U.S. District Court Judge Louis L. Stanton denied Pandora’s request for a lower royalty rate paid by traditional radio to performance rights organizations (PROs) that collect and distribute music license fees to composers, songwriters, and publishers. In this case, the argument was limited to Pandora’s business relationship with BMI.
“Yesterday’s decision was a procedural step, and we remain confident in our legal position. We intend to proceed with our appeal to the 2nd circuit, the same court that ruled in Pandora’s favor in the ASCAP case earlier this year.” –Dave Grimaldi, Public Affairs, Pandora
The decision is a stepping stone along a twisting path that involves the market-leading Internet radio service (Pandora), both government-regulated PROs (BMI and ASCAP), and South Dakota radio station KXMZ. Pandora signalled its intent to acquire a terrestrial station two years ago. KXMZ was the acquisition target, but closing the deal was delayed by complex FCC regulations that were waived in June by FCC commissioners. Pandora then closed quickly on KXMZ.
During that timeline, Pandora was embroiled in royalty rate disputes with both BMI and ASCAP. Each case sought a ruling on how much Pandora should pay into the collection agency, as a percentage of revenue. Under U.S. regulations (e.g. the controversial Consent Decrees), Pandora was entitled to use the music represented by both PROs while the parties hammered out court-mandated rates.
While court decisions about royalty rates are not necessarily binary, it is generally agreed that Pandora won the ASCAP case and its appeal, and lost the BMI case. With BMI, Judge Stanton ruled in May that Pandora must pay 2.5% of revenue to BMI, a far higher rate than the 1.75% Pandora had been paying.
Most terrestrial radio stations pay 1.7% to the songwriter PROs. So, with KXMZ tucked into Pandora’s pocket, the company requested Judge Stanton to lower the rate back down, reversing his earlier ruling. Today’s news is that Stanton refused, and his decision was delivered without any explanation.