The main music-related legal battle of the 2000s was A&M Records v. Napster, an action filed by multiple record labels against the free file-sharing network Napster.
While online file-sharing and music piracy ruled discussion and dissent 10 years ago, the conversation in the 2010s may target online radio streaming services like Pandora and Spotify. It even has a court case to match.
Broadcast Music Inc., a major player in collecting performance rights fees for artists, filed suit against Pandora last month, claiming that the online streaming service is underpaying artists and songwriters for use of their work. The suit was filed in the U.S. District Court of Southern New York, but could have major implications for Music Row and Nashville.
Pandora allows its listeners, which number in the hundreds of millions, to access a large database of music. According to the lawsuit, Pandora streamed 14.01 billion hours of music in the fiscal year ending Jan. 31, 2013.
But songwriters and publishers feel shortchanged. The American Society of Composers, Authors and Publishers issued a statement last month saying that “The House that Built Me,” a hit song by Miranda Lambert, received just $1,788.48 from 22 million plays.
Pandora claims to pay out about $1,370 for every 1 million plays.
“Regardless of the math, the truth remains that any way you cut it, when it comes to Internet radio, ‘X spins pays Y dollars in performance fees’ is always going to sound like a small number,” Pandora founder Tim Westergren wrote on the company’s blog last month. Why the discrepancy vs. radio? A single play or “spin” of a song on Pandora reaches just a single user, while terrestrial radio plays have the potential to reach thousands of listeners.
But ASCAP and BMI insist that the rates are too low. In the past, massive exposure via terrestrial radio typically boosted hard-copy CD sales. However, the increased availability of online streaming has reduced the consumer appeal of retail products like CDs — which has led to rights organizations asking for higher royalty rates.
Pandora sued ASCAP in November 2012 over a rate issue, claiming that ASCAP charged substantially lower rates to terrestrial radio stations that streamed online. According to the suit, radio group Clear Channel had an online radio service called iHeartRadio that received lower rates under a “new media transmissions” designation.
Therefore, Pandora raised eyebrows in June by purchasing a Top 40 radio station in Rapid City, S.D. The ownership of a terrestrial radio station could lead to Pandora arguing that their online streaming qualified as “new media transmissions.”
The BMI lawsuit filed in New York claims Pandora’s purchase of the radio station was a “stunt” that makes a “mockery” of performing rights licenses.
But in his blog post, Westergren claims Pandora isn’t trying to drive down royalty rates.
“We did not enter this period looking for a lower rate — we agreed to a higher rate. But in a sad irony, the actions of a few small but powerful publishers seeking to gain advantage for themselves has caused all songwriters’ royalties to go down,” Westergren wrote. “Any characterization of Pandora as being out to cut publishing rates flies in the face of the facts.”
BMI declined to comment further on the impending litigation, aside from a statement released to the media last month. According to the company, this is the first time they have resorted to litigation over online fees “in the 18 years since it signed the first music industry copyright license for the performance of music on the Internet.”
BMI is asking the court to approve a rate quote between the two parties. According to the lawsuit, the quote will be “reasonable” compared to Pandora’s agreements with Sony and EMI, as well as a BMI agreement with Spotify, another online music streaming service. BMI even reveals in the lawsuit that the proposed rates offered to Pandora are lower than their current agreements with Spotify and other services.
The lawsuit specifically points out Sony’s “watershed” deal with Pandora, which marked the first time in 50 years that a direct license was negotiated without falling under a publishing rights organization. BMI argues that Sony’s deal — presumably better than BMI’s — should be taken into consideration in the most recent rate court action.
And as Businessweek writer Joshua Brustein points out, rate court could decide Pandora’s future.
“It’s telling that the [radio station] deal was announced in an editorial written by Christopher Harrison, Pandora’s assistant general counsel, in The Hill, a Washington newspaper covering legislative minutiae,” Brustein wrote. “Pandora’s future relies more on laws and courts than on its ability to successfully run KXMZ, Hits 102.7.”