BMI files lawsuit to get Pandora to pay fair licensing fees

It was the move that, in the words of National Music Publishers Association president David Israelite, showed that streaming Internet radio service Pandora was “waging war on songwriters.” After the music service bought a local radio station, it is now facing a lawsuit that wants the company to pay appropriate licensing fees.

Pandora’s purchase of KXMZ-FM, a radio station based in Rapid City, South Dakota was assumed to have happened as a way of establishing the company not as an Internet music station, but a radio broadcaster with an Internet presence. The difference between the two terms has less to do with audience size – KXMZ has an estimated audience of around 108,000, compared with Pandora’s roughly 70 million monthly listeners. Instead, the variable is all in the license fees, since radio broadcasters required to pay a lower fee than Internet broadcasters under current agreements from the American Society of Composers, Authors and Publishers.

The decision to purchase the station, with the implications it brought for license fees, was greeted with disdain by NMPA president Israelite, who said that the deal meant that Pandora “has decided that… 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” rather than paying the expected amounts.

Takin action, Broadcast Music Inc., the organization responsible for collecting licensing fees for radio and Internet play, has filed a lawsuit against Pandora for its failure to pay such appropriate costs. In its announcement on Thursday, the group said that it is “asking the Federal Rate Court to set royalty fees for internet radio service Pandora… after negotiations did not result in an agreement.” Pointing out that “this is the first time the organization has resorted to litigation on fees in the digital arena in the 18 years since it signed the first music industry copyright license for the performance of music on the Internet,” the announcement asked that the court set “reasonable, market driven fees” for the company.

Although Pandora has yet to respond to the lawsuit, it did issue a statement saying that the company “values and respects those who create music and seeks to pay a rate that is fair to all artists,” but added that “fairness needs to account both for what artists receive and what Pandora’s competitors are asked to pay.” Citing a recent agreement between the Radio Music Licensing Committee and the American Society of Composers, Authors and Publishers that offered lower licensing rates for broadcast radio, Pandora said that “this is not a case of Pandora trying to pay less [but] a case of publishers discriminating against Pandora.”

Because of the current breakdown in negotiations – a situation that is unlikely to improve given this move – Pandora has actually been operating without a license since January 1 of this year. So, who’s fault is it?

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