Just to Lower Royalties, Pandora Buys a Small Radio Station In South Dakota…

This is a company now waging war to lower its royalty obligations — on all possible fronts.  Just this morning, Pandora assistant general counsel Christopher Harrison confirmed that the company has purchased the tiny KXMZ-FM in Rapid City, South Dakota, an equally tiny market.  It even comes with a tower.

The reason, as clearly explained by Harrison, is to make Pandora a terrestrial broadcast owner, and therefore subject to lower internet royalty rates.

“Terrestrial broadcasters and their Internet properties were given preferential treatment via a January 2012 agreement between the Radio Licensing Marketing Committee (RMLC) and ASCAP and BMI. To put this in perspective, at least 16 of the top 20 Internet radio services that compete with Pandora operate under the RMLC license that has not been made available to Pandora.”

It’s a clever loophole, one that instantly gives Pandora a lower rate (at least theoretically).  And the law is uneven: iHeartRadio, for example, enjoys lower rates, just because it’s owned by Clear Channel, a terrestrial broadcaster.

KXMZ was probably one of the cheapest stations on the market.  Harrison (laughingly) discussed the advantages of serving tens of thousands of Rapid City listeners, and in reality, this does little for Pandora’s core business.  But the broader context is a dogged fight across multiple theaters: Pandora is suing publishing rights society ASCAP for discrimination, while intensely lobbying both Congress and musicians to relax rates.

Harrison offered a glimpse into the thinking of a company that views itself as extremely embattled, and an oppressed force for good.

“Certain powerful music incumbents see Internet radio as a threat to the status quo. [But] the status quo is a dead end for the vast majority of working musicians and the Internet is driving a sea change that will fundamentally shift the equation away from big industry players towards a more democratic and inclusive industry for both listeners and artists. For this to become reality, Internet radio must be embraced – not discriminated against.

More as it develops.

20 Responses

  1. Casey

    I am not sure how a 50KW C2 is considered a tiny station.

    • B's Wax

      Not transmitter. Grand Rapids is a tiny market, not even close to major markets (forget about NYC and LA, even places like Albuquerque).

  2. Jeff Robinson

    …wonder how those antiquated broadcast and media cross-ownership laws deal with this. The FCC is supposed to review and revise it’s rules every two years. Did anyone see this coming?

  3. Wim Testergren

    Dear Musicians,

    We are committed to growing your fans in South Dakota!


  4. Visitor

    Now that they own a radio station I wonder if their lawsuit against ASCAP for discrimination has standing? Wouldn’t be surprised if the judge throws out the case on those grounds.

  5. Visitor

    I believe it’s Rapid City South Dakota, not Grand Rapids.

    • Paul Resnikoff

      Oh you didn’t hear? They’re changing the name, to give it more of that big city ring…


      Thanks for the correction.

  6. Visitor

    I don’t think labels hate internet radio. They’ve been pushed around by mainstream radio into low rates and are taking advantage of their position with the new market, hoping to drive market prices up on the other services like terrestrial. I think other radio platforms should pay more to music creators, not Pandora paying less…

  7. earbits

    I don’t understand why everybody gets angry that Pandora wants to pay the same rates as other companies, instead of getting mad that those companies pay a discounted rate in the first place. This article, nor the comments, seem to be angry that iHeartRadio enjoys these discounted rates. But when Pandora seeks them out, they are a monster. It really makes no sense.

    Sure, be angry that such discounted rates exist. Be angry at every company who you feel doesn’t pay a fair share to artists, but what is the deal with singling out Pandora for wanting the same royalty obligations as their competitors? These guys have been paying more than every other company for years. They’re looking for an even playing field. If you want them to pay more, get rid of the discounts for other companies. Singling them out to pay more, or expecting them to do so, isn’t reasonable or justified.

    • wavedriver

      yes. all the discounts to terrestrial radio should be recinded. It is time that radio pays the people who make their middle man existence possible.

    • smg77

      I’m confused about the same thing. Why is Pandora being demonized instead of all the radio stations that pay musicians even less?

  8. God of Radio Licensing

    On the Seventh Day of Broadcast…

    And the non-interactive Creator spoke once again.

    I hereby declare that all radio royalties shall be equal across the land!

    And there shalt not be loopholes in the land! We shall not cast the internets into South Dakota lands!

    Terrestrial radio shall pay the recording artists!

    Pandora shall pay the same as iHeartRadio and Sirius.

    They are both my creations.

    This is the word of the Broadcast Creator.

  9. Champion

    This is a company that is trying to stay in business.

    If Pandora goes under, piracy goes up. This is a legal service that people really like. I do not at all understand the hate.

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