iTunes Radio does not justify Pandora rate hike, judge says in major royalty decision

A federal judge sided with Internet radio service Pandora over the music industry in a bitter fight over songwriting royalties, after concluding that Pandora is more akin to regular radio than other music services like iTunes Radio and Spotify.

In a decision published in New York, US District Judge Denise Cote concluded that Pandora should continue paying a royalty rate of 1.85 percent of its annual revenues, and that the 3 percent music publishers had sought was not “reasonable.” According to the court, the fair rate for Pandora should not be determined by referring to what interactive music service, Spotify, pays to license songs from ASCAP. The reason is that: “on-demand streaming services like Spotify are widely considered cannibalistic and are licensed at a higher rate accordingly.”

The court also rejected the music companies attempt to use Apple, which launched a radio service of its own, as a royalty model. While Apple is rumored to be paying ASCAP a 10 percent royalty rate, Judge Cote ruled that this amounts to an apples-to-oranges comparison, in part because the service is new and because Apple is using it promote its hardware products. The ruling in favor of Pandora may further embitter certain songwriters who blame digital musical services for undercutting artists’ ability to make a living.

The bottom line is that the ruling puts Pandora on about equal footing with other radio stations when it comes to paying ASCAP, but the music royalty system still appears deeply distressed and uneven.