Record industry finds a new way to squeeze Pandora, but it won’t help musicians

Gigaom

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.



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