WHAT: Universal Music Publishing Group cut a deal with Pandora that allows the service to license and thus play songs affiliated with the BMI collection agency. In return, Pandora will keep track of what it plays and provide that information along with royalty payments to UMPG. It hasn’t been disclosed how much Pandora is paying. But it is likely that UMPG will pay a pro rata share of Pandora revenue. That would be somewhere between the 4.3% that Pandora paid out in the year that ended Jan. 31, 2013, the most recent year for which this information is disclosed, and the 10% that iTunes Radio agreed to pay in direct deals it cut with some large publishers.
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WHY: Pandora had to cut this deal because the BMI rate court judge ruled that UMPG should pull out of BMI after Dec. 31 because the publisher had notified the performance rights organization of its intent to withdraw digital rights and take over licensing to digital services beginning Jan. 1. The judge, however, ruled that the U.S. Department of Justice consent decree with BMI is a blanket license that covers all songs in its repertoire, and that publishers have to be either “all in” or “all out.” The decision meant that withdrawing publishers UMPG and BMG would be out as of Dec. 31. Further, his clarification on his ruling showed that Pandora didn’t have an interim license under the consent decree. That meant the service had to strike some kind of deals with the withdrawing publishers. In the meantime, publishers wanted the digital services to cut “voluntary deals” with them so that they wouldn’t have to completely withdraw from BMI.
WHO: All three parties — BMI, UMPG and Pandora — are at risk due to the judge’s ruling, but there is an upside. UMPG will benefit if it gets a higher rate than the 4.3% that Pandora paid in 2012, but the downside is that it might have to pull completely out of the PRO and thus find a way to duplicate all the benefits of using BMI’s services. This would be a daunting undertaking should it happen. BMI is playing chicken with the publishers. It has told them that if they withdraw their catalogs, it will not handle any of the deals they cut with digital services. If the four biggest publishers-UMPG, BMG, Sony/ATV and EMI Music Publishing-are completely withdrawn, it will seriously hurt the organization’s revenue and business model. But regardless of whether they withdraw or stay, the BMI and ASCAP rate court judges might view the UMPG-Pandora deal as a free-market pact, which could affect their rulings and produce higher rates for the PROs.
IF: Pandora may be facing additional higher rates, so it will argue it was under immense pressure to cut a deal, so any deal cut with UMPG or another publisher shouldn’t be considered a market deal. Also, Pandora is now likely seeking a way to show that just because it paid what is believed to be a higher rate to UMPG, it doesn’t mean all publishers and all songs should get an equivalent higher rate.