March 19 (Bloomberg) -- Pandora Media Inc., the biggest Internet radio service, must pay 1.85 percent of revenue to a group that represents songwriters and music publishers for licensing works from 2011 to 2015, a federal judge said in rejecting the company’s request for a lower rate.
The American Society of Composers, Authors and Publishers “carried its burden” in showing that the 1.85 percent rate is reasonable, U.S. District Judge Denise Cote said in a 136-page ruling issued today in Manhattan that sets a precedent for future rate battles between Pandora and music publisher groups.
“According to Pandora, the 1.85 percent rate is the upper bound of a range of reasonable rates for Pandora,” Cote said, noting that the company’s “concession makes further discussion unnecessary.”
Pandora had argued that it was entitled to a rate of 1.7 percent, which was set for terrestrial radio stations to license content from Ascap. Along with the lower rate sought by the Internet radio company, Cote rejected Ascap’s request for increasing rates over the period.
“Adoption of a single rate facilitates business planning, encourages reliance on historical data, and discourages resort to contested projections.” Cote said. “Likely for these reasons, and others, there is a well developed practice that supports the adoption here of a headline rate of 1.85 percent for not just the first two years, but also for the last three years of the license.”
Pandora fell 7 cents to $34.71 in New York trading. The shares have more than doubled this year.
The Oakland, California-based company sued in 2012 asking the court to set “reasonable” fees for its Ascap licenses.
The federal court in Manhattan has jurisdiction over setting Ascap licensing rates if parties can’t reach agreements, under terms of the consent decree that resulted from a 1941 lawsuit against the group.
Pandora, which has about 200 million users worldwide and a roughly 70 percent share of the Internet radio market in the U.S., would owe Ascap about $11.8 million in fees for 2013 according to revenue figures for the year under the rate set by the judge. The company licenses 500,000 to 1 million songs from the songwriters and publishers group, according to the opinion.
Cote presided over a trial to set the rates that began in January. The judge initially sealed her opinion on March 14 to give parties advance notice of the decision and determine any redactions before its release to the public.
“We look forward to working with all interested parties to ensure that consumers continue to benefit from innovative technologies such as Pandora and copyright owners receive fair and reasonable compensation for their creative contributions,” Will Valentine, a Pandora spokesman, said in an e-mail.
Lauren Iossa, a spokeswoman for Ascap, declined to comment today on the ruling.
“We are pleased the court recognized the need for Pandora to pay a higher rate than traditional radio stations,” Ascap Chief Executive Officer John LoFrumento said in a statement March 14.
Pandora said in its 2012 suit that fees charged at the time made sustained profitability impossible under its agreement with the 470,000-member Ascap. New York-based Ascap and Pandora reached an “experimental” fee accord in 2005 that lasted until 2010 and couldn’t agree on new rates after more than a year of talks, Pandora said in its complaint.
Under its previous agreement, Pandora paid either 1.85 percent or an amount based the number of sessions in which users were streaming music, according to the opinion. Pandora had a “concern over the calculation of the per-session rate” in the license, which could be as high as 3.63 percent, according to the opinion.
Facing pressure from music publishers such as Sony/ATV Music Publishing LLC and Universal Music Publishing Group, Ascap was pushing for a higher rate from Pandora around the time the lawsuit was filed, according to the opinion.
The case is In re Petition of Pandora Media Inc., 12-cv-08035, U.S. District Court, Southern District of New York (Manhattan).
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