Pandora Wins Federal Court Case to Lower Songwriter Royalties…

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Remember that Pandora is fighting to lower artist royalties on two fronts: Congress and the courts.  And the latter has just sided with Pandora: according to a decision just released by Judge Denise Cote of the US District Court in Manhattan, publishers and their songwriters are not permitted to strike separate, market-driven deals with Pandora if they are also a member of a collecting society (like ASCAP).

Update 1: ASCAP has just responded (see comments below).  We’re awaiting NMPA response; NMPA David Israelite just told Digital Music News that he is reading through the case this morning.  More as reactions and commentary pour in.

The private copyright deals, recently created by some of the largest publishers in the world, forced Pandora into higher publishing rates and were largely driven by the free market (ie, open negotiations between the two parties).

 

This decision, therefore, nullifies all of those deals, including those struck by Sony/ATV, EMI Music Publishing, Universal Music Publishing Group, and BMG Music, at least until Pandora’s current ASCAP deal ends on December 31st, 2015.

 

Perhaps more importantly, this summary judgment also prevents any future direct deals from happening, at least for the foreseeable future.

The reason, according to Judge Cote, is simple: those deals broke the law, and specifically a federal agreement related to blanket performance licenses.  The reasons for this relate to a consent decree forged by the federal government and US Department of Justice and societies like ASCAP, one that dates back to 1941.

The result is simple: less money for songwriters, and a lot more money for Pandora.  All of which raises more ugly questions about Pandora, a company that has created an overnight class of hyper-wealthy executives and investors, but left content creators effectively penniless.

That’s not a perspective that Pandora shares.  Here’s a statement that the company just released (note the word, ‘entitled’…)

 

“The decision makes clear that Pandora is entitled to a blanket license the scope of which is not diminished in any manner by the publishers’ attempts to ‘withdraw’ these rights from ASCAP.”

 

The complete decision is here.  More ahead.

32 Responses

    • Avatar
      Visitor

      hmmmm…NOT COOL.

      Pandora Runs to the Government to Screw Songwriters Again

    • Avatar
      Tune Hunter

      You are wrong!

      Pandora or any type of radio should not pay any royalties.

      Radio must be converted to music store – the only possible store in current environment. You have to get cash at the discovery moment or you will nothing!

      All types of radio contribute to 80% of discovery (it is not Spoofy or YouTube who triggers discovery)

      Radio should be the new store front displaying (playing) the best staff for particular audience. Shazam and other ID services should become the checkouts on your way to Spoofy or YouTube.

      We just need few bold moves to bring 25% growth and double the business in just 36 months.

  1. Avatar
    Bravo

    Is this an example of what eager start-ups call creating an app that “changes the world”?

  2. Avatar
    Visitor

    The private deals where not the result of a free market negotiation. More like taking advantage of the fact Pandora needs those licenses to survive and has no choice but to pay what is demanded. There are no competitors they can go to. Rather a complete monopoly granted to a single party with all the power. There is nothing “free market” about that. Songwriters/publishers broke the law and tried to steal money from Pandora. Of course everyone here is going to cry foul because breaking the law benefited them.

      • Avatar
        Visitor

        ^^^ has read nothing on past strategic problems associated with Pandora and doesn’t realize the part the copy right board plays in this issue.

  3. Avatar
    Visitor

    Response emailed by ASCAP CEO John Lofrumento to DMN:

    “ASCAP’s more than 470,000 songwriter, composer and music publisher members make their living creating the music without which Pandora would have no business. The Court’s decision to grant summary judgment on this matter has no impact on our fundamental position in this case that songwriters deserve fair pay for their hard work, an issue that the Court has not yet decided. ASCAP looks forward to the December 4th trial, where ASCAP will demonstrate the true value of songwriters’ and composers’ performance rights, a value that Pandora’s music streaming competitors have recognized by negotiating rather than litigating with creators of music.”

  4. Avatar
    misleading

    The title for this blog is misleading. The decision could be great for songwriters because ASCAP & BMI pay 50% directly to songwriters. If the publishers receive performance royalties directly, they can deduct unrecouped advances.

  5. Avatar
    Visitor

    “The result is simple: less money for songwriters, and a lot more money for Pandora. All of which raises more ugly questions about Pandora, a company that has created an overnight class of hyper-wealthy executives and investors, but left content creators effectively penniless.”

    Indeed.

    It’s now crucial for artists to know how to remove their work from Pandora.

    • Avatar
      Casey

      And instead of making less money, make no money?

      It doesn’t sound like removing music is possible now, at least not until 2015.

      • Avatar
        Visitor

        “And instead of making less money, make no money?”

        You’ve got it upside down.

        Artists don’t make money from Pandora.

        Pandora makes money from artists.

      • Avatar
        Visitor

        …oh, and Paul promised to let us know how we can remove our property from Pandora.

  6. Avatar
    jw

    Not sure I understand how Pandora has “left content creators effectively penniless.” I was under the impression that Pandora pays out a better per-listen rate than anyone else. A Pandora play to a single listener being worth 1/5000th of a radio play (which on avg is probably heard by many more than 5,000 listeners) seems pretty fair to me. It’s not like Pandora is affecting radio payouts, & I haven’t seen any data that leads me to believe Pandora is cannibalizing cd sales.

    Pandora is, as far as I understand it, a new revenue stream with an unusually high payout. This decision seems like a no brainer to me. ASCAP doesn’t appear to understand how this stuff scales, & they appear to be asking to be paid more for creating less value. I would like to know how ASCAP intends to demonstrate the value of a Pandora play outside of this whole “Without us, you wouldn’t even exist” argument, which sounds more like extortion than reason.

    If I’m wrong, someone please correct me, but it seems pretty straightforward.

      • Avatar
        jw

        If we use terrestrial radio as a baseline for a fair payout to songwriters for broadcasting a song, a song played in a major market might reach tens of thousands of people. Let’s say 50,000 ad-listening consumers. And the songwriter’s reward may be a few cents for that play. At 8 cents per thousand plays, you’re looking at Pandora paying out $4 for 50,000 listeners. And then there’s the performance royalty on top of that.

        The problem is that radio play is consolidated. It’s less money shared among fewer artists. Pandora is paying out far more but to more artists, so no one is getting those big payouts that terrestrial radio provides. But it’s not because of Pandora’s royalty rates, it’s because of the variety of stations & the variety of content within those stations. So it’s almost like the more Pandora pays out & the more it shares the wealth among artists not getting terrestrial exposure, the more enemies it makes when songwriters receive their royalty statements & see these dismal payouts.

        Everyone seems to be having a hard time understanding scale.

        Honestly I’ve not seen a single decent argument for why Pandoras payouts are unfair. It’s just supposed to be assumed to be true. But it’s not.

        So why bother? Because I’m going to agree with whatever the math says. But the anti-Pandora coalition has offered no math to prove their point, except that Pandora pays $.8 per thousand listens which actually sounds pretty good to me.

        • Avatar
          Mike Corcoran

          jw, i completely agree with everything you said. It’s not that Pandora pays out a lesser rate than Terrestrial. Pandora spreads out royalties among many, many more artists, who receive much smaller checks from the PRO’s, and so Pandora makes enemies and not friends.

          If Terrerstrial broke down their payments as a “fraction-of-a-penny per listener”, as Pandora does, the number would be even less than what Pandora is paying. Remember, Terrestrial pays only songwriter royalties and does not pay artist & label performance royalities, as Pandora does to SoundExchange.

          Pandora filed this lawsuit because Terrestrial would not/could not agree to pay more, and so to be fair, Pandora should pay closer to what Terrestial is paying now. As casey has pointed out many times on DMN, Terrestrial radio is up to their eyeballs in debt. They can’t pay more, or they’d be finished.

    • Avatar
      Marmuro

      Without the songwriter, there is NO business at all… is there ANYTHING more straight forward than this?

      • Avatar
        jw

        All that sounds like is very straight forward extortion.

        This is the real problem… it’s not the payout rates. If Pandora slashed the number of artists in it’s database they could easily slash their payouts because they would have a handful of songwriters getting paid a killing & everyone else would just be like, “Boy howdy, I wish I could get myself on Pandora! Those guys are raking it in. But I guess you have to be on a major label to get on their.” It would be the same scenario as terrestrial radio and everything would be fine. But since everyone gets played on Pandora, all of the sudden everyone feels like they’re owed terrestrial radio level payouts, even though the value created by a Pandora play is only thousandths of the value created by a terrestrial radio play (and don’t even get me started on radio ad rates versus internet ad rates, & all of the problems with the click-thru payout system). Only it’s this variety that is responsible for Pandora’s success.

        Pandora never set out to make a handful of songwriters rich, it set out to create stations that made consumers happy & to provide the variety that’s missing on terrestrial radio (which pays out far less but manages to keep songwriters happy by concentrating those payouts to a handful of songwriters). And in doing they so, they’ve been able to pay out super generous rates compared to other services. For Pandora to be a real source of income for the gigantic pool of songwriters in it’s database, it’s going to have to scale tremendously, & that may never happen.

        Songwriters really have to come to terms with how little value a Pandora play actually creates, & they need to understand the model & do the math & see what Pandora is actually paying out at scale & reset their expectations according to all of this.

        For the record, I don’t use Pandora or even care for the service.

      • Avatar
        Hope

        I agree with Marmuro…songwriters are providing the product and deserve a living wage in return. The royalties should be negotiated separately with different users depending on what those users can afford to pay, just as suppliers of baked beans negotiate with different supermarket chains. The difference is that, while bak ed bean mqnufactureres will. Just go out of business if they can’t get enough for their products, songwriters will continue to write songs even if we’re not compensated properly…so we are ripe for exploitation and always have been.

        Time for a worldwide songwriters union, perhaps? And isn’t that kind of what the collection societies like ASCAP were supposed to be? I think the consent agreements referred to in the legal opinion need to be revisited. The world and technology have changed too much for them to apply in a way that could not have been foreseen in 1941!

        • Avatar
          jw

          You can’t create a service that is based on user selection with a database of millions of songs and provide “a living wage” to each of those songwriters. That’s just not going to happen.

          Radio pays out as well as it does not because of the rates it pays, but because of the consolidation (i.e. broadcasting one-to-many, rather than one-to-one, & maintaining strict playlists that only benefit an “elite” group of songwriters). For Pandora to match those consolidated payments & continue to offer the variety that it does, it’s listenership would have to be larger than all of terrestrial radio by the same multiple that it’s playlists are larger than terrestrial radio’s. Nevermind that the vast majority of complaining songwriters aren’t making a living wage off of terrestrial radio to start with, they’re the beneficiary of Pandora’s willingness to offer the variety of music missing from terrestrial radio.

          You’re presumption that songwriters deserve a living wage in return for their music being played on Pandora is just wrong. There will be songwriters making a living wage off of Pandora, but by & large the variety makes that impossible, the size of the payouts would dwarf the value actually being created by the song plays. And really that’s what this boils down to, identifying the value created by the play (through things like math, something I’m learning that songwriters are absolutely terrible at), & paying out fairly according that value. It’s not about entitlement.

  7. Avatar
    B

    While Pandora should fairly compensate artists and songwriters, Pandora isn’t the real problem. Internet radio should have some promotional value, in that when someone discovers a song or artist on Pandora, they go buy the album. However, the reality is that many people will just pirate the album when they discover it, or stream it for next to nothing on Spotify. People pirate because there is currently very little risk in doing so, and music on Spotify is so cheap and plentiful because Spotify attempts to compete with piracy. Going after Pandora for more money because of this isn’t going to make things better. If a songwriter making $0.25 a quarter from Pandora starts making $0.50 a quarter as a result of all the litigation, they’re still getting peanuts. The solution is effective enforcement of copyright law. Punish the people who pirate, rather than rely on this flimsy “6 strikes” thing the ISPs are doing. Granted, piracy will never go away completely. But it is possible to curb it significantly. If people start perceiving piracy as being too risky or inconvenient, many of them will start buying albums again, Spotify will start charging fair prices for music (or at least make windowing new album releases on Spotify a viable option to promote album sales), Pandora will become a major force driving sales, and everyone makes money, rather than just Pandora.

  8. Avatar
    Chris Castle

    There is great promotional value for Internet radio. From the music that other people risked capital to create, that other people toured to make famous, and that other people wrote–mostly on spec. You know, songwriters.

    Apple, on the other hand, doesn’t seem to have these problems. Once Apple launches its radio product, Pandora will finally have competition, and there will be even less reason for Congress to continue the absurd compulsory license for webcasting.

    Good luck with that “victory.”

    Check the Pandora insiders stock sales here: http://www.secform4.com/insider-trading/1230276.htm

  9. Avatar
    Central Scrutinizer

    I haven’t finished reading the case. However, any decision by a district court can be appealed. I expect that this case will be used by both sides as an example of how copyright law is failing to keep up with the times

  10. Avatar
    Someone cool

    We need to march on Washington to DEMAND PROPER COMPENSATION FOR OUR COPYRIGHTS!!!! We will NOT BE BULLIED BY THESE TECH COMPANIES WHO MAKE MONEY OFF OF OUR SONGS!!!! WAY TO BITE THE HAND THAT FEEDS YOU PANDORA! You’ve just PISSED OFF YOUR SUPPLY CHAIN YOU FUCKING IDIOTS!

  11. Avatar
    Visitor

    #StandWithSongwriters Petition
    “Songwriters deserve fair pay for their work. Ask Pandora’s new CEO Brian McAndrews to #StandWithSongwriters today! http://thndr.it/1diTI44”

    And please let us know how we remove our work from Pandora.

  12. Avatar
    The Kids Are Alright

    This is good news for songwriters. Blanket licenses keep copyright strong and protect the interest of songwriters and publishers. To fragment licensing deals for specific music use chips away at this. These “favorable” deals that the majors have secured with Pandora do not put any money in the pocket of the “unpublished” and independant songwriter. How are they getting paid by Pandora without a PRO? Will the publishers start direct licensing concert halls, bars, clubs etc. next? I think not.

  13. Avatar
    Need more explanation

    I’m sorry but I fail to see how this particular court decision is bad for artists? What exactly about this decision reduces the amount artists will be paid? I’ve been critical of pandora in the past, and continue to regard them with a good deal of skepticism, but Paul, please clarify how this is a bad thing for artists? Seems just fine to have blanket licenses. In fact I think if there were blanket distribution licenses that mirrored the statutory licensing structure in place for covering another artists’ song and paying other artists for that right without needing to negotiate for permission, we’d all be paying eachother out a lot more… When you cover MJ for example, you don’t call his estate and negotiate for that right. You just do it, register your cover, and pay out based on your sales. If only we could do that to sell music too, on an individual level.

  14. Avatar
    Really?

    I just have to point out the statemnt “a company that has created an overnight class of hyper-wealthy executives and investors.” Compared to what? LiveNation? The label executives? First, those investors and executives have been building this product and audience for YEARS. Secondly, there are a very small number of people at Pandora that are “hyper-wealthy” or even wealthy compared to the likes of LiveNation, major labels, etc.

    Now back to discussion if this is good or bad.

    Paul, your hyperbole does keep it interesting.

  15. Avatar
    And?

    No Problem. Just have ASCAP renegotiate these deals on behalf of the publishers and institute a parity clause in that gives co-publishers of a particular work the same rate granted by the separate deals that are struck from the big publishing houses and labels. If the law wants to recognize ASCAP as the agent for publishers in collecting rates let them take on that negotiation role as well. Let the PROs charge a fee for the service, which will likely only need to happen once or periodically anyway and call it even. The only question is how this will be interpretted by Congress.

  16. Avatar
    The Real Killer: Twerking

    Aw, boomerang!

    Sorry ASCAP, but the “finish ASCAP NOW” button is look way more attractive right now.

    WHY?

    Kill ASCAP, you kill the 1941 law that leads to stupid decisions like this. Then you make any deal you want with Pandora.

    And will kill you. And Pandora will like it, because they have to.

    Want to go for another spin? Step right up: Ladies and Gentleman, I present to you the one and only Marty Bandier! He has the power to not only crush ASCAP overnight, but also crush Pandora overnight by with holding all the best songs in the world.

    Don’t worry Timmy Westergren you can blame it all on your new CEO, Congress, whoever you want. Because you were fighting for the artists!