After long negotiations failed, Pandora has sued the American Society of Composers, Authors and Publishers (ASCAP) and is asking the U.S. District Court in New York to set “reasonable” license fees and terms for a period from Jan., 1, 2011, to Dec. 31, 2015, on a “through to the listener” basis, meaning no third-party licensing is required. Pandora and ASCAP had negotiated a standard form “Experimental License Agreement for Internet Sites and Services” between 2005 and 2010. But ASCAP is unwilling to extend this because “it is not an appropriate benchmark for establishing reasonable ASCAP license fees.”
The music rights group gave the Radio Music Licensing Committee (RMLC) a rate that reflects a fee decrease of about 30% for the majority of radio stations. The court-approved settlement covered “both over-the-air-broadcasting and internet/mobile (collectively, ‘new media’) content offerings operated by RMLC members.” ASCAP won’t offer Pandora the same deal given to its competitors.
The sticking point is RLMC’s 25% standard deduction for new media radio offerings, whether or not ad sales forces are in-house. Pandora primarily has an in-house sales team and ASCAP is only willing to offer a 15% deduction to actually incurred outside-agency commissions.
Pandora also asserts that its licensing fees should be reduced because ASCAP adopted new governing rules in 2011 allowing publishers to withdraw certain licensing authority. EMI announced its plans for New Media Rights Withdrawal in 2011 and has already negotiated a fee and license agreement directly with Pandora from January, 2012 , through December, 2013. Effective January, 2013, SonyATV Music Publishing (which acquired EMI in June, 2012, and is ASCAP’s largest member) will withdraw its entire catalog.
Bloomberg reports that in September, a bill was introduced to require music royalty rates to be comparable for web broadcasters and satellite radio and cable companies. U.S. Senator Ron Wyden (D-Ore.) introduced the Radio Fairness Act of 2012 with U.S. Reps. Jason Chaffetz (R-Utah) and Jared Polis (D-Colo.), but it has a long way to go to make it to law. Jennifer Martinez relays in The Hill that Pandora would greatly benefit as according to Chaffettz’s office “Internet radio services pay more than 55 percent of their revenue in royalty fees, while cable and satellite stations pay between 7 [percent] and 16 percent.”
If the legislation were to pass, online radio services would be subject to the 801(b) standard of the Copyright Act, the same standard used to set the royalty fees paid by cable and satellite radio. The bill is opposed by musicFIRST Coalition, which supports a discussion draft of performance rights legislation by Rep. Jerrold Nadler (D-N.Y.), the Interim FIRST Act, to raise cable and satellite radio licensing fees to the higher royalty-setting standard of Internet radio and begin charging traditional radio stations for on-line live streaming. Martinez covers this in more depth.