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Sony/ATV announces direct licensing deal with Pandora

By | Published on Friday 6 November 2015


The world’s biggest music publisher, so that’ll be Sony/ATV, yesterday announced an “unprecedented” direct licensing deal with Pandora. This pre-empts any future change to collective licensing rules Stateside, and means America’s biggest streaming service will now agree rates directly with the Sony publishing firm, rather than relying on fees set in the country’s rate courts.

Pandora has, in the main, licensed song rights via the collective licensing system to date, so via American performing rights organisations like BMI and ASCAP. Where the music industry licenses collectively extra regulation applies, to counter competition law concerns about the collective licensing approach. In the US, this regulation stems from the so called ‘consent decrees’.

Usually that extra regulation includes a process for when a licensee or group of licensees cannot agree terms with a society, with some sort of statutory body set up to mediate and ultimately set rates where disputes occur. In the US that is the rate court, and Pandora has made good use of that system to try to keep the royalty rates it pays songwriters and publishers as low as possible.

So much so, a few years back the big publishers, including Sony/ATV, decided they would pull their digital rights out of the collective licensing system and force Pandora into direct deals where the rights owners would have a stronger negotiating hand, and the rate court could not intervene. The big publishers are already licensing multi-territory digital services directly in Europe (albeit via partnerships with the collecting societies).

But – even though some direct deals were actually negotiated with Pandora – it then went to court and argued that, under the consent decrees, the publishers couldn’t do partial withdrawal from the collective licensing system.

A judge agreed, saying that the publishers either had to offer collective licensing as an option to all licensees of the performing rights in their songs – so radio, live performance, bars, restaurants, digital and so on – or to none. So to force Pandora into a direct deal, a publisher would have to start licensing every radio station, bar, restaurant and so on directly too, and nobody wants to have to do that.

Here’s the thing though, while the publishers are obliged to provide performing right licences via the collecting societies, in the US the digital services still have the option to circumvent the collective licensing system, if they so wish, and do a direct deal. Though usually they would only do so if they could get a better rate directly than collectively, and why would the publisher agree to rates lower than they are already getting via their collective licensing system? Well, if the digital service offers marketing or other kickbacks, possibly.

Either way, BMG announced a direct deal with Pandora over a year ago. Meanwhile Sony/ATV and the other big publishers got busy lobbying the US Department Of Justice to amend the consent decrees, so to allow partial withdrawal. The DoJ is now reviewing the decrees, and it’s thought it will introduce more flexibility into the rules so that publishers can use BMI/ASCAP for some scenarios, but license direct in others.

However, the Sony/ATV deal pre-empts all of that. And crucially, the publishing giant says that, under the direct deal, it will get better rates than it currently receives via BMI and ASCAP. Why would Pandora agree to that, when it currently doesn’t have to do a direct deal at all? Well, it seems, ‘more security’.

With a wobbly share price, perhaps Pandora would rather pay slightly more than face the insecurity of what might happen next in the collective licensing domain. Perhaps it’s fed up of all the tricky and expensive legal wrangling, and the bad press that comes with pursuing royalty battles in public through the rate courts.

Perhaps it knows partial withdrawal is incoming anyway. Or perhaps, following the departure of the streaming firm’s VP Of Business Affairs Chris Harrison in August, the top guard at Pandora are no longer in the mood for a fight. Because Harrison led many of the legal fights to reduce royalty obligations. And he’s at Sirius now, let them do the fighting I say.

Either way, Sony/ATV chief Marty Bandier – who has been particularly vocal on digital royalties, and them being too low for publishers – is definitely pleased with the new deal with the big bad (or now, presumably, super fine) Pandora.

He told reporters: “We believe that this agreement with Pandora is a major step in the right direction to ensure that our songwriters are fairly compensated for the use of their music on streaming services. We are pleased that our songwriters will begin to enjoy the benefit of better rates on one of the most important platforms for music consumption and discovery. It is part of our ongoing strategy to ensure that all digital music services recognise the indispensable value that the words and music of a song bring to their businesses”.

Pandora boss man Brian McAndrews was smiling too about this new deal covering “Sony/ATV’s storied catalogue” (which is his favourite term, given he described BMG’s repertoire the same way a year ago). He said yesterday: “This is a significant milestone in our long-standing effort to strengthen ties with the music maker community”.

And: “Over ten years, Pandora has built music’s most powerful marketing engine, which we put into action every day for Sony/ATV’s storied catalogue. By partnering directly with Sony/ATV, we are proud to lock in our opportunity to connect an incredibly talented community of songwriters with streaming music’s largest and most passionate audience”.

Bandier, you will notice, was keen to stress that this deal was all about fairly compensating the tune writers. Though said songwriters might now be wondering exactly how all this is going to work.

When royalties are paid to BMI and ASCAP, half the money goes straight to the songwriter. In Europe, when direct licensing occurs in digital, the performing rights loot still goes through the societies, so these direct payments continue. Will that happen here? And if not, what if there are songwriter contracts in the system that say performing rights money must go through the writer’s society?

Meanwhile, does this direct deal only apply to American-signed Sony/ATV songwriters? That is to say, those who are BMI or ASCAP members. Presumably so, because outside the US, the PROs generally represent the performing rights in songs on an exclusive basis, so that in the UK – even where a song is published by Sony/ATV – the performing rights element of the copyright is basically assigned to PRS.

Therefore the publisher can’t just cut the collecting society out of the system, which is why direct licensing in Europe has to be done in partnership with the societies. PRS repertoire is currently licensed in the US via its reciprocal agreements with BMI and ASCAP. What does this deal mean for all of that?

And what about co-writes, where one songwriter on a song is not published by Sony/ATV, or not repped directly by BMI or ASCAP? What happens when there are disputes over splits and ownership, conflicts that are traditionally resolved within the collecting societies?

Oh so many questions. And presumably the Sony publisher will need to provide Pandora with a nice long list of all the songs it controls, including those owned by EMI Music Publishing, which Sony/ATV manages but doesn’t own outright. That’s a list lots of people would like to see.

BMG is over a year into its direct dealing with Pandora, so there may be some precedents already in place here for Sony/ATV to follow in its “unprecedented” deal. Though it’s currently far from clear how all this is going to work day to day. But Bandier would likely say, with the better royalties, all the stakeholders will benefit here, so everyone has a vested interest in making the direct licensing of Pandora work.

Meanwhile, we all turn to Universal Music Publishing to see if it can persuade McAndrews et al to voluntarily go the direct dealing route too.