Federal Judge Sets ‘Headline Rate’ for Pandora’s ASCAP License

The details of Cote’s opinion and order weren’t immediately available because it was put under seal to allow Pandora and ASCAP to propose which portions should be redacted before it’s publicly available, Cote said. Pandora and ASCAP have until noon Tuesday to request the edits, she said. Cote’s decision follows a trial in U.S. District Court, New York, that started in January and ended with closing arguments on Feb. 13, court records state. Cote last fall upheld Pandora’s right to perform all compositions in the ASCAP repertory, Pandora has said. Representatives and attorneys for Pandora and ASCAP didn’t comment Friday.

Cote’s decision will likely have wide-ranging implications because ASCAP and Broadcast Media Inc. (BMI), which was created by broadcasters, have largely operated under Justice Department supervision in consent decrees that were entered in 1941 to settle antitrust investigations. The consent decrees bar performing rights groups from refusing a license to any organization that requests one, leading to rate negotiations. With the rise of Internet, ASCAP has argued that the rules are dated and unfair. Pandora paid 49 percent of its revenue in 2013, or about $313 million, to record companies and 4 percent to publishers. Publishers have sought to negotiate directly with Pandora, leading the music service to claim that such a move would result in higher rates and violate the Justice Department consent decrees.

The trial earlier this year stemmed from a suit Pandora filed against ASCAP in late 2012 and ASCAP has argued Pandora should pay more than the current rate of 1.85 percent of revenue as part of the 4 percent it pays for all publishing. Pandora has maintained it shouldn’t pay publishers and songwriters any more than terrestrial broadcasters do, since local radio stations are its closest competitors for advertising, which accounts for the bulk of its revenue. ASCAP reported in February that it posted $944 million in revenue in 2013 and paid $851 million in royalties to its members. ASCAP and BMI represent more than 90 percent of the commercially available songs in the U.S., analysts have said.

Pandora’s proposed buy of the KXMZ-FM Rapid City, S.D., for $600,000 has been delayed due to a continuing regulatory review, Pandora Vice President Dominic Paschel told us last week at the Piper Jaffray investor conference in New York. Pandora plans to operate the radio station, which claims 43,000 listeners, as a continuing business, but has conceded the ownership would help it qualify for the same publishing royalty rates as Clear Channel Communications-owned iHeart Radio.

Meanwhile, Pandora has had a “good uptake” for its comedy service, which was introduced in 2011 largely to compete a Sirius XM’s similar offerings, Paschel told us. He declined to disclose the number of listeners the comedy service has attracted. The Comedy Genome Project uses technology developed for Pandora’s music project, allowing listeners to choose a favorite comedian or genre as a seed to start a station and then give feedback to personalize it. The comedy collection has content from more than 1,500 comedians and more than 25,000 tracks, Pandora said. “The reason we went there was that it also was one of Sirius XM’s largest areas,” Paschel said. “It’s an important focus for us and we have good uptake there.”