Pandora and US Copyright Royalties

A little over two years ago, in a post entitled “Pandora and Canadian Copyright Royalties”, I examined why it was that online music service Pandora (formally Pandora Internet Radio) was not available in Canada but it was available in the United States.  The answer was that the lack of clarity regarding license fees payable for online exploitation (arising from the lack of certified tariffs) had combined with Pandora’s unwillingness or inability to come to terms with Canadian copyright owners, all exacerbated (or at least affected) by the incredibly drawn-out Copyright Board tariff certification process, to result in the service being blocked to Canadian users.  (As I noted at the time, this was not an exclusively Canadian issue – even today, Pandora is only available in the United States and on a slightly restricted basis in Australia and New Zealand.)

As I mentioned in that post, the lack of a Copyright Board-analogue in the United States had meant that Pandora had been able to negotiate licenses with the US performing rights organizations (ASCAP, BMI and SESAC) and so had been able to offer its service to US-based users.  As I said back then:

Compare the lengthy saga … that Pandora endured in the US with SoundExchange (which levies royalties which are subject to the oversight of the US Copyright Royalty Board, and so is broadly similar to the situation in Canada) with the apparent lack of drama that SoundExchange faced with ASCAP, BMI and SESAC (whose royalties are not subject to the oversight of a government agency).

Well, it looks like things have changed: Pandora Demands Lower License Fees in Lawsuit Against ASCAP.  As reported by Eriq Gardner, the crux of the Pandora dispute with ASCAP is that Pandora has entered into direct licenses with some publishers, and so is seeking a corresponding reduction in the license fees it is obliged to pay to ASCAP – and since ASCAP is evidently unwilling to offer such a concession, Pandora is seeking relief in the courts (which have jurisdiction because of the Second Amended Final Judgment resulting from the US government’s anti-trust actions against ASCAP).  The filed complaint makes for fascinating reading, as it describes both the history of Pandora’s contractual relationships and negotiations with ASCAP and the current industry framework for the licensing of public performance rights for online services.  In this case, it looks like my 2010 analysis is incorrect in that there is a convergence occurring between the Canadian and US approaches: where private negotiations between the parties fail, resort can be had to a government-backed decision-maker (the Copyright Board in Canada and the US federal courts in the US).

To summarize Pandora’s history with ASCAP:

• Pandora initially made use of ASCAP’s standard form “Experimental License Agreement” for websites
• in 2010/11, Pandora elected to terminate the Experimental license, and entered into direct negotiations with ASCAP for a license under the Second Amended Final Judgment, paying “interim” license fees to ASCAP while those negotiations were ongoing
• in 2011, ASCAP modified its agreement with its publisher members allowing them to withdraw authority from ASCAP for certain uses, including licensing of online activities
• following the withdrawal of authority from ASCAP, Pandora entered into direct licenses with some of the largest music publishers
• in early 2012, ASCAP and the Radio Music License Committee entered into an industry-wide settlement agreement which set license fees for radio and online uses
• the Pandora/ASCAP negotiations having stalled, Pandor has filed suit for a determination of license fees taking into account the circumstances described above