Pandora recently won a key legal victory in its ongoing legal battle with songwriters, but there’s no end in sight for the legal spat between the company and the writers whose songs it plays.
At issue are the royalty fees that Pandora pays songwriters in exchange for the rights to their music catalogs. The American Society of Composers, Authors, and Publishers — the country’s oldest and largest performing rights organization — and Pandora have been battling in court for over two years years over royalty rates.
The latest ruling came in March, when New York District Court Judge Denise Cote decided that Pandora must pay ASCAP 1.85 percent the company’s annual revenue in exchange for a blanket license to the 100-year-old songwriters group’s musical library.
At first glance, Cote’s decision keeps the status quo: Cote rejected ASCAP’s arguments for a higher rate while also rejecting Pandora’s request to pay the lower rate that is awarded to to traditional AM/FM radio.
That order leaves in place a legal framework dating back to 1941, when the Justice Department set up a regulatory arrangement that decides how much customers, such as radio stations or restaurants, pay ASCAP for the rights to play their catalog of music in public. Under the order, ASCAP is obligated to issue a compulsory license to interested parties, and if the two groups fail to negotiate a royalty rate, the rate is set by a federal judge. But in setting the rate, judges are bound by a set of parameters that have thus far kept royalty payments at a rate Pandora can stomach.
Cote’s 136-page decision, however, contained language siding strongly with Oakland, Calif.-based Pandora — and leaving the songwriters plenty of reason for concern. She had some harsh words for music executives, writing that the “driving force was the music publishers’ envy at the rate their sound recording brethren had extracted from Pandora.”
Indeed, songwriters have plenty to envy about their performing peers. Pandora pays recording artists and record labels about 50 percent of its revenue, while only paying songwriters and publishers about 4 percent total (ASCAP is one of three major performing-rights organizations).
And the music industry is none too pleased about it. Cue Steven Tyler, the Aerosmith front man turned royalty-rate warrior.
Tyler was in Washington last week to speak up against the gulf in royalties rates, and he came to Capitol Hill with a three letter message: “W-T-F.”
“If the laws continue going the way they are, [songwriters] will never be paid fairly for [their] own participation,” Tyler said at an event hosted by the National Music Publishers Association. “So people, forgive me for being a little jaded about the state of copyright.”
Songwriters are stepping up efforts to get at the root of the problem: changing the regulatory system dating back to WWII.
“[The Pandora] ruling confirms what we already knew - songwriters will never be paid fairly as long as they must labor under World War II era consent decrees,” NMPA President and CEO David Israelite said in a statement.
And lawmakers, at least a few of them, are listening. Republican Rep. Doug Collins of Georgia in February introduced legislation that would allow federal courts more flexibility in deciding licensing fees, like letting judges take into consideration how much record labels receive when setting rates for publishers.
House Judiciary Committee Chairman Bob Goodlatte is also leading a comprehensive review of copyright laws, although reform would likely take years.
In the meantime, Pandora still isn’t in the clear. The Internet radio posted a profit at the end of 2013 for the first time in a few years. Pandora blames licensing payments for their ongoing financial struggles, recently citing rising payouts to record labels as the reason behind the company’s decision to raise subscription fees.
While the company escaped a blow in the ASCAP suit, it still faces a cloudy legal future. Pandora is locked in a similar legal fight with Broadcast Music Inc. — the second-largest performing-rights organization, better known as BMI, bound by a similar consent decree that has handicapped ASCAP — that is also seeking a bigger piece of Pandora’s financial pie.
And even if Pandora secures another win, some are concerned that major publishers, like Sony/ATV and Universal, could decide to pull their music catalogs from the ASCAP or BMI entirely in a last-ditch effort to get out from under the consent decree to negotiate fees directly with Pandora.
“If we can’t secure adjustments to the consent decrees, which were last modified before the introduction of the iPod, we’ll have no choice but to consider some radical steps in order to ensure our writers are fairly compensated in the rapidly changing marketplace,” Zach Horowitz, chairman of the Universal Music Publishing Group, told the New York Times.
If that happens, it would mean either a big leap in licensing fees or a smaller music library for Pandora.
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