12:26pm PT by Eriq Gardner
BMI Advises Pandora That Big Publishers Won't Be Withdrawing Licensing Rights
For the past year, there's been an ongoing mystery in the music industry over whether Universal Music and Sony/ATV would withdraw their song catalogues from ASCAP and BMI. This is a big deal. Take the fuss over the decision on Monday by Taylor Swift to remove her works from Spotify. Now multiply that by a thousand. Imagine if restaurants, bars, clubs and anybody else that relies on blanket licenses to publicly perform music suddenly lost those rights.
The possibility of revolution in the music industry happened after New York federal judge Louis Stanton decided last December that if big music publishers wanted to deny performance licenses to streaming outlets like Pandora, they would have to make a complete withdrawal — not merely a partial withdrawal of digital rights. To reap more income from the streamers, Universal Music and Sony/ATV have been playing footsie with doing just that, but on Friday, Pandora told the judge that it had been advised by BMI of a "significant change in circumstances."
Specifically, according to Pandora's letter to the judge, BMI advised the popular streaming service that "[T]here is no imminent publisher withdrawal at the end of 2014."
BMI confirms this is what it told Pandora, and citing confidentiality, won't explain the basis of the advisement. If withdrawals are indeed off the table, it could come as great relief to Pandora, which has been preparing for the possibility of yanked rights. It would soothe much of the uncertainly caused by the possibility that music users would have to directly negotiate deals.
BMI has been representing song publishers for nearly 75 years, but has been beholden to consent decrees with the Justice Department that requires a license be given whenever an outlet requests it. If a licensee doesn't like the pricing, it can take BMI to "rate court," something that Pandora did in June 2013.
After Sony/ATV and EMI then modified their contracts with BMI so as to pull away certain digital rights, Judge Stanton delivered a summary judgment ruling that indicated that the publishers would only be escaping Pandora with full withdrawals. In other words, the publishers had to be "all in" or "all out."
That led to a flurry of activity on the precipices of January 1, 2014. At the time, Pandora was facing the prospect of losing rights and potentially being sued for copyright infringement. According to a letter to the judge sent by Sony's attorney last month, Pandora avoided the nightmare by electing to take publishers up on an "insurance policy," a covenant not to sue, which might be a fancy way of saying a direct license. In the past year, Sony and Universal cut deals with Pandora for much higher rates than what they expect through BMI.
After making their deals with Pandora, the publishers then suspended their withdrawals from BMI, but left the possibility open again for January 1, 2015. To some observers, this smacked of side-stepping the judge's ruling by being "all in" when convenient and "all out" when negotiating with Pandora.
In this context, there have been calls to reform the process or abandon BMI and ASCAP altogether. For example, in June, the Department of Justice announced that it would be reviewing ASCAP and BMI consent decrees. Then there are those like Irving Azoff, reported to be wooing songwriters to his own new rights management service with the potential of scoring as much as 30 percent more in royalties.
As for Pandora, the company isn't thrilled with the prospect that the publishers could again move to withdraw rights, opening up the possibility of the same licensing dance with publishers that happened at the end of last year. And so, Pandora told the judge on October 14 that it planned to file a new summary judgment motion. Pandora's letter to Judge Stanton isn't public, but according to sources, the company wanted the judge to address the scope of the BMI blanket license before a trial on the rates happens next year.
BMI and the music publishers each reacted swiftly to what they saw as the streamer's move to keep license on songs, regardless of the withdrawals, through the end of 2017.
"With January 1, 2015 approaching, I gather that Pandora may be concerned that our clients may be contemplating total withdrawal from BMI and therefore wants to revisit Your Honor's decision that Pandora is not a licensee in effect," wrote Sony's lawyer Donald Zazarin to the judge on October 21.
That same day, attorney Scott Edelman, representing BMI, made the argument that Pandora was only concerned that publishers would exercise their right to withdraw, thereby requiring the company to enter into direct licenses. According to the letter, "The proposed motion is part of an overarching campaign by Pandora to avoid having this Court consider Pandora’s direct licenses with Sony and Universal as benchmarks of market value for performing rights on Pandora."
Has there been a big development in the past week? It would seem so.
An October 31 letter from Pandora's lawyer Kenneth Steinthal states, "We just received word this morning from BMI that there has been a significant change in circumstances that BMI feels moots Pandora’s need to pursue its summary judgment motion at this time," he writes.
The letter is somewhat of a tease, though, rather than a full explanation of what is happening. Pandora told the judge it was in the process of evaluating the new information. While Pandora might still go ahead and seek some clarification on the scope of the BMI license, whatever has happened is apparently big enough that Pandora is contemplating taking the process out of firedrill mode. Meaning, there might not be any New Year's Eve fireworks to save millions of songs on the digital service, and all other BMI licensees wouldn't suddenly have to fret about the implications of a publisher exodus.
A Sony spokesperson denies that a decision on withdrawals has been made and maybe provides a hint at what's going on by referencing chief executive Martin Bandier's letter to members in July, where he described other options including working with the DOJ to revise the consent decrees or making an appeal of Judge Stanton's decision last December.
Expect to hear more on this front soon.