Appeals Court Rules in Pandora's Favor in Royalty Rate Fight

The streaming outlet holds the line on what it pays for song performance rights.
Ramin Talaie/Bloomberg/Getty Images

Much to the chagrin of song publishers, music streamer Pandora is having a very good week.

The latest is an opinion on Wednesday from the 2nd U.S. Circuit Court of Appeals that affirms a district judge's reading of ASCAP's consent decree with the U.S. Justice Department.

That consent decree requires a license for song performance rights be given whenever an outlet requests it. In an effort to reap more income from digital outlets, song publishers attempted to withdraw new-media rights from ASCAP in order to negotiate directly with Pandora.

"We agree with the district court’s determination that the plain language of the consent decree unambiguously precludes ASCAP from accepting such partial withdrawals," writes the panel of 2nd Circuit judges in an opinion today.

The publishers either need to be "all in" or "all out" as the opinion notes that "individual copyright holders remain free to choose whether to license their works through ASCAP."

It's possible, though, that the Justice Department could modify the consent decree. There's been strong signals from the government that will be happening soon.

In the meantime, the appeals court also affirmed that Pandora paying 1.85 percent of its revenues to ASCAP is "reasonable." When a licensee doesn't like the pricing it's offered, it can go to "rate court," which is how the 1.85 percent was determined. ASCAP offered alternative benchmarks at rate court, but today's opinion says the rejection of those was "sound."

In a statement, ASCAP CEO Elizabeth Matthews said the decision is a wake-up call. "Powerful corporate interests, like Pandora, are determined to stand in the way of meaningful music licensing reform so that they may continue to shortchange songwriters," she wrote.

Pandora's director of public affairs Dave Grimaldi said in turn, "We are pleased that the 2nd Circuit has affirmed Judge Cote’s ruling, which highlights the anti-competitive harms that can result from a lack of transparency into music ownership."

The decision comes just two days after the FCC decided to allow Pandora to buy a South Dakota radio station. Pandora hopes that the $600,000 purchase of KXMZ-FM will give it access to the kind of deals that terrestrial radio operators get. After Pandora submitted the transaction to the FCC for review, it triggered strong opposition from the likes of ASCAP, but the media regulatory industry said the deal would serve the public interest.

Music publishers now believe they are at war.

"In the history of the struggle between creators and those who try to profit off of their work without paying them fairly, this move by Pandora ranks as the most cynical and shameless," said National Music Publishers Association CEO David Israelite. "Now, there can be no doubt that Pandora has declared war on songwriters."

Update 5/8/2015: Pandora's streak continues with a judge's order to pause a battle over pre-1972 music. The streaming company is currently facing a $25 million lawsuit by Flo & Eddie of the Turtles. Pandora couldn't defeat the lawsuit in a SLAPP motion, but the judge has agreed to stay the lawsuit pending the resolution of an appeal.