Ouch, and surprise! After winning favorable judgement in a similar court proceeding with publisher collection agency ASCAP, Pandora is on the losing side of a case brought by another major agency, BMI. The ruling makes life complicated for Pandora, and possibly for BMI-represented publishers.
The argument hinges on a publisher’s right to exit the collective licensing system sanctioned by U.S. courts. In that system, a digital media company like Pandora enjoys the right to “perform” (stream) recorded music created by composers and published by publishers. ASCAP brought suit on behalf of member publishers which sought to be excused from this blanket allowance of use. The motivation for detaching from collective representation is to negotiate directly with Pandora and other services. A major publisher, representing many in-demand composers whose creative properties are hit records, might suppose it could leverage its valuable assets for better rates than the collective deal.
ASCAP’s argument (to allow publishers to opt out of collective licensing to Pandora) failed. Naturally, many observers expected BMI’s argument to trudge down the same dead end. Not. Differences in judicial viewpoint, combined with differences in wording between ASCAP and BMI publisher contracts, resulted in a different conclusion.
For Pandora, this means heading for the bargaining table with any publisher which withdraws its works from collective licensing — or lose those works from Pandora’s streaming catalog. Certainly, Pandora doesn’t want holes ripped into its music collection. Pandora’s catalog contains about a million tracks, far smaller than the vast collections of its competitors (for example, iTunes Radio flaunts about 30-million tracks), so it cannot afford to suffer a sudden reduction. This is especially true as Pandora’s cost to add a song is high — each track undergoes human-powered Music Genome analysis, which Pandora regards as a crucial differentiator in its listening experience.
On the other hand, Pandora is not a jukebox service like Spotify, Rdio, or Rhapsody. In those on-demand environments, in which users search for artists and tracks, the withdrawal of a major publisher would lead directly to user frustration and a more explicit degradation of service.
For the publishers, the new freedom to determine their fate brings a decision about whether to withdraw from BMI on January 1. Collective licensing benefits everyone inasmuch as it keeps the trains moving. Pandora represents more than 70-million active listeners — a meaningful market. Who will blink at the negotiating table?