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Pandora tries to block direct dealing on royalties through courts

By Chris Cooke | Published on Monday 24 June 2013

Pandora is further stepping up its legal battle with US collecting society ASCAP by asking the American copyright courts to rule that music publishers Universal, BMG and Warner/Chappell are obliged to continue licensing their content to the streaming service via the collective licensing system until 31 Dec 2015, when the society’s current obligations to it run out.

The digital company has been fighting various royalty battles with the American music industry – labels and publishers – for a while now, claiming that the current licensing systems put it at a disadvantage to the traditional broadcasters, including those that operate online services the compete head on with Pandora.

The battles have become more high profile since the firm got its public listing on the New York Stock Exchange in 2011, partly because the music community can now cite the company’s valuation whenever it pleads poverty, and partly because the digital set-up’s management have to show to shareholders they are pushing for the best possible royalty terms.

In amongst all of this, and possibly because of it, things have gotten more complicated because the big music publishers in the US – which have traditionally licensed most digital rights via their collecting societies ASCAP and BMI – have decided to start doing direct deals with many digital set-ups. As a result, Sony/ATV has withdrawn its digital rights from ASCAP, and the Universal, BMG and Warner/Chappell publishing companies are about to follow suit.

In theory Pandora now has to do direct deals with each of those publishers, in addition to its existing arrangements with BMI and ASCAP, to ensure it has access to the American industry’s full songs catalogue. The reason the big publishers are doing direct deals is that they think they can get higher rates away from the legal complications that surround royalty negotiations involving collecting societies.

Sony/ATV reportedly got an increase on the usual 4.3%-of-revenue deal Pandora offers to 5% by negotiating directly. And since Apple started agreeing 10% deals with the publishers for its rival iTunes Radio service, it seems likely Universal et al will be pushing for even more.

Presumably realising that fact – and nervous it won’t be able to agree terms with the major publishers in a timely fashion, possibly resulting in a dramatic cut in the songs it is able to stream to its customers – Pandora has now submitted court papers arguing that ASCAP is obliged, under its own rules, to continue licensing all its members songs to the service until 31 Dec 2015.

That claim is based on the fact that negotiations between Pandora and ASCAP regards the current licensing period, which runs until 2016, began before the major publishers started contemplating direct deals. The actual terms for this licensing period are yet to be agreed, and will now be set by the courts, but nevertheless – says Pandora – under ASCAP’s ‘consent decree’ a licence still exists subject to whatever royalty terms the court rules.

And on that specific point Pandora is almost certainly in the right, but does that stop ASCAP-affiliated publishers from withdrawing their digital rights from the collecting society in the meantime and negotiating direct deals? Yes says the digital firm, hence its latest legal action.

But the music publishing sector disagrees, noting that publishers are at liberty to move their rights from one collecting society to another if they so wish even if existing licensee agreements are in place, and therefore a withdrawal from the collective licensing system altogether is also allowed.

Publishing insiders also argue that by already entering into a direct agreement with Sony/ATV, Pandora will struggle to force that publisher back into the collecting licensing system through this legal argument, and by doing a direct deal with the Sony publishing company that provides ammunition for the other publishers too.

All of which is rather complicated isn’t it? A judge is expected to rule on the motion next month, albeit after Universal, BMG and possibly Warner/Chappell in theory stop licensing Pandora through ASCAP.

The latest legal battle accompanies Pandora’s existing litigation with ASCAP over royalty rates, its recently secured lawsuit from the other big US songs rights society BMI, and ongoing lobbying in Washington to have the rates the streaming platform pays to the labels – set by statute in the US – lowered to be in line with those paid by satellite radio firm Sirius XM. Good times for the lawyers and lobbyists then.