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Pandora sues ASCAP to cut royalties bill

By | Published on Wednesday 7 November 2012


Pandora, which is playing a tricky PR game at the moment as it battles to pay lower royalties to music rights owners in the US, has taken one of the American publishing industry’s collecting societies to court in a bid to force a lower rate.

One of the longest established streaming music set ups, Pandora has always been critical of the royalties it has to pay to record companies and music publishers in order to offer its online interactive radio service, even though those rates will be considerably lower than those paid by Spotify-style streaming platforms that offer full on-demand functionality. Pandora and its boss Tim Westergren, however, prefer to compare their business with conventional radio services, which usually benefit from much more favourable royalty terms.

But while Westergren’s royalty griping is not new, he has become particularly vocal on the matter of late, partly because since becoming a publicly listed company Pandora has many more shareholders to placate, and partly because the streaming music market is becoming ever more competitive, with newer start-ups such as Spotify and old-school radio companies like Clear Channel moving into the sector.

Most attention in recent months has been on the royalties paid to the sound recording owners, ie the record companies. In the US, terrestrial radio stations pay zero royalties to the labels (something the record companies have, unsuccessfully to date, being trying to change), but satellite and internet radio services do have a royalty obligation, usually paid via the statutory rights body SoundExchange.

However, the way sound recording royalty rates are set for satellite and internet services differs, in a way that, most reckon, means satellite broadcasters get a better deal. Westergren, therefore, is busy lobbying with his counterparts in internet radio, including Clear Channel, for a change to the laws that govern sound recording royalties, to bring satellite and internet services in line with each other. Such a move should cut Pandora’s royalty obligations to the labels.

But the dispute with ASCAP is over the royalties paid to the owners of song rights (who receive money from the terrestrial broadcasters too). Pandora has been trying to renegotiate its terms with the publishing rights collecting society for some time, but went legal on Monday. According to reports, the lawsuit says it wants the court to force ASCAP into offering more “reasonable fees and terms”.

Pandora argues that the current deal on the table is unfair because the proposed rates are less favourable than those agreed with other digital services (by which it means the likes of Clear Channel’s iHeartRadio, the major radio firm having a combined agreement with the collecting society for both its terrestrial and online services via the Radio Music Licensing Committee), and because the deal fails to acknowledge plans by Sony/ATV/EMI to start licensing digital platforms directly, rather than via ASCAP.

A Pandora spokesman told Billboard: “ASCAP continues to seek rates higher than the current rates and above the agreement that they reached earlier this year with all of the major radio groups, which covers both broadcast and internet radio usage for the majority of our competitors. As a result, we are initiating the process that has been in place for decades to resolve royalty disputes with ASCAP”.

ASCAP is yet to respond to the legal action, though the boss of the US National Music Publishers Association, David Israelite, was quick to hit out at the digital firm, telling reporters: “It’s outrageous Pandora would try to reduce the already nominal amount they pay songwriters and music publishers, when Pandora’s business model is based entirely on the creative contributions of those songwriters”.

Pandora’s various efforts to cut its royalty bills have been criticised by various players in the American music industry in recent months, many noting that, unlike most traditional radio services which complement music with their own programming, Pandora is almost exclusively reliant on the songs and recordings provided by publishers and labels.

Others have noted the current market valuation of Pandora (and Westergren’s personal fortune based on his stock). Pandora has a market capitalisation on par with some major players in the music industry, which may well be based on the recent trend in investment circles to vastly over-value digital firms, but which does hinder the streaming company’s bid to present itself as a grass-roots set up with music at its heart, that just wants a more level playing field between it and America’s traditional broadcasters.