Judge Explains Why Pandora Has To Pay More To BMI

U.S. District Judge Louis Stanton has unsealed a ruling explaining the basis for why he decided that Pandora, a digital radio service, must pay 2.5 percent of its revenue to BMI, which collects public performance royalties on behalf of songwriters and publishers.

According to The Hollywood Reporter, after publishers attempted to partially withdraw digital rights from BMI in an attempt to get a raise from streaming outlets like Pandora, Judge Stanton decided that Universal Music, Sony and EMI could only make a complete withdrawal under the consent decree that BMI has with the Department of Justice. That led to a lengthy trial where both sides presented "benchmarks" and reasons supporting what the proper rate should be. A judge — and later an appeals court — decided that Pandora should pay ASCAP, another performance rights organization, 1.85 percent of revenue.

In the BMI case, BMI argued for a 2.5 percent rate based on interim deals that were struck directly between Pandora and the publishers, while Pandora wanted to stick with the 1.75 percent rate that it had been paying for seven years under the previous licensing regime.

According to the opinion, Apple now pays 4.6 percent of revenue for the iTunes Radio service, while Spotify pays the greater of either 2.5 percent of revenue or 6.25 percent of label costs. Rhapsody pays just under 2.5 percent. Terrestrial radio obviously pays less, but the judge says Pandora differs because users can customize the music they hear. The judge also opines that an "on-demand" service like Spotify isn't exactly comparable because Pandora's catalog is considerably smaller and listeners can't select specific songs. "Pandora evades neat categorization," he writes.

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