BMI sues Pandora, dismisses radio station purchase as a 'stunt'

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Rights management organization Broadcast Music Inc. has filed suit against Pandora Media, petitioning the Federal Rate Court to set royalty fees for all music played across the streaming music platform.

The suit follows on the heels of Pandora Media purchasing South Dakota terrestrial radio station KXMZ, a move to capitalize on reduced performance royalty fees available to broadcast radio stations and Internet radio services operated by owners of broadcast outlets. Financial terms were not disclosed.

In November 2012, Pandora filed a lawsuit in a federal district court seeking a license with terms available to Internet radio services under a settlement between the Radio Music Licensing Committee and the American Society of Composers, Authors and Publishers, which determined that each licensee would pay a royalty of 1.7 percent of their gross revenues. By comparison, Pandora handed over 4.1 percent of total 2012 revenues to its performance rights partners. Music publishers told Billboard that Pandora is "trying to turn that [RMLC/ASCAP] deal on its head" by acquiring KXMZ.

"Pandora's stunt makes a mockery of the performing rights licenses and the rate court process," BMI said in the lawsuit, filed in the U.S. Southern District Federal Court in New York. In a separate statement, the organization--which represents more than 600,000 songwriters, composers and music publishers--said it is asking the court to set "reasonable, market-driven fees for Pandora" after direct negotiations with the company came to a halt.

Billboard reports that during the National Music Publishers' Association's recent annual meeting, NMPA President David Israelite said, "Any shred of credibility that Pandora had as the songwriters' partner is now gone. They are waging war on songwriters… Instead of negotiating as a partner, Pandora has decided that instead it will pursue their business model through lawsuits and gimmicks, and will try to fraudulently sneak in the back door for a rate that wasn't meant for them."

In a statement provided to Billboard, a Pandora spokesperson said "Pandora values and respects those who create music and seeks to pay a rate that is fair to all artists, and fairness needs to account both for what artists receive and what Pandora's competitors are asked to pay. In a good faith attempt to avoid a protracted disagreement, Pandora offered to pay ASCAP higher rates than it currently pays, but ASCAP refused, choosing instead to enable the publishers to try to extort even higher rates through a scheme of 'selective withdrawals.' At the same time, ASCAP agreed to the lower licensing rates with the RMLC, which was approved by the rate court, and extended these lower rates to virtually all of Pandora's competitors, including iHeartRadio, Pandora's largest competitor. This is not a case of Pandora trying to pay less. It is a case of publishers discriminating against Pandora."

Pandora Radio offers personalized streaming music stations based on the listener's favorite artists, songs or composers. Last month, the firm reported first-quarter fiscal 2014 revenues of $125.5 million, a 55 percent year-over-year increase fueled by the continued growth of its mobile advertising efforts. Losses nevertheless widened to $28.6 million from $20.2 million during the year-ago period as content costs jumped 48 percent to $82.9 million.

Listening on mobile now accounts for 79 percent of total listener hours, Pandora said. In late February, Pandora imposed a 40-hour monthly listening limit on its free mobile streaming service, a move to address mounting royalty fees. "Pandora's per-track royalty rates have increased more than 25 percent over the last three years, including 9 percent in 2013 alone and are scheduled to increase an additional 16 percent over the next two years," founder Tim Westergren said at that time. "After a close look at our overall listening, a 40-hour-per-month mobile listening limit allows us to manage these escalating costs with minimal listener disruption."

In addition to ongoing royalty battles, Pandora must also face new competition from Apple's (NASDAQ:AAPL) iTunes Radio, unveiled earlier this week and expected to roll out later this year in tandem with the overhauled iOS 7 mobile operating system. The free, ad-supported iTunes Radio closely recalls Pandora, promising listeners access to more than 200 Apple-curated featured stations and giving them the option to create their own stations based on favorite artists and songs. Users may also share stations with friends. Any song played through iTunes Radio may be purchased with one click from Apple's iTunes digital storefront, the music business' largest source of digital revenues with an estimated $4.3 billion in download sales in 2012.

For more:
- read this Billboard article
- read this Hollywood Reporter article

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