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BMI hones in on some key points in its Pandora ruling

By | Published on Friday 29 May 2015


With the US publishing sector having felt increasingly on the back foot in its battle for higher royalties from the digital services, and especially Pandora, performing rights organisation BMI is understandably still buzzing from its court win against the personalised radio service earlier this month.

As previously reported, in the ruling judge Louis L Stanton backed BMI’s proposal that the royalty rate paid by Pandora for use of the society’s repertoire be increased from the current 1.75% to 2.5% of the digital firm’s gross revenues. Indeed the judge said the proposal was not only “reasonable”, but “at the low end of the range of fees of recent licenses”.

Publishers and songwriters in America argue that their negotiating hand is greatly weakened in the digital domain because of the country’s copyright laws. The big publishers wanted to pull from the collective licensing system for digital, as the big five have already done in Europe, believing that they could secure better deals away from the rate courts that ultimately rule on royalties in collectively licensed arrangements Stateside.

But when they tried to pull, the US courts said that under current collective licensing rules, publishers couldn’t just pull digital rights out of their two main societies – ASCAP and BMI – they were either all in or all out.

The publishers are now busy lobbying to have those rules changed, but in the meantime BMI has secured a better deal through the collective system anyway, though mainly by relying on the pre-emptive deals Pandora did with Sony and Universal when it looked like the majors would pull digital from the PROs.

Having reviewed Stanton’s long judgement in full, BMI yesterday published some of the highlights, noting that the judge clearly stated that, even though the directly negotiated deals were put on hold by the courts, the “direct licenses between Pandora and Sony and Universal for the 2014 calendar year were the best benchmarks because they are the most recent indices of competitive market rates”.

And crucially, those benchmarks could be taken into account by the rate court, something that doesn’t always happen. Pandora had argued that the circumstances of the Sony and Universal deals meant they weren’t reliable guides to market rates. But BMI notes that Stanton rejected that argument.

He wrote: “The predominant motive of Pandora’s management in the publisher negotiations was to retain the publishers’ works in its inventory of songs because of those songs’ importance to its business”. And “once the rate negotiations were freed from the overhanging control of the rate courts, the free-market licenses reflect sharply increased rates”.

Stanton also rejected the argument that Pandora was unfairly treated compared to traditional broadcasters with digital operations, which can use a separate licence negotiated by BMI with the Radio Music License Committee.

BMI also highlights what the judge had to say about that. “[This] is not an appropriate benchmark because Pandora is not radio and is not similarly situated to the other RMLC licensees. On the spectrum extending from terrestrial broadcast radio to streaming on-demand services, Pandora evades neat categorisation”.

The wider American music industry is, of course, fighting battles with Pandora on various fronts, the personalised radio service being licensed via the collective system on the publishing side and under a compulsory licence when it comes to sound recordings.

To date the digital service has seemed to have the upper hand in its legal battles, and it remains to be seen in the Stanton ruling changes that. Though if the publishers successfully alter collective licensing rules and pull from ASCAP and BMI on digital anyway, the importance of this ruling may be less significant long term.

Nevertheless, BMI CEO Michael O’Neill continues to big up the judgement, telling reporters: “This decision is an enormous victory for the more than 650,000 songwriters, composers and publishers that BMI has the privilege to represent. The court resoundingly agreed with BMI, supporting our position that 2.5% was ‘reasonable, and indeed at the low end of the range of fees of recent licenses'”.

He went on: “Given the recent industry deals made in the free market, the court agreed with BMI that this rate is a more appropriate reflection of the value of BMI’s music. This is an important step forward in valuing music in the digital age”.