Another day, another lawsuit for Pandora. This time, the pioneer streaming service is going to court against performer’s rights organisation BMI over the company’s royalty rates. Pandora wants to cut their current rate of 1.75 percent to 1.7 to match the rates paid by radio, while BMI is seeking 2.5 percent for their members.
Cutting through all of the typically convoluted, Kafkaesque legal mumbo jumbo, the situation is basically this: Pandora don’t want to hand over any more money than radio stations do, while BMI want them to hand over significantly more than they have in the past because, according to their argument, Pandora is a more interactive form of media.
As The New York Times reports, it’s not the first royalty rate dispute for the streaming service, which previously went to court with ASCAP over similar matters and is currently in the middle of another battle with the music industry over the costs of its recording rights, which are set by a separate panel of federal judges in Washington.
As they continue to compete with radio for advertising dollars, it doesn’t help that the company experienced a major advertising shortfall at the end of the year which led to Pandora missing analysts’ revenue targets for the fourth quarter. In response to a recent earnings report, a number of analysts downgraded their stock.
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Concerning their court battle, success for either side rests with their respective burdens of proof. In the case of Pandora, they will have to prove that they’re basically just another form of radio, while BMI have a far loftier challenge ahead of them, one that will partially centre on the success of streaming in general.
As Billboard reports, BMI’s lawyer Scott Edelman argues that since nobody could have predicted “what a force Pandora would become”, royalty rates agreed upon back in the mid-2000s are now outdated. Furthermore, since Pandora do not have any non-music programming, such as news and talk, it features more use of music than a typical radio station.
“The foundation of Pandora’s business was built with the words and music of songwriters, and we are fighting on their behalf to secure rates that reflect the true value of their work in today’s digital marketplace,” Stuart Rosen, BMI’s general counsel, said in a statement. Basically, each side has to prove the rate they’re suggesting is fair.
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Whether or not it will impact the court case, Pandora have something of a crappy reputation when it comes to paying out royalties. Besides being sued by The Turtles for not paying royalties for songs recorded prior to 1972, court documents released back in October detailed how the company planned on “steering” users towards content that carried a lower royalty rate.
Many industry pundits have reacted to Pandora’s recent arguments with cynicism. As Hypebot‘s Bruce Houghton writes, “Pandora’s argument is basically: ‘We’re creating value for musicians and labels, but we won’t be able to do that if we continue to lose money.'” Well, you can’t exactly fault Pandora for that logic.
Except, as Houghton adds, “It’s easy to be sympathetic to that reasoning, until you learn the company plans to pay executives $122 million in stock compensation this year.” Indeed, according to figures cites by SeekingAlpha, in 2014, a money-losing Pandora paid its top executives $87.1 million in stock-based compensation.
In 2015, the company is still losing money and they’re saying they will pay another $25 million in stock to executives. We’ll leave it up to you to take sides on this debate, but whether or not Pandora emerges victorious in their battle with BMI is sure to send shockwaves throughout the streaming industry.
