Court Keeps Pandora’s Royalty Rates Low in Company’s Second Big Win of the Week

Pandora won a big court decision yesterday (May 7), affirming the current rate that the streaming service pays ASCAP, one of two major groups that collect royalties on behalf of music copyright holders.

The U.S. Court of Appeals for the Second Circuit in New York upheld a previous ruling by Judge Denise L. Cote of the U.S. District Court, one that set the rate Pandora and other internet radio stations have to pay to ASCAP at 1.85 percent.

It's the second music industry victory for Pandora this week. On Monday (May 4), the FCC approved Pandora's acquisition of a Rapid City, S.D., radio station, which could allow the internet radio company to pay lower royalty rates to rights groups like ASCAP. Specifically, traditional radio stations only pay a 1.7 percent rate.

Also at issue in Wednesday's court case was the question of whether digital rights holders should be allowed to negotiate rates without ASCAP's representation (or its competitor, BMI). Because the royalty rate Pandora pays ASCAP is set by the courts -- at 1.85 percent -- the company would much rather deal with ASCAP than negotiate separately with publishers.

The appeals court ruled in favor of Pandora, saying that digital copyright holders must deal with the company via ASCAP. The rate Pandora pays is determined by the terms of regulations -- called a "consent decree" -- that were originally put in place in 1941.

In a statement, Elizabeth Matthews, CEO at ASCAP, said the ruling “affirms what we already know — that the ASCAP consent decree and the rules that govern music licensing are outdated and completely out of step with the way people listen to music today.”

A spokesperson for Pandora, meanwhile, said the ruling "highlights the anticompetitive harms that can result from a lack of transparency into music ownership."