BMI Files Suit Against Pandora

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Broadcast Music Inc. is seeking a determination of rates for a blanket license for all music played on the streaming service.

BMI, Broadcast Music Inc., today filed suit at the U.S. Southern District Federal Court in New York, seeking a determination of rates for a blanket license for all music played on Pandora. Billboard broke the news of the impending lawsuit late last night.

The suit was filed on the heels of Pandora buying a small terrestrial radio station in what publishers are referring to as a back-door attempt to pay publishers a lower rate. The BMI lawsuit says that "Pandora's stunt makes a mockery of the performing rights licenses and the rate court process."

Prior to the Pandora maneuver, BMI's suit says it had proposed an increased in Pandora's fees consistent with market rates and Internet streaming music's growth, but also included adjustments to account for the withdrawal of digital rights by some BMI-affiliated publishers. But the suit noted that Pandora commenced a rate proceeding against ASCAP to actually lower its current fees and said it expects Pandora to claim that is no different than commercial broadcast radio, which BMI contends is a wrong assertion.

In October 2012, Pandora terminated its agreement with BMI, which covered rates from 2005 through 2012 and sought a new license beginning on Jan. 1, 2013, but did not detail the nature of its services to be covered by the request or the scope of the license sought, BMI's suit said.

Nevertheless, BMI said it quoted a fee that it deemed reasonable to Pandora in March, which the service rejected. The license in question will cover the period from Jan. 1, 2013, through Dec. 31, 2014.

The suit, filed on behalf of BMI by Milbank Tweed Hadley & McCoy LLP, notes that some publishers have withdrawn their digital rights because they want to obtain market rates for their music, and pointed out that the rate Pandora agreed to pay Sony/ATV represents a 25 percent increase over the rate Pandora paid BMI for 2012.

In moving over to examine Pandora's attempt to acquire KXMZ-FM, a radio station broadcasting in Rapid City, S.D., on June 11, the BMI court document detailed the agreement between BMI and the Radio Music Licensing Committee to give background information as to why Pandora's attempt at lower licensing is inconsistent with the blanket license covered in that agreement. The BMI deal was based on the agreement between RMLC and ASCAP, in which it was agreed that each licensee would pay a royalty of 1.7 percent of their gross revenues, minus a 15% deduction on the fee. In its own deal with RMLC, BMI was willing to accept a lower rate for RMLC's stations' new-media transmissions "because of the significant fees, [on average $150 million per year] paid by terrestrial radio stations to BMI for their broadcasts."

The lawsuit also charged that Pandora's acquisition of the ratio station is "an open and brazen effort to artificially drive down its license fees … for the expressly stated purpose of 'qualifying for the same RMLC license under the terms as our competitors."

Pandora contends that its purchase of that station is sufficient to transform its online music streaming service into a new-media transmission, according to the BMI document. But BMI counters that its radio station license is expressly limited to covering only those new-media transmissions by radio stations with a commercial relationship with the terrestrial radio stations and "does not cover [a] primarily Internet-based music streaming service that happens to own a single radio station in a city with a total population that is less than 0.045 percent of Pandora's online membership."

In a statement sent to Billboard late last night, a Pandora 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. 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.' 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. This is not a case of Pandora trying to pay less. It is a case of publishers discriminating against Pandora.”

Pandora points out that Clear Channel's iHeartRadio is a beneficiary of the lower rate, so it feels it is entitled to it as well.