While Pandora won a victory in its rate-court trial with ASCAP when the judge ruled that the performing rights organization’s consent decree precludes publishers from withdrawing digital rights, ASCAP itself may also emerge as a winner because of that ruling.
As it was, three of the four largest music publishers, Sony/ATV, which administers EMI Music Publishing; Universal Music Publishing Group; and BMG Chrysalis had all withdrawn their digital rights, while the fourth, Warner/Chappell Music, was leaning in that direction but waiting to see how the judge would rule.
So while the consent decree doesn’t apply to individual publishing companies, once they give their music to ASCAP to license, the performing rights organization (PRO) must abide by the consent decree and license its music to licensees that apply, according to the ruling made by Judge Denise Cote, who presided over the case in the Southern District of New York Federal Court. To put it differently, publishers affiliated with ASCAP for licensing can’t withhold rights to “particular classes of licenses” (i.e., digital music service providers).
But the ruling applies to more than the Pandora/ASCAP rate trial. It also means that if publishers want to withdraw their digital rights, they have to do so completely from ASCAP. In other words, they’re either “all in” or “all out.”
Moreover, most of those publishers were also in the process of withdrawing digital rights from BMI. So by extension, the Pandora/ASCAP ruling could also affect BMI, if Pandora asks the BMI rate court to look at the consent decree and that judge agrees with Pandora’s argument that BMI too must license its repertoire.
The court’s decision “has no impact on our fundamental position” ASCAP CEO John LoFrumento said in a statement.
So if there are any losers in the ruling, it’s the four largest publishers that thought they could get better rates by pulling out of PROs and cutting direct deals with digital music services that apply for compulsory licenses.
“Although Sony/ATV was not a party in this case, we were very disappointed to learn of Judge Cote’s decision,” Sony/ATV chairman Martin Bandier said in a statement. “While we believe it is wrong and are hopeful it will be overturned on appeal, the decision leaves open a number of different approaches by which we can take action to protect our rights and those of our songwriters.”
Whatever deals publishers cut will be measured against whatever rate is set by the Pandora/ASCAP rate court in a trial that won’t begin until December. While Pandora is trying to keep the rates it pays music publishers low — last year it paid a total of 4.3% of revenue to the three PROs — the industry is hoping to get closer to rates recently negotiated directly with Pandora and iTunes Radio, which range from 5% to 10% of revenue. The hope is the court will take those direct deals into consideration.
In the short term, the ruling likely delivers ASCAP and BMI a victory because it makes no sense for the publishers to pull out of the PROs to get higher rates from digital service providers, because that income stream is by far the smallest channel in terms of revenue, paying ASCAP $25 million of the $601 million collected by ASCAP domestically in 2012.
Long term, as digital revenue grows, there might be incentive for the publishers to once again seek direct deals, but the PROs aren’t expected to sit still and take on that challenge.
The ruling ultimately could negate the direct licensing deal cut by Sony/ATV and Pandora. Sources say the two parties have agreed to abide by the direct deal and any payments directly made to Sony/ATV by Pandora will be reconciled against payments that Sony/ATV gets from ASCAP. That deal will stay in place until the end of the year. Then Sony will have to abide by whatever rates are set by the rate court until the current Pandora license ends on Dec. 31, 2015.