updated 01:57 am EDT, Fri April 18, 2014
Record companies argue that state law protects older recordings
Following a similar lawsuits against Sirius XM radio, a group of record companies has filed suit in a New York court against Pandora, the top streaming subscription music service in the US. While songs made before February 15, 1972 are not subject to federal copyright protections, the labels argue that Pandora, like Sirius, should pay royalties to the tune of tens of millions of dollars because the songs are still protected under state laws.
Of course, the laws on state copyrights vary, making an exact determination of how royalties could be collected difficult. The original lawsuit filed against Sirius XM by the members of the band The Turtles has not yet been resolved, but was later joined by the record companies and has become a new front in the fight against Internet-based broadcasters. Terrestrial radio stations are not required to pay royalties for "performance" (ie the right to air the recordings themselves), paying only songwriter royalties using the justification that radio play sells records and builds star brands.
Streaming music services like Pandora, where the users has only a very limited control over what's played, and satellite radio companies like Sirius must be allowed to buy licenses to music made after 1972 by federal law, but whether Pandora and other companies will need to negotiate licenses with each state over pre-1972 music is unclear and, at the very least, a myriad process.
Because on-demand services like Spotify and Rhapsody don't qualify as radio-like streaming services, they negotiate their own licenses for pre- and post-1972 music separately, and aren't part of this process. The status of Apple's arrangement with labels over its iTunes Radio on this point is also unclear, but it has not been named in any legal actions thus far.
While it is mostly the record companies that are suing for this potential new revenue stream, the artists involved would get at least some of the money if Pandora and Sirius et al were to begin paying for pre-1972 licenses. On the other hand, the companies affected might decide instead to drop as much pre-1972 music as possible from their services in order to avoid paying further royalties. Pandora, despite having more than 70 million listeners (but only a fraction of that in paying subscribers), already operates at a substantial loss.
Bringing the suit are the three big labels -- Sony, Universal and Warner Music -- along with ABKCO, a label that controls the rights to some early songs by the many pre-1972 bands (from Chubby Checker to the Rolling Stones and many others). A Pandora representative said the company was "confident in its legal position, and looks forward to a quick resolution of the matter." The labels accuse Pandora of "appropriating plaintiffs' valuable and unique property, violating New York law, and engaging in common law copyright infringement and misappropriation and unfair competition."
The two companies sued thus far -- Pandora and Sirius XM, the latter of which has around 26 million subscribers -- make up the bulk of the $656 million distributed last year to record companies through SoundExchange, the arm of the RIAA charged with distributing performance royalties to copyright holders and artists.