Why Did Pandora Sign Away Its Right To Petition The Copyright Royalty Board For Lower Rates?

from the well,-that's-obnoxious dept

Thu, Oct 15th 2009 2:22pm — Mike Masnick

It's already quite troubling that Pandora appears to be supporting the RIAA bailout tax against radios (Pandora's competitors), but now we have a better understanding of why, thanks to a little birdie who highlighted what's going on. Among the nasty little hidden gems in the recently agreed to webcaster settlement agreement (pdf) is that, if you want the lower rates in the settlement, you have to remove any objections to previous rate arbitrations and not participate in any future Royalty Board fights over royalties:

Article 6

Non-Participation In Further Proceedings
CPB and any Covered Entity making Web Site Transmissions in reliance on this Agreement shall not directly or indirectly participate as a party, amicus curiae or otherwise, or in any manner give evidence or otherwise support or assist, in any further proceedings to determine royalty rates and terms for digital audio transmission or the reproduction of Ephemeral Phonorecords under Section 112 or 114 of the Copyright Act for all or any part of the Term, including any appeal of the Final Determination of the Copyright Royalty Judges, published in the Federal Register at 72 FR 24084 (May 1, 2007), any proceedings on remand from such an appeal, or any other related proceedings, unless subpoenaed on petition of a third party (without any action by CPB or a Covered Entity to encourage such a petition) and ordered to testify in such proceeding.

Basically, this takes away the right of any company to fight for more reasonable royalty rates in the future -- which doesn't seem like it should be allowed. Based on this, there's basically no one left who can protest future rate increases -- which means that the RIAA/SoundExchange will easily be able to repeatedly push through greater rate increases.

Thus, since Pandora and the other webcasters won't be able to protest higher and higher rates, it needs to drag others into the fight to get help protesting constant massive rate increases: hence its support of the Performance Rights tax. In theory, if the NAB (who represents radio broadcasters) gets dragged into the fight, then there's a big dog who isn't subject to the draconian clause above, and can push back on the Copyright Royalty Board for lower performance rights taxes. Of course, that assumes that the NAB would fight for lower overall rates, rather than just focusing on rates for radio, and leaving the webcasters to fend for themselves...

No matter how you look at this, it's stunning that Pandora and other webcasters would sign away their right to state their own case in front of the CRB. RIAA/SoundExchange are laughing all the way to the bank. They get to make their case to increase royalty rates... while those who get stuck with the royalty rates have to shut up and take it. Regulatory capture at its finest. Again, we're left wondering why the Copyright Royalty Board even exists. Why are a group of old judges setting the price of music anyway?

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Filed Under: copyright, copyright royalty board, performance rights
Companies: pandora

16 Comments

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Dark Helmet (profile), 15 Oct 2009 @ 2:33pm

Okay, question...
I'm no legal expert, and everytime I try to read language like what's in the quote, my eyes seem to jump all over the place instead of going from left to right, so maybe I'm missing something here, but...

Doesn't that passage sound like it would exclude the signed parties from participating in ALL proceedings or appeals directly or indirectly related to their royalty rate agreement with RIAA?

And taking that to it's logical conclusion, if the US Senate holds a proceeding to discuss whether the rates are fair or not, would this clause proclude Pandora from testifying at such a proceeding? I mean, granted the Senate would laugh at the notion and order them there anyway (well, probably at least), but would such a proceeding fall under the designation of that clause?
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Anonymous Coward, 15 Oct 2009 @ 2:43pm

My feeling is that Pandora was looking at an insanely huge bill for "back royalties" that has likely been tossed or lessened to avoid taking them completely out of the game, giving them a chance to try to build a functional business model based on the rates negotiated. In turn, they gave up certain options that might have been open to them in the future.

They may have sold tomorrow just to pay for yesterday.
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:Lobo Santo (profile), 15 Oct 2009 @ 2:48pm

Wow
I guess the MAFIAA doesn't mess around!
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painter, 15 Oct 2009 @ 3:15pm

re "an insanely huge bill for "back royalties" "
What a protection racket! getting just the right amount of threat and setting the protection fee at just bellow the amount that would kill the goose! What finesse. I dips me lid. Al Capone would aplaud.
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Anonymous Coward, 15 Oct 2009 @ 3:33pm

Why Did Pandora Sign Away Its Right To Petition The Copyright Royalty Board For Lower Rates?
The answer is simple.

Garth Brooks came to the Pandora office, pulled out his six string, and started singing a song about coming out of retirement because his dog ran away, teenagers that don't recognize him, and demand that he bag his own "God damned Groceries" at the local Winn Dixie store.

http://www.usatoday.com/life/music/news/2009-10-15-garth-brooks-quote_N.htm

Naturally, he blames piracy and Apple instead of realizing that he's a washed up has-been, and no one really wants to hear songs of thunder rolling or trials and tribulations around finding "Leaded Gasoline" for a'57 Chevy with a harmonica.

But the songs played live for the Pandora guys were impressive enough for them to charge all the users for the experience.

Thanks, Garth!
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Justin, 15 Oct 2009 @ 3:33pm

its all about leverage
Mike you keep saying that this is an RIAA business model issue but I am really starting to think these net and radio companies are equally at fault for letting this happen to them. They have more of the CWFs aspect that the RIAA can't seem to figure out. They need to learn to leverage this to get back to a level where the RIAA treats them like a business partner and not a door mat. It may take a few companies getting together to gain the needed force, but they really need to take action.

Letting the RIAA walk all over you is just as weak a business model as still thinking the only way to sell music is on a plastic disc.
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Shaun Wilson (profile), 15 Oct 2009 @ 3:37pm

Delusion of controll
Why are a group of old judges setting the price of music anyway?

Basically the reason for this is that government is suffering under the delusion that they can manage the market to produce better results than the market would produce without interference, which goes way beyond things like copyright. It is kinda understandable, because if interference is unessary then there is no reason for them to have their jobs - and generally public servants and politicians (heck anyone really) would like to believe their jobs have meaning.

You would have thought that the fall of the soviet union would have been dramatic enough for everyone to realize that state control doesn't work but apparently not. It seems to be the eternal arrogance of politicians - sure my opponents policies of interference are going to destroy the country but mine will bring about utopia for certain.
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Zach, 15 Oct 2009 @ 4:46pm

Here's a simplification:
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Zach, 15 Oct 2009 @ 4:48pm

Here's a simplification:
Pandora pays way too much. Traditional radio pays, comparatively, just about zip. Why? Beats the heck outta me.

The way I see it, make everyone pay equal rates. Simple. Traditional radio is established. Theoretically, they can afford it - and if not, well, that's what happens when you play stuff nobody wants to listen to. Or reduce the rates on webcasters and everyone will be happy - except the RIAA, but come on, like anyone really cares about them.
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Michial Thompson, 15 Oct 2009 @ 5:55pm

Ever Consider
Is it possible that Pandora allowed this clause in the contract because it allowed them to get rid of past bills, or negotiate a lower rate or whatever... THEN they get this paragraph thrown out in court when they do testify or sue again in the future when things turn more friendly?

It seems a little odd that a contract could be binding on them that would prevent them from defending themselves or legally testifying in future court cases. If they receive a subpeona to appear in court they are legally obligated to appear and testify, and if they are sued, they have every right to defend them selves in court against it. If they are wronged they have every right to sue the responsible party.

I'm guessing that they looked at the current state of the legal system, somehow got this clause added which give the RIAA the "security" that the could do anything they wanted. While all at the same time the were thinking, if we shut them up and get them off our backs for the next few years until all these copyright issues work themselves off we have a much better chance of getting this paragraph thrown out while still legally enforcing the rest of the contract.
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Anonymous Coward, 15 Oct 2009 @ 7:03pm

Re: its all about leverage
Radio stations and web companies have a basic problem: Without the music, they are so much dead air.

The rest is just a question of how much they need to pay to get the raw materials of their business. Like any business, you shouldn't get into it if the cost of raw materials is too high. Pandora and other web boradcasters somewhat foolishly appear to have entered into a business not knowing their full bottom line costs, making assumptions that just are not working out.

Web broadcasting (which isn't broadcasting at all, but massively parallel narrowcasting, a wasteful concept) is sort of like Myspace at this point anyway. Some people use it, but it is already horribly passe.
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Mike Masnick (profile), 15 Oct 2009 @ 10:46pm

Re: Re: its all about leverage
Radio stations and web companies have a basic problem: Without the music, they are so much dead air.

You mean, without webcasters, musicians would have a much tougher time getting their songs heard.

The rest is just a question of how much they need to pay to get the raw materials of their business.

You mean, the rest is just a question of how much effort musicians need to make to get their music heard.

Like any business, you shouldn't get into it if the cost of raw materials is too high.

Like any business, you shouldn't run to the gov't to get them to enforce a business model for you.

Pandora and other web boradcasters somewhat foolishly appear to have entered into a business not knowing their full bottom line costs, making assumptions that just are not working out.

The assumptions, by the way, were that webcasting royalties would be on par with satellite radio (somewhere around 2 - 5%). No one, in their wildest dreams could have guessed that they would be 25%. It's grand larceny.
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Anonymous Coward, 15 Oct 2009 @ 11:20pm

We signed it under duress
The MAFRIAA threatened to kill a puppy if we didn't sign immediately....
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Josh in CharlotteNC (profile), 16 Oct 2009 @ 6:48am

Re: Okay, question...
Not a lawyer either, but it does sound like you're right about the first part. However, settlements are between two parties (not the government or an enforcement agency), so if SoundExchange is fine with Pandora lobbying with them for increased rates, then there's no problem.

As to the second part, no private contract or settlement can prevent you from giving testimony when in court when under a legal subpoena (or in front of the Senate or Congress which have the same legal rules as an actual court, including perjury).
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dkelley (profile), 18 Oct 2009 @ 7:46am

Makes me wonder if a provision like that is even legal.

That said, Pandora should at the very least be embarrassed. And down the road, when RIAA fees rise and erodes Pandora's quest for a profitable business model, they will have no one to blame but themselves.

Very short-term thinking.
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Patrick, 17 Mar 2012 @ 6:51am

Re:
Well doesn't that sound familiar???...our own government!
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