In the 1980s, video killed the radio star, and today, it’s streaming music services that are causing great pain for music creatives: Pandora has just won a big decision in the U.S. Court of Appeals for the Second Circuit, beating down the American Society of Composers and Performers (ASCAP).
The appellate judges affirmed a lower court’s 2013 ruling, setting a 1.85 percent rate for public performance of songs in the ASCAP catalog for Pandora and other Internet radio services. The higher court also nixed an ASCAP move effectively to let music publishers negotiate directly with online services like Pandora for performance royalties, potentially increasing the difficulty and cost.
This controversial case has been closely watched and will please those favoring technology’s advance in providing music and other forms of entertainment in new ways, while leaving creative artists and sizable swaths of the music industry angry and glum. For Pandora, in particular, it was a second bit of promising news, as the company also has just won approval of its bid to acquire a South Dakota radio station, giving it a toe-hold into yet another way to secure lower royalty rates for music.
Heavyweights gird for battle
Streaming services and the music industry have gone at each other for several years now, with ASCAP, the rights clearinghouse that represents roughly half of all composers and publishers in the U.S., caught up in the strife. In 2010, ASCAP came out with its “license 5.0,” an attempt to keep up with rapidly advancing technology’s impact. ASCAP was roiled by its members bitter complaints that, with the growing popularity of streaming and other online services, they were getting below market rates for their public performance license.
Several large industry players sought to break away to negotiate their own rates with Pandora and others, and ASCAP modified its rules to allow members to partially withdraw and negotiate their own terms. That excluded those members from ASCAP repertory when the organization dealt with streamers.
Pandora and ASCAP soon headed to court, with U.S. District Judge Denise Cote eventually finding in favor of the streaming service.
Because of its size and outsized influence, ASCAP long has operated under a court consent decree and the appellate judges, agreeing with a the district court, rejected the organization’s efforts to cut up its repertory. ASCAP cannot dole out pieces to Pandora, because the decree states that it must grant nonexclusive rights to all works in its repertory. Publishers can choose whether to license works with the organization so their copyrights are unaffected.
The royalty fee fight
The appellate court found reasonable and enforceable the 1.85% streaming license fee, effective through this year, as approved by the lower court. That was far below ASCAP’s original 3% proposed fee but the appellate judges said the rights organization had failed to show the higher rate was reasonable.
ASCAP, in a statement published on the group’s site, denounced the appellate ruling and called for the U.S. Justice Department and federal lawmakers to review the consent decree and the laws governing music licensing to bring them in line with current reality. “This ruling reaffirms what we already know – that the ASCAP Consent Decree and the rules that govern music licensing are outdated and completely out of step with the way people listen to music today,” said the group’s CEO Beth Matthews.
Pandora did not comment on the case. It controls an estimated 70 percent of the streaming market, ASCAP has said, and the service has insisted its rates are fair to creatives while providing the financial incentives its business needs to thrive. For performers, ASCAP’s CEO argues, “Powerful corporate interests, like Pandora, are determined to stand in the way of meaningful music licensing reform so that they may continue to shortchange songwriters. This is a wake up call for creators to stand together, get involved and fight for their right to be paid a fair market rate for the use of their works.”
Performing artists have assailed Pandora and other services for what they say are the paltry royalties they get paid. Taylor Swift angrily has yanked her works from Pandora rival Spotify and a songwriter recently penned an Op-Ed in which he said his co-written work had more than 168 million U.S. streams and yet his split of the payment from Pandora amounted to $4,000. Here’s Pandora founder Tim Westegren in a recorded interview rebutting claims his company cheaps out on creatives.
Pandora’s radio station play
Meantime, Pandora also got news favorable to the company from the Federal Communications Commisssion in recent days, with Uncle Sam allowing the streaming service to get grounded. The FCC said Pandora could buy a South Dakota radio station, a move bluntly described by an online music news site as “a complicated plan to screw songwriters.”
No, the online savvy business folks at Pandora don’t plan to blare rap, hip hop, or rock across the vast, wheat-filled plains. The Dakota move lets Pandora qualify for more favorable royalty payments as accorded to traditional broadcasters.