|Broadcast Music, Incorporated (“BMI”), which represents more than 600,000 songwriters, composers and music publishers, is suing Pandora Radio in the wake of the music streaming service’s announcement Tuesday it purchased a small-market FM radio station in South Dakota to lower royalty rates. BMI believes Pandora is not providing the artists responsible for its music content with proper royalty compensation. So, after unsuccessful negotiations over publishing rates, BMI is filing a lawsuit against the streaming music service.
This is the first time in BMI’s 18 years that it has resorted to legal action concerning royalty fees, and comes on the heels of Pandora’s acquisition of KXMZ-FM in Rapid City, announced two days ago. It also comes just seven months after Pandora sued the American Society of Composers, Authors, and Publishers (“ASCAP”)—the other leading performing rights organization that grants performance licenses and collects royalties on behalf of songwriters and publishers.
Pandora claims ASCAP charges it higher royalty rates than competitors, and sued the organization in federal district court in November for discrimination and anti competitive tactics, seeking a license with terms available to Internet radio services under the 2012 settlement between the Radio Music Licensing Committee (RMLC) and ASCAP.
Pandora now argues its purchase of the small terrestrial radio station in South Dakota should make it eligible to receive the same ASCAP licensing terms currently granted to companies that own both terrestrial and Internet radio operations, such as Clear Channel’s iHeartRadio—arguably Pandora’s largest competitor.
The preferential royalty rates are expected to save Pandora less than 1 percent of its revenue, according to a recent U.S. Securities and Exchange Commission filing, which some suggest is so nominal that the move is more principle than greed-based. It’s hard to know, royalties are a hot debate in today’s digital music world. Publishers and artists say they can’t survive because rates are so low, while digital music businesses argue the rates are so high they are hemorrhaging money.
Both seem to be true.
Pandora is in an especially tough spot because it pays for each additional song streamed by its users, whether it can make money on those rates or not. The company’s revenue is currently rising only slightly faster than what it pays in royalties. Last quarter it made $125.5 million from advertising and subscription costs, while paying $82.8 million in royalties, according to a recent report by BusinessWeek. After Pandora’s other costs, the company lost $28.6 million.
Some financial analysts and business leaders in the music industry argue time and again that streaming music is an inherently flawed business model that will never turn a profit. So maybe, at the end of the day, streaming music is just a lose-lose scenario for artists, companies and organizations, and someone needs to invent a better model.
April White is a writer, recording artist, producer/DJ, label owner, and the former Manager of Communications and Public Relations for eMusic. She is currently the President and Founder of her own firm, April White Communications. Her label is Daisy Pistol. She is also part of the electro-pop trio, Tiny Machines. Follow her on Twitter @iamaprilwhite.