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Business News Digital Labels & Publishers Legal Top Stories
BMI v Pandora royalties dispute reaches court
By Chris Cooke | Published on Wednesday 11 February 2015
The latest skirmish in the music industry’s war with Pandora kicked off in New York yesterday as the legal battle over what royalties the streaming service should pay American collecting society BMI reached court.
What royalties Pandora pays all music right stakeholders – so labels, artists, publishers and songwriters – has been a contentious topic of debate within the American music community for some time, of course, and more so since Pandora floated so that its finances are more public, and as the service has boomed so to become a significant revenue stream for the music rights industry at large.
In the main, Pandora’s royalty rates are governed by statute and the courts, because the labels are forced to licence through the SoundExchange collective licensing system (unless they can persuade the digital firm to do otherwise), while the music publishers have licensed their performing rights to the service through their collecting societies – BMI and ASCAP – which are subject to the so called ‘consent decrees’, meaning disputes over royalty rates have to be settled in court.
As Pandora grew in size, the big US publishers decided that they shouldn’t licence Pandora through BMI and ASCAP, because if they did direct deals – away from consent decree regulations – they could demand more money without the risk of the matter being taken to copyright court. And indeed, the big publishers started to withdraw their digital rights from the collecting societies, and some did negotiate more favourable direct deals.
But then there was a dispute over whether or not the publishers could withdraw before Pandora’s current licence agreements with ASCAP and BMI expired (the courts said ‘no’ with the ASCAP licence, but ‘yes’ with BMI).
Then everyone started saying that under current consent decree rules the publishers couldn’t withdraw just their digital rights from the collective licensing system, it was either all in or all out. And when Sony/ATV decided to bluff, and said “alright then, maybe we’ll pull all our rights”, the more savvy music lawyers mused “hmm, check your songwriter contracts, is that even possible? Certainly not with non-US repertoire”.
But then veteran artist manager Irving Azoff said (and we paraphrase slightly): “Well, I represent some of the world’s biggest songwriters, and we’re pulling our rights, so fuck you YouTube”. Which was unnecessary. I mean, who mentioned YouTube? It’s all a bit of a confusing mess, isn’t it? But that’s not my fault. And if you complain I’ll throw mechanical licensing into the mix and then you’ll all fall over.
Anyway, to backtrack slightly, somewhat ironically the BMI licence Pandora has been busy trying to enforce to stop the publishers pulling from collective licensing isn’t even fully agreed. The sticking point being royalties, and that’s what is at the heart of this current court case. Which makes it, in principle, quite simple. Pandora wants to pay 1.75% of its revenue to BMI, while the collecting society wants 2.5%.
Though all of the previously mentioned complications will be brought up by attorneys for both parties as this court battle proceeds. Already yesterday, in its opening arguments, BMI cited the provisional direct deals done between Pandora and Sony/ATV and Universal as proof that the 1.75% rate undervalued the songs catalogue BMI represents. While Pandora’s legal reps said the circumstances of those direct deals – amidst all the confusion over what repertoire could be pulled by whom and when – made the rates agreed unreliable.
Meanwhile, Pandora stressed that it was arguing for the status quo, sticking with the royalty rate it has paid BMI since the outset. For his part, BMI’s lawyer said that his client’s first deal with Pandora was experimental at a time when the service was tiny. And when said deal was renewed for the first time, even though the collecting society reckoned its catalogue was being undervalued, revenues from the streaming service at that point didn’t warrant the cost of a lengthy legal battle. But by 2015, everything has changed.
The court hearing is expected to last three weeks. The outcome will be important to both BMI and Pandora, though possibly only for a time, if the current review of BMI and ASCAP’s consent decrees results – as the publishers hope – in a much more flexible system for the rights owners.
