WHAT? Sony/ATV Music Publishing becomes the first major music publisher to cut a deal directly licensing its songs to Pandora. While Sony/ATV didn't disclose details of the deal, sources say that up until now, Pandora pays about 4% of its revenue to music publishers through deals with ASCAP, BMI and SESAC. But Sony/ATV, which controls the EMI Music Publishing portfolio as well, withdrew its digital rights from ASCAP and BMI so that it can negotiate directly with digital music service providers like Pandora. According to sources, Sony/ATV managed to score a 25% increase over the ASCAP/BMI fees, which means Pandora will pay Sony/ATV and EMI their share of publishing royalties out of a "5% of revenue" pool.
WHY? Radio is allowed the luxury of playing music under a compulsory license, which means performance rights organizations like ASCAP, BMI and SESAC are obligated to provide a blanket license that allows radio stations to play their songs. But they have to pay a performance royalty to music publishers, which generally is determined through negotiations, although such negotiations can wind up in rate court. However, since ASCAP and BMI operate under consent decrees with the U.S. government, publishers feel their ability to negotiate based on market conditions is somewhat compromised, especially in the digital marketplace, which is why Sony/ATV pulled its digital rights from the two PROs.
WHO? Sony/ATV Music Publishing, led by chairman/CEO Martin Bandier, is a joint venture with the Michael Jackson estate. Sony/ATV administers EMI Music Publishing through an acquisition led by Sony Corp. of America and a consortium of investors. Sony/ATV oversees a portfolio of songs that produce about $1.2 billion in annual revenue, making it the largest publisher in the world. Meanwhile, Pandora, an innovative, ad-supported, streaming service that generated $383 million in revenue in the last 12 months, has agreed to pay Sony/ATV a higher publisher royalty rate even as it fights with labels to get reduced royalties, sponsoring a campaign that culminated in the Internet Radio Fairness Act, legislation that likely will be revived in the congressional session that's just beginning.
IF? Sony/ATV's successful gambit to extract a higher royalty rate from Pandora will almost certainly lead to other large publishers like Universal Music Publishing Group and BMG Rights Management trying the same strategy. Bandier said, "For the first time ever, we were able to negotiate for something that doesn't have a compulsory license and we were free to use market conditions in our negotiations." Not every publisher has the clout to pull this off, but expect the big boys to also withdraw their rights, not only out of rate envy, but in order to protect their competitiveness in signing songwriters.