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Summary:

Record companies are using obscure state laws to take another legal whack at Pandora. Making a scapegoat out of the internet radio service is unlikely, however, to make new money for musicians.

Here we go again. The record labels have found yet another way to put their favorite scapegoat, the internet radio service Pandora, through the legal wringer. Alas, once again, the new tactic will fatten lawyers but do little to support musicians or fix a dysfunctional copyright royalty system.

In case you missed it, Capitol Records and the gang sued Pandora in New York state court this week because the service is not paying to use sound recordings made prior to 1972. The record labels say Pandora’s failure to pay for iconic tracks like “Hey Jude” and “Satisfaction” stiffed the music industry out of $60 million in 2013 alone.

The lawsuit, which mirrors a similar one filed against Sirius-XM last year, also came with the obligatory quotes from sympathetic figures like Buddy Holly’s widow, and Steve Cropper of Booker T. & the MG’s, who said:

“It’s an injustice that boggles the mind. Just like the programmers who deserve to be paid for their work, I deserve to be paid for mine.”

So what’s going on? Is Pandora really depriving these beloved musicians of their rightful royalties? The answer, as with anything related to music copyright, is that things are not as simple as they look.

In this case, the record labels are seizing on a new legal theory to get around the fact that federal copyright law only protects recordings dating from 1972. This theory holds that the older recordings are protected at the state level by a hodge-podge of laws such as common law misappropriation.

For practical purpose, this means that the record company lawyers can  blast away at Pandora in state courts from New York to New Mexico in the hope that one of their claims will stick somewhere. For Pandora, this threatens to be an expensive and painful legal journey. It’s also unfair.

Despite the record companies’ rhetoric, Pandora is paying for the older songs. Like anyone else, Pandora must pay the songwriters and their publishers, which it is doing through licensing arrangements with ASCAP and other collection agencies. And while it’s true that Pandora doesn’t pay for pre-1972 sound recordings, neither does any other radio service.

Meanwhile, under the quirks of the copyright collection system, Pandora pays through the nose for post-1972 recordings – – while its counterparts in AM/FM radio pay nothing at all. This is a big reason that Pandora currently pays out around 60 percent of its revenue in royalties, a figure that dwarfs what satellite or terrestrial services pay.

This fact will do nothing, of course, to get the record labels to let up on their lawsuit campaign against Pandora. But what do they hope to gain? Pandora is not profitable to begin with and squeezing it further won’t result in a rush of new revenue for musicians.

Even if the record labels win, Pandora would likely respond by ceasing to play the older songs rather than paying yet another licensing fee. And if its legal bills mount much higher, it may simply go out of business — an outcome that would delight certain Pandora haters, but that would do nothing to bring in more money.

The music industry’s biggest problem right now is that it has yet to find a new  business model to replace the revenue lost from the decline of CD sales. Suing Pandora, which will enrich lawyers but not musicians, will do nothing to change that. A better solution is likely to lie in a more balanced royalty scheme that relies less on lawyers and middle-men.

  1. Reblogged this on ThisMobiLife and commented:
    The music industry has been fighting the momentum of the universe for as long as I can remember.

    Pandora is a marvelous, reputable service that has long struggled to stay afloat- I hope that the music industry doesn’t tank it in this lawsuit.

    Let’s hope CEO Tim Westergren remains resilient! Pandora depends on it!

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  2. Valentine North Monday, April 21, 2014

    It’s amazing they can try this stuff and say with a straight face “piracy is wrong”.

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  3. “It’s an injustice that boggles the mind. Just like the programmers who deserve to be paid for their work, I deserve to be paid for mine.”

    Yes- except programmers don’t get paid for their work ad infinitum.

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  4. It’s “Steve Cropper”, not “Steve Cooper”. The co-composer of “(Sittin’ on) The Dock of the Bay”, “In the Midnight Hour”, “Knock on Wood”, and “Green Onions” ought still to be receiving his publishing royalties, as he has been for the past 50 or so years.

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    1. Thanks for flagging Gil, that’s fixed..

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  5. Imran Noorali Monday, April 28, 2014

    Mr. Roberts,

    I agree with your overall message that the industry’s attempt to squeeze Pandora won’t help the musicians. However, I have a couple alternative solutions that may or may not work but since the music industry is in such frenzy these days trying to find ways to make money they might be worth considering. MusicWeek reported earlier today that Pandora hit its highest fall in 16 months and it has been well noted that the revenue generated from music streaming for the label side of things is still negligible since less than ten percent of people streaming music pay subscription fees and that money is coming from ad-based revenue. So if no one is making money and prominent artists, like Lily Allen last week in her interview with Rolling Stone, are fed up with their labels, it does not make sense to me that the business is trying to squeeze more money and not provide more for the artists. Whether we like it or not but our industry revolves around artists and the Macklemores of the world and successful independent EDM artists should be a wake up call that the musicians may not necessarily need us. Both of my alternatives build upon each other and call for the industry to embrace Pandora and obviously stop suing them. The first is to utilize Amazon’s idea to promote the Kindle, which was to start giving away full classic novels for free to fill up the devices they were hoping consumers to buy. According to a Stuff Magazine article, the classics given away for free were out of print and usually from the 1800s. If we adopt a similar model, could 1972 be the cutoff point? I’m not sure but Pandora certainly believes it is. I firmly believe though that at some point, popular singles and albums should be considered classics and we the music industry should be okay with giving these tracks away for free or letting Pandora stream them. The industry will seem less greedy and it would honor these legendary tracks for their success if given away after reaching that exalted status.

    My second alternative perspective on this issue is that if they allow Pandora to stream music from before 1972 without compensation, there will be an added incentive to capture and record more data. Pandora is an Internet based radio; the Internet is synonymous with data. Data is king these days in building audiences and building businesses. I believe it makes sense for record companies to work with Pandora and not against them to leverage their partnership to gather more data from Pandora’s databases. This could include but not be limited to number of playlists in an artist’s name, number of thumbs up of thumbs downs on their tracks, geographical locations of listeners, and if their music is considered favorites by any listeners. This data could be vital in creating more revenue opportunity for artists because as I’m sure you agree but Pandora is not replacing the void of CD revenue any time soon. Shifting the focus back to the issue at hand of songs from 1972 and earlier, artists such as Iron Maiden have found success to this date since their inception in 1975. Part of their most recent success has to do with their use of data. Rolling Stone Magazine uncovered that they were showing an acceptance for their music that was being torrented because it allowed them to gather data on where in the world people were still downloading their music. They were able to find new touring locations to prolong their success. Perhaps the artists most affected by the issue in your post could benefit from something like this.

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  6. A solution…

    Make Song 1.
    Sell Song 1 for $1.
    Upload it to the Internet so that people can download it for free.

    Make Song 2.
    Sell Song 2 for $2.
    Upload it to the Internet so that people can download it for free.

    Make Song 3.
    Sell Song 3 for $4.
    Upload it to the Internet so that people can download it for free.

    Make Song 4.
    Sell Song 4 for $8.
    Upload it to the Internet so that people can download it for free.

    Make Song 5.
    Sell Song 5 for $16.
    Upload it to the Internet so that people can download it for free.

    Etc etc.

    * You only sell each song once.
    * To sell the song you get people to contribute money to the price of the song (e.g. crowd funding).
    * This system encourages the songwriter to create better songs.
    * Other things could be sold this way (e.g. films, software, books).
    * The musician gets the price they ask for the song.
    * No more piracy issues.

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