Pandora Demands Lower License Fees in Lawsuit Against ASCAP

Pandora Generic Image - Computer - 2011
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Pandora, a leading digital radio service, is making a new play for lower licensing fees on music.

The company is still lobbying Congress to pass the Internet Radio Fairness Act, which would enable a panel of federal judges to set streaming royalty rates in the same procedure used for cable and satellite radio, but Pandora is also targeting the money paid out to song publishers.

On Monday, in New York federal court, Pandora sued The American Society of Composers, Authors and Publishers, the leading performance rights royalty collection agency, in hopes of attaining "reasonable" fees and terms.S

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According to the petition filed, "Despite negotiations spanning more than a year, Pandora and ASCAP have been unable to reach agreement on final license fees and terms -- leading to this filing by Pandora seeking this Court's determination of same."

The lawsuit, first reported by Bloomberg, says that Pandora began negotiating its rates around the same time that a New York federal court approved last January a settlement between the Radio Music Licensing Committee and ASCAP.

Pandora says the settlement was meant to cover both over-the-air broadcasting and new media content offerings by RMLC members, which include most terrestrial radio broadcasters. As one example, Clear Channel is cited as offering a similar digital radio offering as Pandora through its iHeartRadio product and taking advantage of rates whereby 1.7 percent of gross revenue is paid over to ASCAP, less a "standard deduction" of 12 percent for broadcasting and 25 percent for new media offerings.

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Pandora repeats the argument it is making in its fight for more favorable royalty laws, arguing these radio broadcasters are competitors yet are given more favorable treatment.

According to the petition, "In negotiations between Pandora and ASCAP after the announcement of the RMLC-ASCAP Agreement, ASCAP unreasonably has flatly refused to offer Pandora either the percentage-of-revenue rates or the 'standard deduction' applicable to RMLC members' new media offerings."

ASCAP is maintaining it should receive a lower 15% deduction applicable to actually-incurred outside-agency commissions, says Pandora, which the company maintains is "arbitrary, unreasonable and particularly harsh."

The lawsuit goes onto say that after ASCAP changed its rules in April, 2011 to allow its members to withdraw certain licensing authority, EMI took advantage of this and soon negotiated a new media rights deal directly with Pandora. Sony is also said to be negotiating directly with Pandora.

Pandora now says "it is critical...that its ASCAP fees be diminished by a factor commensurate with Pandora's payment obligations to EMI, Sony and any other publisher that may withdraw catalog from ASCAP."

If successful in court, Pandora might trim the licensing fees it pays, but the legislative fight still figures to continue. Digital Music News has been told by a publishing executive that Pandora pays $12.50 to record labels for every $1 paid to songwriters and publishers.

ASCAP had no comment about the lawsuit, but a group representing song publishers was angry.

"It’s outrageous Pandora would try to reduce the already nominal amount they pay songwriters and music publishers, when Pandora’s business model is based entirely on the creative contributions of those songwriters,” said David Israelite, president and CEO of the National Music Publishers’ Association.  “To file this suit at the same time that Pandora’s founders are pocketing millions for themselves adds insult to injury.”

Here's Pandora's filed petition.

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