In another tactical move to keep its publishing costs from rising, Pandora has filed a motion with the ASCAP rate court, making the case that publishers looking to cut their own direct deals with Pandora are in fact bound by the ASCAP consent decree and cannot withdraw their digital rights from the performance rights organization.
According to sources familiar with the filing, Pandora is asking the judge to rule on whether publishers like Universal, BMG Chrysalis and Warner/Chappell, which have all filed a revocable notice with ASCAP of their intention to withdraw certain limited “New Media” rights as of July 1, are in fact obligated to keep those digital rights at ASCAP for the purposes of Pandora licensing.
While sources say Universal and BMG are withdrawing their digital rights from ASCAP on July 1, Warner/Chappell has yet to reveal what it will do on that date.
Since Pandora applied for its license, which is supposed to cover the period from Jan. 1, 2011 through Dec. 31, 2015 -- well before the above companies as well as Sony/ATV Music Publishing began the process to withdraw their digital rights so they can make direct deals -- the digital service says that all those publishers are obligated to abide by whatever rate the court sets. In other words, the ASCAP consent decree, which says a service can start playing music as soon as it applies for a license under an interim license until the rate is set, would apply to UMPG, BMG, Warner/Chappell and Sony/ATV until Dec. 31, 2015.
Meanwhile, publishers say that Pandora is operating under a temporary license, until the court sets a rate. They also say that they have the right to withdraw their rights from ASCAP anytime they choose, because ASCAP represents them on a non-exclusive basis and songwriters frequently switch their PRO affiliations.
Last year, Pandora paid 4.3% of its revenue to music publishers, but through direct licensing deals, Warner/Chappell and Sony/ATV have landed a 10% rate with Apple for its iTunes radio, which is expected to be similar to the Pandora service in that listeners can build their own stations based on a song or an artist, and informed by that listener’s buying history with iTunes.
When Sony/ATV withdrew its digital rights as of Jan. 1 this year, it was able to negotiate a rate of 5%, sources said. But other publishers that have been in discussions with Pandora were said to be shooting for a rate higher than the introductory rate that Sony obtained. When the iTunes Radio rate hit 10%, those publishers began rethinking the rate they were negotiating for with Pandora. But instead of negotiating further, Pandora bought a South Dakota radio station and filed with the ASCAP rate court for the the same rates ASCAP gives Clear Channel's iHeartRadio. At the same time, it also made its argument that the publishers seeking direct deals colluded with ASCAP in a scheme to obtain higher rates, and instead must abide by the consent decree until the current five-year license expires.
If the ASCAP rate court judge rules in Pandora's favor, then all the publishers, including possibly Sony/ATV, will be stuck with the rate the court decrees, says one source familiar with the situation. But others dismiss that notion, saying that since Pandora willingly entered into a deal with Sony/ATV, not only will that deal stand, but it also helps the legal case of the other publishers who are seeking direct deals.
If the judge, who is not expected to make a ruling on the motion until late July, ultimately decides against Pandora, the service could be in copyright violation from whichever of the publishers withdraw as of July 1, if the service doesn't have a deal with those publishers. It would have to cut a deal with those publishers or take down the music from those publishers, and may be liable if those publishers sue Pandora for the copyright violations.
Reps for Pandora, ASCAP and the above publishers either declined comment or had not responded to requests for comment at press time.