For context, The Web III Remand judges stated that, “The Act instructs the Judges to use the willing buyer/willing seller construct, assuming no statutory license”.  That said, the Web IV CRB judges would need to dissent from the prior Judges' decision for P-Merlin to get any credence.  Both the Web II and Web III Judges used prior Judges' interpretations as precedent in their rulings.  We're not sure why that would be any different this time around.

See notes below for supporting detail on our Web IV analysis.  Let us know if you have any questions, or would like to discuss in more detail. 

Hesham Shaaban, CFA



P: Notes from WebIV Closing Arguments
07/22/15 01:26 PM EDT
[click here]


P: Losing the Critical Debate?
04/08/15 08:53 AM EDT
[click here]


P: Worst-Case Scenario? (Web IV)
03/23/15 09:30 AM EDT
[click here]


P: Webcaster IV = Powder Keg
01/13/15 02:49 PM EST
[click here]