Lawyers Profoundly Confused by ‘Landmark’ Pandora, Sony/ATV Licensing Deal

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After years of acrimony, Pandora is now ringing the bell on a fresh licensing deal with Sony/ATV, the largest music publisher in the world.

Updated: It has now been clarified that Sony/ATV does indeed have the right to strike a separate performance rights deal with Pandora, but cannot withdraw a license from Pandora while still a member of either ASCAP and/or BMI.  That is the conclusion of US Department of Justice consent decrees on the matter, themselves potentially subject to revision at at later point.  

“We believe that this agreement with Pandora is a major step in the right direction to ensure that our songwriters are fairly compensated for the use of their music on streaming services,” Marty Bandier, Sony/ATV Chairman and CEO, declared in a statement emailed early this morning to Digital Music News.

“This is a significant milestone in our long-standing effort to strengthen ties with the music maker community,” said Brian McAndrews, chief executive officer of Pandora.

The attorneys we spoke to this morning didn’t have any splashy quotes, merely confusion over how this deal could be happening.  As in, legally, how it’s possible given federal court rulings that prohibit direct publisher agreements alongside existing PRO relationships with either ASCAP or BMI.  “Is Sony/ATV now going to license every mom & pop?” one lawyer asked Digital Music News.

Pandora has previously executed direct licensing deals on the recording side, specifically with indie label consortium Merlin and classical label Naxos.  But those were executed within the (relatively) reduced legal entanglements of the recorded music world, which has far fewer governmental regulations than publishing.

Those recording deals and payouts, funneled through SoundExchange, will not be affected according to the companies.  “The public performance royalties Pandora also pays to rights holders of master recordings are not affected by this agreement,” Pandora stated.

20 Responses

  1. Steve Winogradsky

    Publishers have always had the right to do direct deals like this, as their agreements with ASCAP and BMI are non-exclusive. Their ability to withdraw only their digital rights to FORCE an Internet service to deal with them instead of the PROs is what was prohibited by the Rate Court. But, if the publisher and a licensee (like Pandora) agree to do a direct deal for digital rights, that is still permissible and the publisher remains a member of the PRO for all other rights, including other digital services..

    • Vail, CO

      You’re referring to a ‘carve out clause’ which is permitted under US Copyright Law with PROs . But a federal rate court judge (or judges, I believe) specifically determined that publishers including Sony/ATV could not make separate performance deals unless they totally pulled out of their PRO deals (with either ASCAP or BMI).

      • Steve Winogradsky

        Doing a direct deal and withdrawing rights are not the same thing. Direct deals have been happening for years between willing buyers and willing sellers, as seems to be the case between Sony and Pandora here.

        • Vail, CO

          Steve, I think you might be confusing a direct one-off deal for a specific use and an entire class or use, as in internet radio performance. I believe that was the differentiating factor that DMN is referring to here.

        • Anonymous

          Vail:

          You are entirely incorrect, as is DMN.

          No “federal rate court judges, I believe specifically determined that publishers including Sony/ATV could not make separate performance deals unless they totally pulled out of their PRO deals (with either ASCAP or BMI).” Not at all.

          What the Judges said was that ASCAP and BMI could not allow their publisher affiliates to give them only SOME rights, to only license to CERTAIN businesses. ASCAP and BMI have to tell their publisher affiliates: “You either give me everything, so that I can offer it to every licensee, or you are out, completely.”

          Nothing about the ability for music publishers themselves to do direct deals. Not. One. Word.

          Steve is not confusing a direct one-off deal for a specific use and an entire class or use, as in internet radio performance. Indeed, he understands the distinction.

          Here, Sony/ATV is NOT in any way, singling out an entire class or type of use (like internet radio) form ASCAP and/or BMI. This is a one-off deal between a music publisher and Pandora. Simple.

          Not only is it allowed, under the Consent Decrees, this type of direct deal is explicitly ENCOURAGED by the very terms of the Consent Decrees.

  2. Anonymous

    Wow.

    It looks like the lawyers Paul talks to know less about the music business than even Paul does…

    “The attorneys we spoke to this morning didn’t have any splashy quotes, merely confusion over how this deal could be happening. As in, legally, how it’s possible given federal court rulings that prohibit direct publisher agreements alongside existing PRO relationships with either ASCAP or BMI.”

    There are absolutely no “federal court rulings that prohibit direct publisher agreements alongside existing PRO relationships with either ASCAP or BMI.” To the contrary, the terms of the Consent Decrees explicitly MANDATE that ASCAP and BMI allow direct licenses. As Steve Winogradsky correctly pointed out, this is NOT a “partial withdrawal” of certain rights from a PRO. This is a direct license. The rights to digital performances of SONY/ATV compositions still remain with ASCAP, BMI and SESAC (and perhaps, Global).

    Anyone who doesn’t understand that should simply STOP offering any type of legal advice on these issues, immediately.

    “But those [direct licensing deals on the recording side] were executed within the (relatively) reduced legal entanglements of the recorded music world, which has far fewer governmental regulations than publishing.”

    Really? You think that an entire industry that ONLY EVER existed with mandatory – not elective – rate setting, every five years has “far fewer governmental regulations than publishing”???

    You should stick to telling folks how many downloads Adele has garnered and leave the real issues to people who actually know something.

    • Literally Can't Even

      Billboard
      “Pandora/ASCAP Ruling: Judge to Sony/ATV, UMPG, Others – You’re Either ‘All In’ or ‘All Out’ (Analysis)|”
      Sept 2013

      “In effect, the judge says because of the consent decree ASCAP has been operating under since 1941, if publishers give their rights to ASCAP for licensing, then ASCAP must license all of its repertoire in a blanket license to all music users, including digital service providers. To put it differently, publishers affiliated with ASCAP for licensing can’t withhold rights to “particular classes of licenses,” i.e. digital music service providers.”

      “So while the consent decree does not apply to individual publishing companies, once they give their music to ASCAP to license to any third party licensee, the PRO must abide by the consent decree and license all of its music to licensees that apply for a license.”

      http://www.billboard.com/biz/articles/news/legal-and-management/5695591/pandoraascap-ruling-judge-to-sonyatv-umpg-others

      • Literally CAN - If You Understand

        Try to understand the difference between these two things:

        a) offering a direct license, while still allowing anyone who wants to, to take the ASCAP and/or BMI license.

        -and-

        b) refusing to offer any deal through ASCAP and/or BMI, to certain people.

        Can you see the distinction?

        Hint: One is inclusive, and provides MORE licensing options. The other is discriminatory and precludes certain licensing options.

        The Judges’ orders in the ASCAP and BMI trials prohibited the LATTER of those two actions. Not the former, which is MANDATED by the Consent Decrees.

        From the ASCAP AFJ2:

        IV. Prohibited Conduct. ASCAP is hereby enjoined and restrained from:

        (B) Limiting, restricting, or interfering with the right of any member to issue, directly
        or through an agent other than a performing rights organization, non-exclusive
        licenses to music users for rights of public performance;”

    • Anonymous 2

      Anonymous 1, can you please explain:

      “This is a direct license. The rights to digital performances of SONY/ATV compositions still remain with ASCAP, BMI and SESAC (and perhaps, Global).”

      Genuinely confused by what this means in practice. So, they have a deal in pace with ATV, and rates are based on the direct license terms, yet no payments will pass directly to them until either the agreements with the PRO’s expire or the courts allow partial withdrawals? Is this then a pre-emptive move anticipating that partial withdrawals will likely be allowed at some point?

    • Anonymous

      Anonymous 2
      Thursday, November 5, 2015

      Anonymous 2:

      I think the posts above explain. I’ll try to answer your questions, which are compound and need to be parsed out:

      “So, they have a deal in pace with ATV, and rates are based on the direct license terms,…

      Yes, there is now a deal in place. We just don’t know when it becomes effective.

      “… yet no payments will pass directly to them until either the agreements with the PRO’s expire…”

      Not necessarily. The timing of when these payments might start is entirely subject to the terms of the deal between Pandora and Sony/ATV, which I haven’t seen. It may say that it becomes effective after the current licenses Pandora has with ASCAP and BMI expire (which is over the next two years). Or, it might say that the new rates agreed between Pandora and Sony/ATV become effective immediately, or at some other mutually-agreed time.

      “… or the courts allow partial withdrawals?”

      Nope. This deal is NOT a partial withdrawal and it not dependent on partial withdrawals. This is a direct deal. It does not require judicial approval or any modification of the Consent Decrees to be fully enforceable, now.

      In essence, this deal negates a great deal of the motivation for Sony/ATV to seek partial withdrawals. Those partial withdrawals were largely aimed at Pandora, and the desire to force Pandora into direct deals, outside of the Consent Decree rate-setting controls. Now that Pandora has agreed to a direct deal, voluntarily (at apparently higher-than Consent-Decree-set rates), there is far less incentive to ask DoJ and the Courts for permission to withdraw/force Pandora to do direct deals.

      ” Is this then a pre-emptive move anticipating that partial withdrawals will likely be allowed at some point?”

      You could look at it as a pre-emptive move in anticipation that partial withdrawals will likely be alloed, by Pandora – but not Sony/ATV. This is a product of Pandora, on one side, perhaps being concerned that partial withdrawals might be allowed, and Sony/ATV on the other, being concerned that they might not. So, they have both compromised and agreed to a direct deal, which largely makes the request for authority to partially withdraw a moot point, as between Pandora and Sony/ATV.

  3. Insider

    Steve and Anonymous are thoroughly correct; the level of fact-checking at DMN is shameful.

    Anonymous 2, to answer your question: yes, ASCAP (for example) can still license SATV’s performance rights to Pandora, so long as SATV hasn’t withdrawn from ASCAP completely. Which means that unless SATV withdraws from ASCAP completely, SATV can’t force Pandora to do a deal with SATV for those rights (because Pandora can always go to ASCAP instead). That’s what the judge ruled. BUT if Pandora wants to get those rights directly from SATV, it can do that. That has always been true, and it’s what they’ve now done.

  4. Anonymous

    Since there are few detail about this deal, this is just my opinion:

    For Sony, it appears from the public statements that the rate Pandora will be paying them is higher than the current rates paid by the PROs.

    For Pandora, they are able to lock in rates for a period of time without having to worry about what changes might be made in rates in the future or the changes that might occur with the consent decrees and rate courts.

    Again, it goes back to the “willing buyer/willing seller” model that the publishers and PROs have been wanting.

  5. Steve Winogradsky

    Since there are few detail about this deal, this is just my opinion:

    For Sony, it appears from the public statements that the rate Pandora will be paying them is higher than the current rates paid by the PROs.

    For Pandora, they are able to lock in rates for a period of time without having to worry about what changes might be made in rates in the future or the changes that might occur with the consent decrees and rate courts.

    Again, it goes back to the “willing buyer/willing seller” model that the publishers and PROs have been wanting.

  6. truth

    A publisher affiliated with ASCAP or BMI cannot withhold a license to play their works if they are members of ASCAP or BMI, unless they completley withdraw from ASCAP and BMI.

    But ASCAP and BMI licenses with publishers are non-exclusive. This means that a digital service, such as Pandora, can choose to negotiate directly with a publisher directly, or remain with the compulsory license with the PROs.

    So Pandora voluntarily entered into this deal. Why?
    Billboard speculates that they are “hedging against the possibility the DoJ will allow publishers to pull digital rights from the two PROs and negotiate directly with digital services.”

    • Anonymous

      Actually we know a bit more than that.

      On some level, Pandora is hedging against the possibility the DoJ will allow partial withdrawals. But also, their current license with ASCAP expires in a month, and the license with BMI expires shortly thereafter. So, one additional advantage for Pandora is that they do not have to face another expensive, resource-sucking, uncertain rate court proceeding. These things wreak havoc on Pandora’s business planning and consequently, their stock price.

      In addition, the it appears that the deal has some “business development flexibility” built into it for Pandora, in exchange for the higher rates. I read that as: an agreement for an interactive, on-demand service, and/or perhaps an ability to stream video, as well.

      • Truth

        “I read that as: an agreement for an interactive, on-demand service, and/or perhaps an ability to stream video, as well.”

        Neither Video nor interactive is possible under the current DMCA/Sound Exchange regime governing Pandora’s use of music recordings. Pandora would have to negotiate directly with the labels, which would be a nightmare for Pandora, LoL

      • Anonymous

        You’re right.

        Neither video or interactive is possible under the statutory license. going outside of the statutory license would require a direct negotiation for Pandora. Obviously, Pandora will do anything to avoid the “nightmare” of operating outside of statutory/gov’t controlled rate-setting regimes and having to negotiate a direct dea….

        …but….

        …..wait.

        Didn’t Pandora JUST voluntarily step outside a significant statutory/gov’t controlled rate-setting system and make a freely-negotiated deal, with rights-holders that have clearly been far more adverse to Pandora than record labels?

        LOL, indeed….

        Try to keep up with what’s happening here, and spend a minute thinking about why it’s happening – and what it might be leading to, eh?

  7. jDre

    I am not a lawyer, and would never claim to be one… But I think the incentive is quite simple. Less middlemen between the content provider and the artist leaves more of a percentage to be given to the artist. Pretty straight forward if you ask me.

  8. anonymous 1000

    All this debate…but no one has mentioned the real reason for this “deal”. It’s called PR folks. Looks very snazzy and cool, but in reality it pretty much does nothing. They can say to a writer who is deciding between them and another publisher, hey look we did a direct deal with pandora, sign with us!!