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Although Pandora may have won a single battle against the American Society of Composers, Authors, and Publishers (ASCAP), the recent decision has left many questions about music royalties unanswered. Pandora originally filed suit against ASCAP in the Southern District of New York, petitioning the court to set “reasonable” licensing fees through 2015. The online music streaming company, with about 150 million registered users, is seeking a blanket licensing fee that would apply to all of the songs represented by the 435,000-member group because the current rates prevent profitability. Originally, Pandora and ASCAP reached an experimental fee agreement in 2005 that extended until 2010. Pandora argued that they simply should pay ASCAP 1.7%, the same rate as terrestrial radio broadcasters, because they generate the bulk of its revenue from advertising and considers local radio stations its closest competitors. ASCAP argued that they should earn an even larger part of Pandora’s revenue than it does now–an interim rate of 1.85% since 2011–because music is so much more integral to Pandora’s success than terrestrial radio, which includes sports and talk programs. ASCAP desired a royalty rate to gradually increase to 3% due to the much higher royalties that record companies make from Pandora.
However, in the recent decision issued by Judge Denise L. Cote, neither party seemed to be getting exactly what they were asking for. Judge Cote instead opted to split the issue and leave unchanged the royalty rate of 1.85% that Pandora currently pays. Ultimately, the decision in its entirety is in large degree a win for Pandora as the court determined that despite some minor differentiation made possible by digital technology, Pandora at its core is radio. Although Pandora can be satisfied with its characterization as radio, it is not clear how this characterization will benefit Pandora in the future and leaves many questions unanswered. For instance, Pandora is facing a similar suit against Broadcast Music Inc., while music companies have begun calling for new legislation and changes to regulation that would permit them to raise rates. Ultimately, such new legislation or regulation permitting the raising of royalty rates would come at a price to the consumer, while simultaneously benefitting the musicians. Pandora may have won the battle against ASCAP in maintaining a much lower rate than what was being asked for, but the war between online radio and the music industry is far from over, and the answer to every question is far from clear.
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