Pandora wins court battle with music publishersBy RYAN NAKASHIMA , Associated Press
Sep. 18, 2013 6:05 PM ET
LOS ANGELES (AP) — Internet radio leader Pandora Media Inc. said Wednesday that it has won its court battle with the music publishing society known as ASCAP in a ruling that should help lower its royalty payments.
The win means that Pandora is entitled to license all songs in the catalog run by the American Society of Composers, Authors and Publishers, and that publishers such as Universal and BMG can't make separate deals to be paid higher royalty rates.
The news sent Pandora shares to an all-time high of $25.89 on Wednesday, before shedding some gains to close up about 2 percent at $25.64. The stock has more than tripled since November 2012, getting a bump from faster mobile ad revenue growth and last week's announcement that digital ad executive Brian McAndrews was its new CEO. Shareholders also seemed to shrug off the dilutive effect of a new share offering the company announced Monday. Despite increasing the share count by up to 7 percent, the deal could net around $279 million in proceeds which Pandora could use to power growth and make acquisitions.
The ruling only impacts the royalties that Pandora pays to songwriters — a fraction of its total outlay since royalties for performers are about 13 times larger. But the decision marks an incremental win in its larger battle to contain growing costs.
Pandora has said it pays about 4.3 percent of its revenue in songwriter royalties to groups including ASCAP, which distributes them to major publishers like Warner/Chappell.
Starting two years ago, major publishers began to withdraw rights from Pandora. The publishers sought higher royalty rates and thought they could better negotiate outside of ASCAP, forcing Pandora to reach separate deals. But Judge Denise Cote ruled in federal district court in New York on Tuesday that such withdrawals violate the conditions that ASCAP has acted under since a 1941 agreement with the Justice Department to prevent anticompetitive behavior.
"We welcome the court's decision," said Chris Harrison, Pandora's assistant general counsel, in a statement. "We hope this will put an end to the attempt by certain ASCAP-member publishers to unfairly and selectively withhold their catalogs from Pandora."
ASCAP said the ruling does not undermine its position that songwriters should be paid fairly by Pandora. The issue of rates will be addressed in a December trial with Pandora.
"Songwriters deserve fair pay for their hard work," said ASCAP CEO John LoFrumento. He said the society looks forward to the Dec. 4 trial that could rewrite a five-year deal in place since January 2011, where it will "demonstrate the true value of songwriters' and composers' performance rights."
As one example of the value of songwriters' work, ASCAP negotiated higher royalties for Apple's iTunes Radio, a streaming service that launches Wednesday and will compete with Pandora.
While Pandora said the ruling "has no impact on the royalty rates Pandora currently pays to ASCAP," Pandora spokeswoman Mollie Starr said it does annul agreements Pandora reached separately with Universal Music Group and BMG/Chrysalis Music after they withdrew rights for Pandora in July.
With Tuesday's ruling, Pandora will now pay Universal and BMG the lower ASCAP rate.
Starr said Pandora will continue to honor a separate rate that it negotiated with Sony/ATV, which bought EMI Music Publishing in June 2012, through the end of the year.
Sony/ATV CEO Marty Bandier said in a statement he was "very disappointed" at the ruling and hopes it is appealed and overturned.
"Our top priority always is to protect the rights of our songwriters and their copyrighted compositions, and this decision impinges on those rights," he said. "We are carefully considering all of our options."
A spokesman for Universal did not immediately respond to a message seeking comment. A BMG spokesman had no immediate comment.