FCC Shelves Pandora's Bid For South Dakota Radio Station

In another minor setback to its music licensing plans, Pandora has received word from the FCC that it is no longer processing its application for the transfer of the ownership of broadcasting license for KXMZ, the Rapid City, South Dakota radio station it acquired last June.

In making that acquisition, Pandora had hoped to take advantage of the lower rates that internet streaming services owned by terrestrial radio stations enjoy. That rate is the result of agreement with the Radio Music Licensing Committee and ASCAP in 2012, which allowed for internet radio stations to pay 1.7% of revenue, less standard deductions.

After making that acquisition, Pandora claimed in the ASCAP rate court, and likely the BMI rate court too, that its entire service should be eligible for the lower 1.7% rate, and the 1.7% rate it pays BMI.

That combined rate of 3.4% is lower than the 3.6% rate Pandora has been paying the two Performance Rights Organizations ASCAP and BMI. That rate is also lower than the pro-rated 10% of revenue that ASCAP and BMI are getting in their deals with iTunes Radio

But the FCC has sent Pandora letter, according to an ASCAP filing with the rate court, that says that Pandora hasn't adequately complied with supplying the agency with ownership information so it can determine if Pandora is at least 75% owned by U.S. citizens,  which means foreign ownership must be capped at 25%

Since Pandora only supplied mailing addresses, the FCC said that is not enough to determine if the owners are indeed citizens of the U.S. "Therefore Pandora may not rely on this data in making its foreign ownership certification," the FCC letter stated.

Pandora apparently pushed back saying that no publicly traded corporation with a large shareholder today would be able to adequately demonstrate compliance with alien ownership limits, using outdated methodology that was devised before electronic trading became widely available.

But the FCC responded that very technology makes it easier to determine the country or origin of individual shareholders. Consequently, the FCC said it will cease processing Pandora's application until it "demonstrate adequate support for its foreign ownership compliance certification.

But just because the application is in limbo, doesn't mean Pandora isn't already moving to satisfy the FCC request for more information about foreign ownership. It makes more sense to assume that Pandora would move to immediately gather that information to re-jumpstart the approval process than to conclude it would give up and walk away.

With the Pandora application in limbo, it still remains to be determined how the ASCAP rate court judge will react to Pandora's push for lower rates on the basis of ownership of the South Dakota radio station. The trial is set to begin Jan. 21 in New York City, with a pre-trial hearing taking place Thursday (Jan. 16).