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Pandora sued by rights group over streaming music royalties

Pandora Premium offers streaming music without commercials and other audio like podcasts for around $10 per month.
Pandora Premium offers streaming music without commercials and other audio like podcasts for around $10 per month. (Graphic by The Desk)

A music licensing group has filed a lawsuit against SiriusXM’s streaming audio platform Pandora after accusing the service of paying low royalties.

The lawsuit, filed on Monday by the Mechanical Licensing Collective (MLC), says Pandora pays “unusually low royalties per stream” when users are listening to music on the ad-supported tier of the service, which is available in most countries for free.

The MLC says Pandora uses creative accounting to exclude substantial “service provider revenue and (total content cost, or) TCC” for the free version of Pandora. TCC is another term for the royalties paid by music services like Pandora for the right to stream copyrighted music on digital platforms.

The MLC also takes issue with prior royalty payments made by Pandora in 2022 and 2021. During that time, the Copyright Royalty Board (CRB) was weighing arguments by streaming services like Pandora and some of its competitors, who sought to pay lower royalty rates than were already established.

During that time, the MLC said Pandora paid the lower royalty rate while the decision was pending. The outcome was a higher royalty rate than what Pandora and others were paying in years prior, and the CRB required streamers to retroactively pay the difference over a span of five years.

The CRB established the MLC to set and collect the flat-rate royalty payment owed by streaming services like Pandora.  In its complaint, the MLC said Pandora was given multiple opportunities to make its payments current, to include the back pay owed after the CRB’s decision. Despite numerous advanced warnings, the MLC said Pandora failed to meet a February 4 deadline to bring its payments current, thus triggering the lawsuit.

The lawsuit against Pandora comes after a similar music rights group, SoundExchange, filed a legal complaint against Pandora’s parent company SiriusXM on allegations of unpaid royalties stemming from a streaming version of the satellite radio service. In that case, SoundExchange said SiriusXM failed to account for streaming rates when it paid royalties associated with the satellite radio service.

Historically, the CRB calculated royalty payments for SiriusXM’s satellite radio service based on a percentage of SiriusXM’s overall revenue. Through 2027, that royalty fee is set at 15.5% of SiriusXM’s gross revenues — and SoundExchange says the company has kept up with that payment.

But the royalty rate is different for companies that offer streaming music services. That rate is calculated at $0.0030 per performance if a service is subscription-based; the fee is reduced to $0.0024 per performance for streaming services that are subscription-free.

When SiriusXM began offering satellite radio customers free access to its streaming radio platform, SoundExchange asserts the company should have paid royalties based on subscription revenue from satellite customers, as well as royalties for each performance streamed through SiriusXM’s online platform.

But that isn’t what SiriusXM did, according to SoundExchange’s lawsuit. Early on, executives relied on an “entirely arbitrary” formula that subtracted the price of a satellite-only plan from the cost of a satellite plan that included streaming, to arrive at a figure that SiriusXM felt was appropriate in terms of how much it owed in royalties.

That seemed off to SoundExchange, but not quite as bad as what SiriusXM did next: In 2021, the company decided to bundle access to its streaming radio platform with most of its satellite radio plans. Afterward, the company used some more creative accounting to determine how much revenue from a particular tier of service should go toward royalty payments.

The amount SiriusXM withheld in royalty payments only went up from there, to the point where SiriusXM was paying around 25 percent less in royalties than it had been prior to the change, according to SoundExchange.

SiriusXM is just one of several companies to square off with music licensing groups over the past few months. Last month, Universal Music Group said it was pulling its catalog from TikTok after the China-based service failed to agree to a “fair value” rate in exchange for allowing TikTok creators to use its copyrighted music in their videos.

Last June, X — the platform formerly known as Twitter — was sued by the National Music Publishers Association (NMPA) over alleged copyright infringement on their platform. The lawsuit, which is still pending, seeks at least $250 million in damages.

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About the Author:

Matthew Keys

Matthew Keys is a nationally-recognized, award-winning journalist who has covered the business of media, technology, radio and television for more than 10 years. He is the publisher of The Desk and contributes to Know Techie, Digital Content Next and StreamTV Insider. He previously worked for Thomson Reuters, the Walt Disney Company, McNaughton Newspapers and Tribune Broadcasting.
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