Post by FMC Interim Executive Director Casey Rae

The Internet Radio Rate Wars continued this week, as performing rights organziation (PRO) ASCAP squared off against Internet radio giant Pandora in a federal court. The outcome could determine how royalty rates are set for PROs, webcasters, songwriters and publishers well into the future.

This specific skirmish was initiated by Pandora, which seeks to lower the royalty rates paid to songwriters and publishers via ASCAP—a membership organization that collects and distributes royalties from the public performance of compositions (in this case, internet radio broadcasts). But ASCAP and its publisher and songwriter members also have plenty riding on the case, as they are keen to increase the amount paid by Pandora.

It’s not hard to see why: according to reports, Pandora pays 4.3 percent of its revenue to songwriters and publishers; compare that to the amount—nearly half of revenue—that the company pays to performing artists and labels.

The current beef goes back to 2010, when an agreement between ASCAP and Pandora expired. Since then, both parties have relied on a temporary agreement set to run through 2015. That accord was scuttled when Pandora took legal action to compel renegotiations at more favorable terms.

Meanwhile, BMI—another PRO bound by consent decrees going back half a century—just reached a deal with Pandora. Is your head spinning yet?

It gets more complicated. There are also ongoing debates about whether publishers can pull catalog from PROs (like ASCAP and BMI) in favor of licensing directly with services, because they think they can get a more favorable deal than the PRO can negotiate on their behalf. The National Music Publishers Association (NMPA) is in favor of such maneuvers, likely believing that direct deals will “lift the floor” of compensation, with higher rates serving as evidence in future proceedings before the rate court. At issue is whether publishers are allowed to remove catalog used in digital broadcasts, while staying with a PRO for other services (such as collecting money from AM/FM radio and venues).

In reality, direct deals can make it harder for new services to enter the marketplace (as well as for artists to know how they’re getting paid, when and by whom). Such arrangements can also end up drive rates down, as rightsholders pursue bargain basement deals in exchange for excusivity or other special treatment. This phenomenon doesn’t just affect the songwriter/publisher universe—similar deals threaten to undermine the broadcast marketplace for sound recordings (check out this post for reasons why). Meanwhile, if a deal can’t be struck and catalog is pulled, some listeners may take refuge in unlicensed alternatives—which pay songwriters nothing at all.

As Judge Denise Cote of the US District Court in Manhattan wrote in a recent decision about whether Sony/ATV could withdraw only their digital performance licenses from ASCAP, “‘All’ means all.” This decision was a win for Pandora, who want the ongoing ability to use the publisher’s catalog. But in a subsequent case involving BMI, US District Court Judge Louis Stanton contradicted the previous ruling, stating that if a publisher pulls “new media transmission” rights, “BMI lacks the power to license them to any applicant, including Pandora.” OK, now your head is definitely spinning.

This is all crazy-complicated. Let’s make it simple: we believe that the continued growth of Internet radio is important to artists’ current and future revenue streams. But we also believe that this growth should not be subsidized by the artists (including songwriters). In this instance, our concerns are less ailigned with the major publishers and more with the folks who write the songs. We hope that any decision in this week’s ASCAP case takes into consideration the longer-term needs of music creators, without whom there isn’t a marketplace at all.

We’ll keep you updated.

Photo © Marie-Lan Nguyen / Wikimedia Commons / CC-BY 3.0