Rate Court Judge Rules Pandora Will Pay ASCAP 1.85 Percent Annual Revenue

Justin Steele
Martin Bandier: He's not happy.

Decision is viewed as a setback for songwriters, according to publishing exec Martin Bandier.

In what is being viewed as a defeat for songwriters, the ASCAP/Pandora rate court judge has decided that Pandora will pay the performance rights organization a rate of 1.85 percent of annual revenue.

"This rate is a clear defeat for songwriters," Sony/ATV Music CEO Martin Bandier says. "This rate is woefully inadequate and further emphasizes the need for reform in the rate court proceedings. Songwriters can't live in a world where streaming services only pay 1.85 percent of their revenue. This is a loss, and not something we can live with."

The PROs and the large music publishers have reached out to the U.S. Department of Justice asking them to review the consent decrees that ASCAP and BMI operate under. For the last 18 months, the large publishers have been trying to withdraw just their digital rights from the PROs, but the courts have ruled against the publishers, saying that they are either "all in or all out."

PHOTOS: Apple Products in TV and Movies

When the rate case was being heard, Pandora argued that the rate should be in the range of 1.7 percent on the low end and 1.85 percent on the high end, while ASCAP's lawyers made the case that the rate should be 1.85 percent for the first two years; 2.5 percent for 2013; and 3 percent in 2014 and 2015.

Instead of giving ASCAP the rate increases it asked for the last three years, the court went with the rate Pandora has been paying for the last few years. In a statement, ASCAP noted that while Judge Cote did not fully adopt the escalating rate structure that ASCAP sought, she also rejected Pandora's argument that it should get the 1.7 percent rate that the Radio Music Licensing Committee has negotiated for terrestrial radio's digital webcasts.

ASCAP CEO John LoFrumento said that ASCAP is pleased that the court recognized the need for Pandora to pay a higher rate than traditional radio stations.

STORY: SXSW: Streaming Panel Sees Reps From Beats, Pandora, Rdio Weigh in on 'Man vs. Machine' 

"But recent agreements negotiated without the artificial constraints of a consent decree make clear that the market rate for Internet radio is substantially higher than 1.85 percent," LoFrumento added. "And today’s decision further demonstrates the need to review the entire regulatory structure, including the decades-old consent decrees that govern PRO licensing, to ensure they reflect the realities of today’s music landscape."

By recent agreements, LoFrumento was apparently referring to the 10 percent of revenue rate that sources say Apple agreed to pay publishers in direct deals -- and also to ASCAP and BMI -- for its Pandora-like service, iTunes Radio. If the BMI/Pandora rate court judge makes a similar ruling -- the trial is still in the discovery phase -- that likely means Pandora's rate to the music publishing industry will remain about 4 percent of its revenue.

"This is a very sad day for America's songwriters and music publishers," National Music Publishers' Assn. president David Israelite said in a statement. "The decision confirms that songwriters will never be paid fairly under World War II era consent decrees."

While Pandora declined to comment, a source in the digital service camp says that Judge Cote's decision is "an unqualified victory" for the digital service.

Meanwhile, LoFrumento said that ASCAP remains committed to working with all "music industry stakeholders to create a system that preserves the benefit of collective licensing to businesses seeking music licenses," while giving consumers greater access to music and working toward getting true value for the  music created and/or owned by the 500,000 songwriters, composers and music publishers ASCAP represents.

“Streaming is growing in popularity -- and so is the value of music on that platform," LoFrumento said.