The Future of Music: U.S. to Review Rules Covering Streaming Music Fees

Justice Department Seeks Public Comment, but Lobbyists Will Have Their Say

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Lobbyists for the music industry and streaming music services are gearing up to battle one another after the Justice Department said it will review decades-old agreements that govern songwriter royalties.

The review, which follows court battles between rights holders and Pandora internet radio, will "examine the operation and effectiveness of the consent decrees" dating back to 1941 with two major songwriter groups, the American Society of Composers, Authors and Publishers and Broadcast Music Inc., the department said in a notice today.

The review could lead to changes in the rules governing how much Pandora, the leader in internet radio, pays songwriters each time their works are played. Ascap and BMI, both based in New York, represent hundreds of thousands of songwriters, composers and publishers. They've argued in court disputes with Pandora that the agreements with the Justice Department don't take into account the rise of digital media. Pandora has argued that it is isn't on an even playing field with terrestrial radio and may not be able to sustain its buisiness model if rates keeps climbing.

Pandora shares fell as much as 5.6% to $23.22 in early trading in New York.

"The department understands that Ascap, BMI and some other firms in the music industry believe that the consent decrees need to be modified to account for changes in how music is delivered to and experienced by listeners," the Justice Department said.

The review will explore whether changes are appropriate, the department said. It is seeking public comment on possible modifications.

Songwriters, publishers and the groups that represent them have sought higher royalty rates from broadcasters for public performances of their works at a time when royalties from the sale of recorded music have declined.

Future of music
Pandora pays songwriters separately from performers, who make up a bigger chunk of expenses. The company, based in Oakland, California, sued Ascap in 2012 to seek "reasonable" license fees to play Ascap songs on its service.

In March, a federal judge in Manhattan ruled that Pandora must pay 1.85% of revenue to Ascap from 2011 to 2015, a higher rate than Pandora had proposed. The court rejected Ascap's request for increasing rates over that period.

Pandora was sued by BMI over rates in June 2013, when that songwriters group alleged that it proposed a "reasonable" blanket royalty rate for allowing songs to be played on the internet radio service and was rejected. The case is pending.

Pandora has about 76 million monthly users, and about a 70% share of the internet radio market in the U.S. But the war for streaming music listeners is likely to intensify now that Apple plans to acquire the Beats Music service as part of its larger deal for Beats.

The Ascap and BMI consent decrees, reached in antitrust cases against the groups, require broadcasters and performing rights organizations to seek license rate determinations from the New York federal court if they can't negotiate an agreement.

Ascap President and Chairman Paul Williams said the group is "gratified" by the department's decision to review the agreements.

"Since the Ascap decree was last reviewed in 2001 --- before even the iPod was introduced -- new technologies have dramatically transformed the way people listen to music," Mr. Williams said in a statement. "The system for determining how songwriters and composers are compensated has not kept pace, making it increasingly difficult for music creators to earn a living."

Michael O'Neill, CEO of BMI, said in a statement that "technology has truly helped democratize the entertainment industry, giving large and small players a forum to be heard over any device -- but the creators of the music must be paid properly and fairly for their contributions."

Mollie Starr, a spokeswoman for Pandora, had no immediate comment.

~ Bloomberg News with Ad Age staff ~

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