Why the music industry is trying—and failing—to crush Pandora

By John McDuling

This year marks the 15th anniversary of the launch of Napster, the file sharing service that disrupted the music business and conditioned a generation of consumers to expect to be able to listen to their favorite songs for free.

Internet-based music platforms are legitimate businesses now, but tensions between the music establishment and new media remain as bitter as ever. They came to a head in the courts last month in a fascinating case between Pandora Media, now America’s biggest internet radio company, and the 100-year-old American Society of Composers, Authors and Publishers (ASCAP.) It concerned the arcane issue of music publishing royalties, and uncovered some questionable behavior.

ASCAP is one of two main “publishing rights organizations” that act on behalf of songwriters to collect royalties from radio stations, movie studios, and technically speaking, anyone else (such as bars and restaurants) who plays music in public.

Pandora had been seeking to lower the amount it pays to publishers in royalties to be in line with that paid by terrestrial radio stations — 1.7% of gross annual revenue. Pandora’s argument was that its service is radio-like: Yes, you can personalize what you listen to, but you cannot play songs on demand, at your will, or offline. ASCAP had been seeking to increase rates to as high as 3% of Pandora’s gross revenue, citing the much higher rates paid by other digital services, such as Spotify. The court ended up ruling last month that the rate would stay unchanged at 1.85%.

But the tactics used by the music industry against Pandora were the really interesting part.

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