Pandora And SiriusXM Pay Royalties to Pre-1972 Artists

If you have been following stories about Pandora, this headline may surprise you. Did something happen recently? Did they lose some lawsuit? Change their policies?

In fact, nothing whatsoever has changed. Pandora and SiriusXM are paying exactly the same royalties they were yesterday. The key word is the word “artist.” If you think songwriters are “artists,” then the statement is true, and always was. But if you are talking about recording artists – artists who perform the song on the recordings, but did not write the music – then the title is wrong.

Without clarifying which sort of “artist” you’re talking about, the title is misleading. If you are deliberately being misleading, then in my book, you are lying.

So it was when an article appeared on the Trichordist blog with the headline: Pandora CEO says “Pandora is Radio” so Pandora shouldn’t pay artists at all. The original is an excerpeted repost of a story on Music Technology Policy. The post was later revised and reposted, to attack the increases in pay for Pandora CEO Brian P. McAndrews.

Here is the truth.

Both Pandora and SiriusXM pay, and always have paid, royalties to songwriters on pre-1972 songs. The rates that Pandora and SiriusXM do not pay are the rates paid to SoundExchange. These rates are split between the recording artists (“featured artists,” SAG-AFTRA artists, etc.) and the copyright holders (usually their record labels).

This is clear from the transcript of the earnings call by McAndrews that was posted on Seeking Alpha – the very source that Trichordist used to criticize them:

As you may have seen just last week, multiple record companies filed suit against Pandora in the New York State Court, regarding our use of sound recordings prior to 1972.

To be clear, we paid publish [sic] royalties on these spins. But like other similarly situated companies including Terrestrial Radio, we do not pay sound recording royalties.

(I’m assuming the grammar errors are transcription errors, but who knows.)

The royalties paid to SoundExchange were created out of whole cloth by Congress in the late 1990’s, and only started being distributed in 2003, after SoundExchange was up and running. Nobody had ever paid these royalties before – not under Federal copyright law, nor under the copyright laws of the states. They are not (and were never) paid for terrestrial radio spins, nor by the bars, restaurants, live venues, or other businesses that songwriter PRO’s like ASCAP collect from. Yet, all of these businesses have been performing sound recordings publicly for almost a century.

It is important to note that on-demand streaming sites like Rdio or Spotify don’t pay these rates either – because they’re ineligible. The rates are only available for “non-interactive” Internet streaming services. (If you’re curious, those rates are set out in 17 USC 114(d)(2).)

In other words, it’s very doubtful that anyone has ever paid these royalties for pre-1972 sound recordings.

SiriusXM and Pandora didn’t just unilaterally decide that pre-1972 sound recordings aren’t covered by Federal copyright law. That originated in the UMG v. Escape Media case (the “Grooveshark case”). In that case, it was the major labels that were arguing that pre-1972 sound recordings aren’t covered by copyright law – so that they weren’t protected by the DMCA.

And in 2013, the Copyright Royalty Board released a decision on the rates that SiriusXM has to pay – and explicitly ruled that pre-1972 recordings were not to be included.

Why are the payouts stopping now, and not earlier? It appears to be because SoundExchange changed their accounting practices. At least according to a blog post from the Wall Street Journal entitled Turtles and Sirius XM: Not Happy Together:

Until two years ago, Sirius regularly sent SoundExchange a log of every song it played – including songs recorded before 1972 – along with a lump sum payment [of] the royalties it owed. The non-itemized sum didn’t include pre-1972 recordings, but since the payment wasn’t broken down per song, SoundExchange for years distributed the royalties to all the artists on Sirius’s playlists, including the legacy artists, according to a person familiar with the matter.

But in 2011 SoundExchange asked Sirius to start reporting exactly what it was paying for, and since then Sirius has stopped reporting pre-1972 songs, this person said, so SoundExchange ceased paying out on them.

Ironically, it was Lowery himself who sent me a link to the Wall Street Journal blog.

SoundExchange is now suing SiriusXM and Pandora for the pre-1972 royalties – going back at least as far as 2007. By all appearances, it’s not that SiriusXM and Pandora “stopped paying” those royalties; instead, it appears that they never paid them, and SoundExchange simply got it wrong.

I have contacted Pandora, SiriusXM, IHeartRadio, and SoundExchange in order to clarify what happened. I will post what replies they send me, if any.

Despite all of this, neither Trichordist article distinguished between songwriters and recordings artists. Not in the title – and nowhere in the articles themselves. And plenty of Trichordist articles have used “artist” as a general term for all musicians, or in articles talking about songwriters.

The articles were excerpted from Christ Castle’s article on Music Technology Policy, and the original does make this distinction later in the article – only to lie about it. Here’s what Castle has to say:

Why does Pandora latch on to the “Pandora is Radio” phrase? Perhaps it’s as simple as this: Because they want to believe – as McAndrews clearly does – that “Pandora is Radio” and tried buying a radio station so they could get the ASCAP court to treat them like a terrestrial radio station for song licensing purposes – then double back to get the Congress to treat them like a terrestrial radio station for sound recording licensing purposes? What would the other “wide ranging legal implications” beyond the ASCAP case be exactly if the plan wasn’t to try to get out of the sound recording royalty altogether? I’m all ears.

Does McAndrews – or anyone at Pandora – ever claim that they’re trying to get out of paying all SoundExchange royalties? Of course not – and the allegation is totally ridiculous.

Here’s the actual “Pandora is Radio” quote put in context:

For the landscape around content licensing remains a complex topic. We reached the important milestone related to content cost during Q1, with a decision in the ASCAP trial. In her ruling, Judge Cote, confirmed our longstanding belief that “Pandora is Radio”. An important finding was [sic] wide ranging legal implications for our company.

Additionally the court set a rate of 1.85% of Pandora’s revenue for the five years ending December 31, 2015, which was the upper end of our proposed range of rates. And this decision followed the court’s issuance of summary judgment in September 2013 which upheld Pandora’s right to perform more compositions in the ASCAP repertory.

Now, with a little history, the context becomes clear. ASCAP was trying to jack up Pandora’s rates under the theory that it was not anything like terrestrial radio, and should be subject to the same rules as interactive streaming services (like Spotify). Pandora argued otherwise, and Judge Cote correctly agreed with them.

It is not, and was never, an attempt to eliminate sound recording royalties altogether. In fact, Pandora has always maintained that it supports the creation of those rights for terrestrial radio as well.

Speaking of which – why did Pandora buy that radio station, anyway? Well, it’s because IHeartRadio – part of what used to be Clear Channel, owner of the majority of terrestrial radio stations – is a major competitor. The IHeartRadio deal with ASCAP allows them to license for a lower rate than Pandora – for streaming music over the Internet. Pandora bought the station in hopes of being “similarly situated” to IHeartRadio, thus entitled to those same (again, lower) rates.

It has nothing whatsoever to do with eliminating performance royalties altogether. It wouldn’t be, since those royalties are also paid by IHeartRadio themselves, to SoundExchange, at the same statutory rate that Pandora pays. As do all terrestrial radio stations, at least for their internet streams. (Remember: they are not the same royalties that go to ASCAP.) So, not only is Castle’s statement wrong, it doesn’t even make sense.

Castle is simply being deceptive. Of course, he has every right to be deceptive – MTP is his blog, and he’s entitled to his opinions – but it doesn’t mean that Trichordist should repost his articles without comment or criticism. Especially not if the site is focused on ethical behavior.

This article was actually the impetus for me creating this blog. I had made a comment on that story, accurately stating that Pandora had always paid those royalties, and chastising Lowery for allowing such deception to be expressed on his site. His response was to delete my comments and block me. (I would repost my comment, but unfortunately I did not save it.)

Nobody at Trichordist ever posted a clarification. To this day, the articles still make the false claim that Pandora believes it “shouldn’t pay artists at all.”

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3 thoughts on “Pandora And SiriusXM Pay Royalties to Pre-1972 Artists

  1. Great explanation, great post, great blog. You have set the record straight on some important issues.

    It is my understanding that Sirius XM and Pandora pay performance royalties, but only on music (“sound recordings”) covered by Federal copyright, namely, music recorded on and after February 15, 1972. On-demand streaming music services like Spotify and Beats Music pay performance royalties through direct licensing deals on all music they play, including pre-1972 sound recordings. AM-FM radio stations pay no performance royalties on any music they play because they are exempt by statute. Meanwhile, all of them pay publisher/songwriter royalties, at different rates, through ASCAP, BMI and SESAC.

    Is this your understanding of how it works?

    Like

    • Yes, that’s exactly how it works, at least as I understand it.

      The case of Spotify is more complicated, since they offered different services, and the non-interactive services did take advantage of statutory royalties. But in general, they do have to negotiate directly with copyright holders, and I think that’s exclusively how they operate today. If you want details, I recommend reading their comments to the Copyright Office that they made back in May:
      http://www.copyright.gov/docs/musiclicensingstudy/comments/Docket2014_3/Spotify_USA_Inc_MLS_2014.pdf

      You’re exactly right regarding SiriusXM, Pandora, and Beats. But, keep in mind that terrestrial radio stations still have to pay sound recording performance royalties for their internet streams (and only their internet streams).

      All of these entities pay songwriter royalties to ASCAP, BMI, and SESAC, and always have. These PRO’s are free to set their own rates, but are legally required to offer the same rate to all “similarly situated” entities, and cannot refuse licenses to anyone willing to pay.

      Also: Sorry your comment didn’t show up until now. I’m still futzing around with the WordPress comment settings.

      Liked by 1 person

  2. Thank you for your reply. Yours is the best explanation I’ve seen clarifying this difficult issue.

    My comment did not show up earlier because I only posted it this morning.

    I will be following your blog. You write clearly, you know your topic and you back up your views. Keep up the good work.

    Like

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