A recent court decision has finally lain to rest an uneasy battle between the American Society of Composers, Authors and Publishers (ASCAP), a not for profit performance rights organization (PRO), and Pandora, an online radio station. Companies like ASCAP protect their members’ musical copyrights by monitoring their performances, broadcasts, radio spins, etc. They then collect the licensing fees on behalf of their members and distribute the royalties back to them. In 2012 ASCAP collected over $941 million in licensing fees and distributed $828.7 million to their members, retaining the other 11.6% for their operating expenses.
On March 14, 2014, a U.S. Federal Judge, presiding over the Southern District of New York, rendered a decision setting Pandora’s royalty rate to ASCAP at 1.85% through 2015. The judge rejected the PRO’s argument that the royalty rate should be set at 3%. Moreover, the judge noted that the 3% rate is appropriate for interactive music services like Rhapsody or Spotify, but not services like Pandora, which are considered non-interactive music services, and traditionally pay a lower royalty rate.
The judge rejected the argument that because Pandora’s revenue was growing at a steady rate, PRO’s and companies like Sony and Universal were entitled to a higher percentage of royalties. The judge countered that the rate itself guarantees that the licensee gets larger payments as Pandora grows, as larger revenues will by definition garner larger royalties. The judge also considered Pandora’s perspective: Having a single rate throughout the term of the license allows the company to facilitate more effective business planning. As it stands, Pandora is slated to grow 54% from the $600 million it made within an 11-month period last year, with current projections at $1 billion by the end of 2014.
Lastly, the judge highlighted the disparity between the higher royalties Pandora must pay to record labels and the lower rates Pandora pays to large publishers. The judge suggested that the large publishers’ motives to acquire higher rates were driven by envy. As can be expected, publishers are not happy with the decision and feel slighted by the courts recent judgment. The U.S music publishing industry is now looking to the Dept. of Justice with the goal of negotiating a change in the consent decree laws. For more on consent decree laws and the implication this law suit might have on this see: