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US industry responds negatively to Pandora’s FM buy, and BMI might now go legal in royalties squabble

By Chris Cooke | Published on Thursday 13 June 2013

Well, once you’re suing ASCAP with your right hand, you might as well be fighting BMI in the courts with your left, I suppose. According to Billboard, American song rights collecting society BMI is preparing to sue Pandora, the streaming music service which itself launched legal action against BMI competitor ASCAP last November.

Pandora has been pushing for a while to reduce its royalty payments to both the record companies and the music publishers, in the former case by lobbying in Washington to reform the statutory licensing system through which American interactive radio services can access sound recording rights, and in the latter case by negotiating hard with the US music publishing sector’s collecting organisations, mainly ASCAP and BMI.

In both battles Pandora argues that its royalty obligations are unfairly higher than those of conventional radio broadcasters, which it sees as its primary competitors (rather than, say, iTunes, or even Spotify).

And in a novel move, this week Pandora bought an FM radio station in South Dakota to qualify for membership of the Radio Music Licensing Committee, which negotiates song royalty rates for the US radio industry’s AM, FM and online services. Pandora hopes that as an RMLC member it will be able to access more preferential rates.

It’s this move, says Billboard, that has convinced BMI management that it’s time to withdraw from ongoing negotiations with Pandora chiefs, and instead to go legal in a bid to find a settlement with the digital service.

Though, given it was Pandora which took its negotiations with ASCAP down the legal route, that may not bother the streaming service’s bosses too much, given they seem to think there are legal arguments as to why the collecting organisations have a duty to offer them parity with the traditional broadcasters. And especially with radio giant Clear Channel, which operates its Pandora competitor iHeartRadio under its RMLC licence.

But however strong, or not, Pandora’s legal arguments may be, its ongoing royalty battles certainly provide PR challenges for the digital company. The music publishing sector did not respond well to yesterday’s news about the FM station acquisition and Pandora’s planned exploitation of the RMLC system.

ASCAP President Paul Williams told Billboard: “Pandora is trying every trick in the book to brazenly and unconscionably underpay and take advantage of the creative labour that produces the core offering of their business – music written by individual songwriters and composers. ASCAP has an ethical obligation to serve and protect the hundreds of thousands of small and independent songwriters, composers and music publishers we represent to ensure that they receive fair compensation when their songs are performed on any technology platforms”.

Meanwhile the boss of the National Music Publishers Association David Israelite, who has been critical of Pandora before, said: “This is another sad step in Pandora’s escalating war against songwriters. While other digital partners are making voluntary deals, Pandora chooses to sue the very creators who make its business possible”.

But Pandora hit back, criticising ASCAP in particular – it being the music industry player in the digital firm’s existing legal battle on this issue – arguing that the society was allowing key members to withdraw from the collective licensing system when it came to Pandora, so to negotiate even higher fees directly, while simultaneously negotiating more favourable terms with those companies represented by the RMLC.

A spokesperson said: “Pandora values and respects those who create music and seeks to pay a rate that is fair to all artists, and fairness needs to account both for what artists receive and what Pandora’s competitors are asked to pay”.

Adding: “In a good faith attempt to avoid a protracted disagreement, Pandora offered to pay ASCAP higher rates than it currently pays, but ASCAP refused, choosing instead to enable the publishers to try to extort even higher rates through a scheme of ‘selective withdrawals’ [from collective licensing]. At the same time, ASCAP agreed to the lower licensing rates with the RMLC, which was approved by the rate court, and extended these lower rates to virtually all of Pandora’s competitors, including iHeartRadio, Pandora’s largest competitor”.

The digital firm concluded: “This is not a case of Pandora trying to pay less. It is a case of publishers discriminating against Pandora”.

Though adding to Pandora’s PR challenges – especially if litigation from BMI is indeed incoming – is the rumour that Apple has reached an agreement with BMI chiefs for its iTunes Radio service, offering the collecting society the same terms as it has to those music publishers – and BMI members – which have chosen to do a deal directly. While Pandora may well have a right to moan that its rivals in the traditional broadcasting sector are getting better deals, industry types will likely counter, if Apple can agree terms, why can’t you?