Pandora, ASCAP Rate Case Begins
As Pandora’s lawsuit against the American Society of Composers, Authors and Publishers (ASCAP) to reduce the company’s royalty rates began Tuesday in U.S. District Court in New York, an ally of artists told us he continues to seek “increased pay for musicians.” Since performers and record labels already garner a large portion of Pandora’s revenue, it makes sense that songwriters would want increased royalties, said Future of Music Coalition interim Executive Director Casey Rae. “We want the market to grow.”
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A higher rate structure for Pandora is “justified,” because the firm isn’t regulated to the same degree as radio stations, said a broadcasting official. The compulsory license system needs to improve, said staff attorney Mitch Stoltz of the Electronic Frontier Foundation, which is neutral on Pandora v. ASCAP. Pandora won summary judgment in a rate dispute with ASCAP in the fall, which maintained Pandora’s access to all compositions in the ASCAP repository (CD Sep 19 p20). The current case deals directly with the issue of royalty rates, whereas the previous case was concerned with whether ASCAP could withhold some of its artist catalogs from Pandora.
"Publishers and songwriters” are “front-and-center in the current court fight between Pandora and ASCAP,” said Rae. Pandora pays about half its revenue to music labels and performers, but “only 4.3 percent to publishers and songwriters,” he said. Since ASCAP distributes royalties to the latter, “they've been the target of Pandora’s legal action to lower the rates,” said Rae. Given the “disparity” of earnings between labels and songwriters, “it’s hardly crazy for songwriters to want more,” he said. “It behooves both parties to find a way to work together,” because Pandora can’t exist without compositions, and songwriters will lose a “growing revenue stream” without Pandora, he said. “At this point, it’s up to the judge, and you can probably bet that any decision will be appealed.”
The current system of compulsory licenses, where “courts or administrative” bodies set the rates for companies like Pandora, is “really difficult and kind of tends to lead to strange rent-seeking behavior and strange arguments,” said Stoltz. Courts are trying to determine “what rates a free market would have come up with,” he said. Without compulsory licenses, “there probably would not be a free market,” he said. Royalty rates should be set for companies of any size to “feasibly pay without going out of business,” said Stoltz. “The guiding principle should be don’t kill the goose."
ASCAP hopes “the court will find our rate proposal to be reasonable,” said CEO John LoFrumento in a written statement. “After all, the unique talents and hard work of our members are the main drivers of Pandora’s business, as well as the entire music eco-system.” Pandora is “confident in our legal position,” said a spokesman.
EFF is neutral in the court case because supporting either side here “doesn’t make much sense,” because “this is not a typical lawsuit,” said Stoltz. This is about setting a royalty rate and “what rate constitutes a win, what constitutes a loss, who knows,” he said. “Hopefully, it’s a win-win.”