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“Could majors get better Pandora rates than indies?” asks rate setting board

By Chris Cooke | Published on Monday 5 October 2015

The ongoing review of the rates paid by online radio services in the US that are licensed via the SoundExchange system – which includes personalised radio platforms like Pandora – has taken an interesting turn, after it emerged that the Copyright Royalty Board has asked the US Copyright Office whether it could set different rates for different content providers. Which many reckon could mean one rate for the majors and another for the indies.

In America, a compulsory licence exists for online radio, including Pandora-style services, meaning labels are obliged to licence such set ups via the SoundExchange collective licensing system at rates ultimately controlled by the Copyright Royalty Board.

Although digital services, if they so wish, can try to do direct deals with the labels, and some have done so, usually by offering marketing benefits in return for slightly better rates, or by bundling online radio services in with wider label deals covering terrestrial radio, downloads or the kind of fully on-demand streams that fall outside the SoundExchange licence.

Many rights owners still licence many services via SoundExchange. And while the labels constantly complain that the compulsory licence has led to them receiving below market rates from many such services, the digital service providers – and Pandora in particular – argue that they have to pay too much, and constantly lobby for royalty obligations to be reduced. These debates are particularly vocal at the moment because the Copyright Royalty Board is currently reviewing what services should pay.

As previously reported, last month Pandora was told it could present direct agreements it has reached with rights owners as evidence to the Copyright Royalty Board, as it argues for lower statutory rates. Particular attention has been put on the deal Pandora did with indie label digital rights agency Merlin, which it’s thought gives the streaming service a slightly better rate overall in return for promoting music by Merlin-repped record companies.

The CRB took advice from Maria Pallante at the US Copyright Office on whether such deals should be considered in the current review. And – seemingly in inquisitive mood – it’s emerged that this is not the only question the Board has posed. Last month it also asked Pallante whether any US copyright laws stopped it from setting different rates for different categories of licensors. Interested stakeholders – licensees and licensors – had until Friday to offer their thoughts on that question, before Pallante gives it her consideration.

The CRB hasn’t been especially clear what it means by “different categories of licensors”. It’s not thought this question was posed by any of the music rights owners or representatives which submitted evidence to the rate review, so it’s not that one party has been proactively pushing for better terms than its competitors. Instead, it’s thought the question occurred to CRB judges after reviewing various direct deals done between labels and digital services, and not just the Merlin deal, and not just deals with Pandora either.

However, everyone in the label community seems to have interpreted this question as whether or not the CRB should be allowed to set one rate for major labels and one for indies, or some sort of variable rate based on the rights owner’s market share.

Because – while most of the direct deals that have been done with SoundExchange-eligible digital services have hinged on a kickback for the rights owner – in the wider digital market, where service providers don’t have the benefit of a fall-back compulsory licence, market-share does have an impact on the deals rights owners secure.

Applying market-share metrics to a collective licensing system would be novel, because usually under such arrangements all rights owners earn the same per-play rate. And obviously, smaller rights owners are going to argue that that principle should be maintained with the SoundExchange system.

The mega-majors, however, having now been asked this specific question, are reportedly smiling on the variable rates idea, with Billboard reporting that Sony and Universal are working together on their response to the proposal. Though some sources say that that’s not because the majors want a higher Pandora rate than the indies right now, rather they don’t want the prospect of variable pricing under SoundExchange to be ruled out forever.

They unsurprisingly face a fight with the indie label community on this point. Confirming it had submitted a response calling for a single rate to be retained, the American Association Of Independent Music said on Friday: “Independent record labels and artists, who are individuals and small and medium-sized businesses, want a competitive market that places all sound recording owners and their artists on a level playing field”.

It went on: “Statutory price differentiation based on category of licensors would not lead to such a competitive market. Rather, it would create a number of unintended and expensive issues for all market participants, especially when there is no market remedy available to any licensor who is not granted a ‘top rate'”.

In pragmatic terms, the concept of a variable rate throws up many tricky questions – who defines the majors, who defines market share, what about indies distributed by majors, or by a distributor partly or wholly owned by a major, and what about artist market share? – and you have to wonder if the Copyright Office and CRB really want to open up that can of worms. But this latest development makes the upcoming rate review all the more interesting to watch.