Pandora Media Fights Publishing Rate Battle with American Society of Composers, Authors and Publishers

February 20, 2014

Millions of Americans stream music to their phones, tablets, and computers daily, commonly employing services such as Pandora or Spotify to do so. In the past year alone, Pandora Media has claimed to hold over seven percent of the radio market, with nearly seventy million listeners. This method of listening to and enjoying music shows continued promised growth.  As Internet radio services grow, most Americans fail to consider the cost implications and payment methodologies of using such a service, as the service itself is free to the consumer. Pandora Media, Inc. is now entangled in a lawsuit with the American Society of Composers, Authors and Publishers (“ASCAP”), a licensing organization, over fees paid to songwriters and publishers.
Simply explained, each time Pandora (or another music streaming service) plays a given music artist’s song, it must pay two primary fees: first, a fee to the record company responsible for the production of the album. This first fee, in turn, is distributed to the music artist who performed the song. The second fee involved is a licensing fee, which is paid to the publisher or composer who wrote the song. Pandora sells advertising, as well as “memberships,” to cover these expenses and earn a profit. In determining the amount owed to licensing organizations, Pandora has elected to pay a percentage of its revenue, rather than on a pay-per-song basis. So what’s the big issue? Songwriters and publishers, represented as members of the organization ASCAP, are demanding to be paid more for their work in the form of a higher percentage rate of Pandora’s revenue.
In terms of a legal framework, the Justice Department and ASCAP (along with another giant music publishing firm, Broadcast Music, Inc.) have maintained a consent decree for the past seventy years designed to ensure “fair royalty rates for songwriters and for the radio stations, television networks and even restaurants and retail shops that play their music.” The decree, which was agreed upon in 1941, key provision fails to define a fair or reasonable rate fully. As a result, Pandora has paid a mere 1.85 percent of its revenue annually to publishers, and publishers believe this figure to be unfair. In 2010, Pandora directly negotiated with ASCAP to reach an agreed-upon rate of payment. However, Pandora is now seeking a better deal.
ASCAP believes that the consent decree is outdated and is generally unworkable in today’s digital environment. On the other hand, Pandora insists that if it had to pay increased royalty fees, it may be forced into bankruptcy over time and cease to exist entirely. Beyond that, Pandora cites to the fact that regular, airwave radio stations pay only 1.7 percent of their revenues to publishers, and that it should be treated in the same manner. The company’s chief argument relies on this comparison to traditional radio stations.
The suit is currently pending in the Southern District for New York.  The court’s decision will hopefully provide for a modern solution to a modern problem and set a solid precedent as to how royalty rates are calculated going forward in today’s digital world. In short, the court should set a rate calculation that can ensure fairness for both publishers and streaming music services the next seventy years.