Sony/ATV Music Publishing, which administers EMI Music Publishing's catalog, pulled digital rights for both catalogs from ASCAP and BMI at the top of this year. In doing so, it was following up on a strategy first employed by EMI, which did it for a portion of its catalog in 2011, before Sony and an investors consortium acquired it.
The thinking behind the strategy is that ASCAP and BMI are challenged in negotiating market rates because they are constrained by the consent decrees -- and Sony/ATV just negotiated better rates from Pandora. Although Sony declined to reveal details, according to sources, Pandora pays music publishers 4% of revenue -- and Sony just negotiated a 5% rate for it and EMI songwriters, a 25% increase over what other songwriters get.
Many other publishers were rooting for Sony to deliver a higher rate in their direct negotiations so that if ASCAP and BMI's deal with Pandora heads to rate court, the judge will consider the Sony rate the market rate and raise performance royalties accordingly. Billboard spoke with Sony/ATV chairman/CEO Martin Bandier about the Pandora deal.
So how did Pandora respond to you asking for higher royalties at the same time they were demanding lower royalties than the more than 50% of revenue it pays record labels?
I think they realized the rates we asked for are quite reasonable. When you compare it to the rate record companies are getting, it was really miniscule. How do you differentiate the song's value from the artist performance? Are they that disparate to warrant that kind of spread? Of course, they didn't want to have to pay a higher rate, but at the end of the day, they realized that between Sony/ATV and EMI we have 2.5 million songs. Our songwriters are paramount to us, so we weren't asking for anything that was unreasonable. But that's why we only asked that the deal be for one year, so we can look at it again next year.
Have you begun any negotiations with other digital music service providers yet?
No, not as yet.
How will it work -- will Pandora still pay ASCAP and BMI, which will in turn pay Sony and the writers? Or will ASCAP still pay the Sony ASCAP writers and BMI still pay the Sony BMI writers?
We are still working out the administration details. Pandora will pay whoever we direct them to pay. We have signed a one-year deal with BMI to administrate the rights and royalty payments for our BMI songwriters. We are hoping to conclude a deal with ASCAP, or we may have to seek an alternative method.
Do ASCAP and BMI have the technology capabilities to have a separate pool for Sony and EMI and pay those songwriters at the higher rate?
We know that BMI does and we believe ASCAP does. There are others that we think can be capable at handling them but are not as yet capable. We are hoping to finalize with ASCAP.
You pulled off quite a coup in getting this deal done.
This is an historic deal and positions our songwriters well. I am sure that other songwriters and publishers will make their own arrangements soon. 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. That is truly monumental.
We only made the deal for one year so we can assess it then. But we are betting on the future with this deal. At the same time, the rate is reasonable for Pandora. We want Pandora to survive and thrive. The more people in the [digital] area, the better it is for all of us.