BMI Seeks ‘Reasonable’ Fees From Pandora

     (CN) – Pandora should pay a reasonable, market-rate fee for the right to stream digital music instead of trying to piggyback on a rate cut meant for traditional radio stations, BMI claims in Federal Court.
     “Pandora has embarked on a significant campaign to lower its royalty fees,” Broadcast Music Inc. (BMI) claims in Manhattan Federal Court. “Rather than changing its business model to charge higher ad rates or subscription fees, Pandora has lobbied Congress to change the law in order to reduce its royalty payments to performers and record labels.”
     BMI says the licensing fees paid by music streaming services like Pandora have been “unreasonably low,” despite the exploding popularity of online music streaming.
     According to the lawsuit, Pandora has more than 200 million listeners and streams about 1.5 billion hours of music per month. Last year it streamed 14 billion hours of music – including hundreds of thousands of BMI’s copyrighted songs – on computers, tablets, smartphones and other devices.
     Pandora’s total ad revenue is projected to reach $970 million this year and grow to $1.31 billion by 2016, BMI claims.
     “The breadth of music played by Pandora is staggering compared to broadcast radio stations, making a blanket license even more valuable,” BMI says.
     This market trend caused publishers like EMI Music Publishing and Sony/ATV Music Publishing to withdraw their catalogs from the American Society of Composers, Authors and Publishers (ASCAP) and BMI in order to negotiate higher digital licensing fees, BMI says.
     As a result, Sony and EMI can now “collect truly market-driven fees,” according to the lawsuit. BMI says it should be able to do the same.
     But Pandora wants its fees reduced even more, according to the lawsuit, and is trying to piggyback on a 2012 settlement between BMI and the Radio Music Licensing Committee, which represents more than 10,000 of the nation’s radio stations.
     That settlement, based on the committee’s previous settlement with ASCAP, consists of a blanket license rate of 1.7 percent of each licensee’s gross revenues for all broadcast and new media offerings, with a 15 percent cut for terrestrial broadcasts and a 25 percent cut for “new media transmissions.”
     BMI says the 25 percent cut for new media was based on the fact that most of the money made by stations’ websites is not linked to music.
     “Because of the significant fees paid by terrestrial radio stations for their terrestrial broadcasts, BMI was willing to accept a lower rate for RMLC stations’ new media transmissions,” the licensing company claims. “Terrestrial radio stations pay on average $150 million per year to BMI, with only a small fraction of those fees coming from new media transmissions by those stations.”
     BMI says Pandora saw an opportunity to jump on this deal and did, by buying a single radio station in South Dakota.
     “Pandora contends that its purchase of KXMZ-FM, a station in the 255th largest radio market in the United States, in a city with a population of 70,000, is sufficient to transform Pandora’s online music streaming service, into a ‘new media transmission’ by a terrestrial broadcast radio station,” the lawsuit states.
     “Pandora’s stunt makes a mockery of performing rights licenses and the rate court process. The BMI radio station license governs terrestrial radio station broadcasts. It does not cover performances by a primarily internet-based music streaming service that happens to own a single radio station in a city with a total population that is less than 0.045% of Pandora’s online membership.”
     BMI calls Pandora’s strategy an “open and brazen effort to artificially drive down its license fees.”
     It says it quoted Pandora an annual blanket license fee in March, but Pandora turned down the offer.
     The music licensing company wants the court to order Pandora to accept its “reasonable” offer, which it claims is in line with — or lower than — what similar music-streaming services pay, including Spotify and Music Choice.
     It also points out that the offer mirrors the higher fees negotiated by Sony, EMI and Apple, which recently announced the launch of Pandora competitor iTunes Radio this fall.
     “Contrary to Pandora’s allegations in the ASCAP proceeding, Sony did not put a ‘gun to the head’ of Pandora,” BMI adds. “In fact, Sony merely exercised the statutory right Congress granted them to license their copyrighted works at a market price. Pandora programs its own content and is free to discontinue the use of Sony music if it did not like the price.”
     BMI licenses the rights to about 7.5 million works on behalf of more than 600,000 composers, songwriters and music publishers.
     It is represented in Federal Court by Atara Miller with Milbank, Tweed, Hadley & McCloy in Manhattan.

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