Pandora and the royalty mess: Conversation with Casey Rae, Future of Music Coalition

This week Pandora negotiated directly with Universal Music Publishing Group, one of the largest music publishers, to acquire continued use of UMPG recordings in its streaming stations. BMI recently won a court judgment against Pandora, which allowed its client publishing companies (like UMPG) to escape the government-set “consent decree,” which provides a blanket usage license to listening outlets like Pandora. Pandora normally sticks with government-set rates, but was nudged onto the direct-negotiating path by that surprising court decision.

We thought Pandora’s uncharacteristic behavior, even though forced by external circumstances, might be indicative of a future trend. With publishers clearly wishing to have more negotiating freedom to forge direct deals with large platforms (Pandora in particular), are BMI and ASCAP (which represent most of the publishing realm) becoming less important? What is the future of the complicated royalty-setting process in the U.S. market?

We turned to Casey Rae, Interim Executive Director of the Future of Music Coalition in Washington, for answers.

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RAIN:  Does Pandora’s direct negotiation with BMI foretell a new era in which agencies like ASCAP and BMI are less important?

CR: That’s certainly an ever-present question. They have to deliver value to their members. It’s increasingly difficult. There’s been a lot of consolidation in publishing. They have their own agenda which might not dovetail with what songwriters expect. I support the agencies because I think there’s more confidence in the marketplace if you can one-stop-shop. Fracturing the marketplace leads to mistrust and potential litigation on all these issues, that are probably going to be resolved in the courts anyway. I get why publishers and the MPA [Music Publishers Association] want to be able to withdraw catalog and license directly — they want to bring up the floor. the y look at what the labels get in similar arrangements, and it is pretty galling. Pandora pays about half its revenue to labels and performers, but songwriters and publishers get only 4.3 percent. That’s quite a difference.

RAIN: Is there a belief among stakeholders that performers are inherently more valuable than composers?

CR: I don’t think so. Look at terrestrial radio, where performers apparently have no value! [Radio has no statutory obligation to pay labels and performers for use of recordings.] It’s a case of policy getting shaped by who shows up. The willing seller/willing buyer standard is a situation where SiriusXm is paing at a different standard because they were present when those standards were getting hammered out. Webcasting was a glimmer in the eyes of a handful of developers, who didn’t have the leverage in Washington agitate for similar rates. The consent decree is much older [dating from 1941].

RAIN: What is the continued value of BMI and ASCAP?

If publishers withdraw all their catalog, [they] will have to replicate a whole suite of services typically provided by ASCAP or BMI. Performance royalties come from a lot of different places. Are publishers really willing to take on all those additional functions? Maybe they are; maybe not. I still think there’s a compelling reason to have PROs [Performing Rights Organizations] that have developed relationships, understand what the going rates are, have the muscle and relationships to enforce agreements. I think what will happen, if publishers go down that road, is that they’ll quickly discover their core competencies lie in other areas.

RAIN: In the case of Universal, has it withdrawn from BMI as it applies only to Pandora, but is still using BMI in other scenarios?

CR: That’s the tricky legal question — whether they are allowed to withdraw portions of the catalog. Complicating the picture is whether Pandora can continue playing content until they come to terms. It’s approaching the FUBAR state. It goes back to the consent decree, and clarifying its extent and scope. When the consent decrees were created, there was no digital marketplace. The tensions and frustrations that are happening on the publisher side are microcosms of [larger] issues of parity, use environment, statutes, and collection of money.

RAIN: What’s the upshot?

CR: You can understand why publishers would want to withdraw catalog [from BMI or ASCAP] as leverage to establish higher rates [through direct negotiation]. On the other hand, there are tremendous benefits to one-stop shopping. PROs cover a whole suite of services around performance royalties. It’s a tricky gambit for publishers to decide which path to go down.