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Pandora confirms settlement with majors over pre-1972 recordings

By Chris Cooke | Published on Friday 23 October 2015

Pandora has confirmed that it has reached a settlement with the major labels over its use of pre-1972 sound recordings. The streaming platform follows the lead of US satellite radio service Sirius which, back in June, agreed to pay $210 million to the three majors – Universal, Sony and Warner – and ABKCO Music, which is best known for controlling the early Rolling Stones catalogue.

This relates to ambiguities in US copyright law over whether or not satellite and digital services are obliged to pay royalties to record labels when they play tracks that pre-date 1972. Federal copyright law says royalties are due from such services, but those rules only cover catalogue back to 1972, with earlier recordings protected by state laws.

The older state-level copyright laws say nothing specific about services like Sirius and Pandora so – given that AM/FM radio stations have never paid any royalties to labels – some satellite and digital services decided they had no obligations either. But key court cases last year suggested otherwise.

As expected, Pandora will pay the majors $90 million for past and future usage of pre-1972 repertoire, in a deal that runs to the end of 2016. The settlement – as with the Sirius deal – poses the question as to what the labels intend to do with the money. Pandora and Sirius usually license recordings through the SoundExchange collective licensing system, where income is automatically split 50/50 between labels and artists, with session musicians also getting a cut of the latter share.

Technically speaking, if monies circumvent the SoundExchange system, the statutory obligation to automatically give artists half the cash no longer applies. But Billboard’s sources at the majors indicate that they are intending to pass half the settlement money onto artists, possibly using SoundExchange to administer that process.

Certainly a statement from SoundExchange chief Michael Huppe implied that artists as well as labels would benefit from the settlement. He told reporters yesterday: “We are pleased that Pandora has agreed to pay these legacy artists, giving them the compensation and respect they have earned. It is a great day when performers are paid for their work as all artists should be paid fairly, every time their music is used, across all platforms. This is a good start, which we hope encourages all services – including Pandora – to pay for all pre-72 recordings across all of their programming”.

Meanwhile Recording Industry Association Of America CEO Cary Sherman said: “Major settlements with SiriusXM and now Pandora means that an iconic generation of artists and the labels that supported them will be paid for the use of their creative works”.

Confirmation of the settlement came as Pandora issued its latest financial report, which showed decent revenue gains, and losses more or less in line with expectations, though the firm’s share price still slipped 20% in after hours trading, with investors seemingly concerned about a slowdown in audience growth, possibly as a result of increased competition in the streaming music market.

Pandora is also facing continued battles in its bid to reduce its royalty commitments to the music industry. A review of the rates it pays the labels via SoundExchange is still going through the motions, while earlier this week the digital firm filed an appeal to the rate court that in May increased its royalty obligations to one of the performing rights organisations on the songs side, BMI.

The appeal argues that the rate court judge was wrong to take into account the royalties agreed in the ultimately unfulfilled direct deals that were negotiated between Pandora and the major music publishers at a time when the former thought the latter were going to pull their digital rights from the PROs (an eventuality that the courts subsequently blocked). Pandora also says that the judge in the BMI case should have considered a ruling on the rates it pays the other main US PRO, ASCAP.

For its part, BMI said in response to the appeal: “We think [the judge] got it right in his decision, and we look forward to presenting our arguments once again in our reply brief. We are confident the Court Of Appeals will affirm the decision”.