The Court Can Finally Put a Lid On Pandora’s Box…For Now Anyway

Pandora has been no stranger to legal disputes these last few years, engaged in settlements and litigation with Performing Rights Organizations (PRO) and publishers surrounding the ownership and licensing of their digital rights. With the way music has been transitioning into the online and digital platforms, digital royalties have become a large source of income for rights holders, which in turn, invites battles over who should be getting what and when. Publishers and songwriters affiliated with their respective PRO’s are paid royalties based on the licensing fees that are paid to them by the different entities that enter into blanket licensing agreements with the PRO’s to play all of the music in their catalogs. Since so much money is made on digital platforms, these publishers wanted to give themselves more opportunity to get in on the income and began to request to have their digital rights severed from the PRO licenses, so that they were able to negotiate these licenses with the online digital content providers themselves. Back in February of this year, a judge presiding over the issue decided that publishers could not sever their licenses from the PRO’s in this way, that they were either all in or all out. The major publisher’s opted to go all out, forcing Pandora to settle with them in obtaining ten percent (10%) of their revenues or face endless counts of copyright infringement and guess what: they succeeded in getting it.

Smaller publishers, like BMG, were not so lucky. Pandora, after algorithmically calculating the effect removal of BMG songs would have on its business, decided not to entertain BMG’s threats of opting out. Pandora went on the preemptive and began to remove all of the songs from its service that were owned solely by BMG, while simultaneously taking a chance that BMG wouldn’t sue it for songs in which they still had partial ownership. One label with songs licensed from BMG reportedly missed out on approximately $75,000 in revenue in a 6-month period. BMG eventually settled with Pandora for an amount that was less than what they originally requested. Pandora sent its message to smaller publishers, loud and clear, which was essentially “don’t mess with us, without messing with your money”.

All of this debate among the various players is what prompted the need for a new rate to be set in place. The judge in this case determined that Pandora was to pay BMI a rate of 2.5% of its income revenue based upon emails summarizing negotiations of the rate between the parties when there was no threat of copyright infringement and the parties were free to negotiate based simply on the fair market and business considerations. The 2.5% rate is what BMI requested and they also received a 4 year license term as opposed to the 5 year term that was previously in place, providing a sooner opportunity for the parties to negotiate the terms of these licenses all over again.

It never ceases to amaze me just how arrogant and entitled the non-music creators are. They are here just to make the money and at everybody else’s expense. Pandora would not exist, were it not for the musicians and songwriters making the music, and here we saw to what lengths these licensees will go to demonstrate their relevance and importance in the industry. What we didn’t see is Pandora even attempt that route with the majors. Pandora knew it was a losing battle with them, but could flex their muscle with the smaller guys – no problem. What’s nice to see is the PRO’s really taking up for their artists. That is after all why they were created. BMI is a non-profit organization and they distribute all the royalties they receive back to their artists, where it belongs. This lawsuit was not self-serving for them but was an attempt to protect and serve their members. If the majors were able to successfully withdraw their digital rights from the blanket licenses, the artists would never see a dime of that revenue. It would get lost somewhere in legal jargon in their publishing agreements with the labels. At least now, some of it will go where it should.

One small victory for the artists (who write their own music anyway…)

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