BMI Wins in Rate Court Battle With Pandora

The federal courthouse in Manhattan

The federal courthouse in Manhattan photographed on Oct. 23, 2014 in New York City.

The PRO was victorious (enough) in securing a higher rate -- though Pandora voiced plans to appeal the decision.

Judge Louis Stanton, presiding over the heated battle between Pandora and BMI that began in February over licensing rates for the PROs music, has ruled that Pandora should pay 2.5 percent of its revenue rate for the performance royalty, in exchange for the blanket license supplied by BMI.

This ruling will hearten publishers, in that the 2.5 percent is over a third more than the 1.85 percent of revenue ASCAP secured in its own rate court ruling, and 42 percent greater than the previous 1.75 percent of revenue rate Pandora had been paying BMI. While a significant (75 percent basis point) jump over the rate BMI had been collecting from Pandora, the figure is still well below the estimated 3.825 percent rate BMI used as a benchmark rate when it positioned its request for a 2.5% rate. (That 3.825 percent came from an offer Pandora made to Universal Music Publishing Group, which was negotiated after Judge Stanton ruled that publishers had to withdraw completely from the PRO blanket license, if they were going to withdraw digital rates at all. According to sources, UMPG had negotiated to receive its pro-rata share of 8.5 percent of revenue from Pandora.)

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The 2.5 percent rate set in the case is subject to a carve-out, in order to work around direct deals negotiated by UMPG, Sony/ATV, and BMG/Chrysalis with Pandora -- meaning that whatever percentage of overall streams, minus those publishers’ works and that BMI represents, Pandora is subject to a 2.5 percent of revenue rate on.

Predictably -- like the publishers who appealed the rate set by Judge Denise Cote -- Pandora will ask the U.S. Second Circuit Court of Appeals, the very same court that ruled in favor of 1.85 percent, to review Judge Stanton's ruling.

"We remain confident in our legal position," Pandora director of public affairs Dave Grimaldi said in a statement  "We disagree with the Court’s ruling and will appeal to the same court that ruled in Pandora's favor in the ASCAP case last week. We strongly believe the benchmarks cited by the court do not provide an appropriate competitive foundation for a market rate."

Pandora argues that the rate deals it agreed to that were submitted to the Judge by ASCAP were made under duress. In mid-December, Judge Stanton ruled that the consent decree language meant publishers were required to be all-in or all-out of BMI -- they couldn’t select specific rights, like digital, or specific aspects of their catalog -- precluding them from partial withdrawal. Consequently, publishers who said they were pulling out at the end of 2013 -- Sony/ATV including EMI Music Publishing, Universal Music Publishing Group, and BMG Chrysalis -- were in fact all out of BMI as of Dec. 31, 2014. With a two-week window, and with Pandora contending the publishers refused to supply the custom listening service with a list of songs from each publisher and what master recordings those songs were attached to, it had no choice but to sign a deal at an inflated rate, or face excessive penalties over copyright infringement.

"We anticipated a range of potential outcomes in this case and remain confident in our ability to grow and thrive," Grimaldi continued in his statement. "As always, Pandora remains focused on unleashing the infinite power of music to the benefit of both listeners and music makers.”

Judge Stanton also agreed with BMI that its license ends Dec. 31, 2016, a four-year license. Pandora had argued for a five-year license.

While Judge Stanton has made his decision known to both BMI and Pandora, his written decision has not yet been made public, as both parties examine the documents, to see if any of the information in the decision should be redacted.

"Today’s decision is an enormous victory for the more than 650,000 songwriters, composers and publishers that BMI has the privilege to represent," BMI said in a statement. "The Court resoundingly agreed with BMI, supporting our position that 2.5% was 'reasonable, and indeed at the low end of the range of fees of recent licenses.'  Given the recent industry deals made in the free market, the Court agreed with BMI that this rate is a more appropriate reflection of the value of BMI’s music. This is an important step forward in valuing music in the digital age."

In a letter to BMI employee's the organization's president and CEO Mike O'Neill said, "The decision also establishes that existing marketplace agreements can be taken into account when determining rates, a key factor for us, and the industry. This is an important step forward in valuing music in the digital age."
He added, "BMI fully supports all new avenues for the performance of our repertoire, but we also believe that creators should never have to virtually give away their product for free in order to subsidize the development of someone else’s business.  We were not about to stand by and let that happen to our BMI family.  We went through a lot of time and expense to fight that notion, and we are gratified that the Court ruled in our, and ultimately, our affiliates’ favor."
In addition to the rate court battles, BMI like ASCAP, SESAC and other publishers are also seeking to get the DOJ consent decree that the PRO's have operated under since 1941, he reminded employees.