Last month, we wrote about the rate court fight between ASCAP and Pandora as ASCAP attempted to massively increase Pandora's rates through moves that were quite clearly collusive
. ASCAP had already lost
an earlier ruling showing that it had violated its consent decree by letting publishers selectively remove certain works in order to force Pandora into paying much, much higher rates. However, the details of ASCAP and the publishers' deception became much clearer during the rate court battle. Last week, the judge handed ASCAP a huge loss, keeping the rate where it had been
, at 1.85%, rather than jacking it up to ASCAP's requested 3%.
The ruling clearly highlights just how obnoxious the publishers and ASCAP acted throughout this process, and how their actions not only were intended to harm Pandora, but also the very songwriters that ASCAP pretends to represent. ASCAP has done an amazing propaganda job of pretending that it's always looking out for songwriters -- when the simple fact is that it focuses on benefiting its giant publishers, often at the expense of songwriters. The key issue in this whole action was how ASCAP allowed publishers to selectively "withdraw" their rights from ASCAP and then effectively hold a gun to Pandora's head, saying that if Pandora didn't accept a new license directly with those publishers, it would be infringing (to make this work, the publishers also refused to even let Pandora know which songs had been withdrawn). ASCAP effectively encouraged this to happen, knowing that it could use this to jack up its own rates, even though, on its face, publishers withdrawing rights from ASCAP should be seen as bad for ASCAP. But withdrawing from ASCAP (even though ASCAP effectively encouraged it) is also bad for songwriters because the publishers aren't exactly good at paying songwriters (shocking), whereas at least ASCAP has some level of transparency. Even the judge highlighted the songwriters and publishers' interests here were not aligned, but ASCAP was still siding with the publishers.
But the really damning stuff comes from the things we highlighted earlier during the trial -- and the judge found those points quite damning. There was clear collusive behavior between the publishers and ASCAP, meaning that ASCAP's claims that those "independently" negotiated deals were not done in a true marketplace. It started with ASCAP boss, Paul Williams, trying to calm down angry songwriters, but flat out admitting that these "withdrawals" were all really about getting higher rates for everyone:
The large publishers were well aware of the discomfort that
at least some writers felt with the new media withdrawals and
made the following argument to convince them to come on board:
if the major publishers could get higher license rates by direct
negotiations with new media companies outside of ASCAP then
those rates could be used in rate court litigation to raise the
ASCAP license fees. The publishers found an ally on this issue
in writer and ASCAP chairman Williams, who agreed with the new
media rights withdrawal strategy. His email illustrates the
strategy he pursued to get writers to support the publishers’
partial withdrawal of rights from ASCAP:
My job is to make this transition as smoothly as
possible in the board room . . . to assuage the fears
of the writers who may see this as an ASCAP death
knoll . . . . [W]e are in fact giving [the major
publishers] the right to negotiate. The end result
being that they will set a higher market price which
will give us bargaining power in rate court.
In other words, far from real competition and a market rate, Williams was flat out admitting that he was encouraging publishers to leave his own organization, making life more difficult for the songwriters he claims to represent, just so they could set up these sham agreements (negotiated with a gun to Pandora's head) and then pretend there was a higher "market rate" to use at the rate court.
This kind of behavior went to extreme levels, with Universal Music more or less threatening Pandora's lawyers with mafioso like claims, and then immediately emailing ASCAP
folks, to talk about how the strategy of jacking up the rates was working, and how ASCAP should be strong, since Pandora was supposedly running scared and would settle quickly. This, you'll note, is not the behavior you'd see in a competitive market. It's the behavior of organizations colluding against Pandora.
The day after the
rate court filing, UMPG’s Horowitz called one of Pandora’s
attorneys at Greenberg Traurig. As Horowitz promptly
memorialized in an email to ASCAP’s LoFrumento, Horowitz
told [Pandora’s outside counsel], as a “friend” of the
firm, that I thought both the firm and Pandora are
completely tone deaf. That whether his firm has the
legal right to rep Pandora in litigation, the firm has
lost huge goodwill with writers and artists by doing
so. And that filing now for a rate court proceeding
against ASCAP . . . had the effect of unifying
artists, writers, and PROs against Pandora.
Horowitz also gave some advice to LoFrumento regarding
ASCAP’s negotiating stance with Pandora. His advice boiled down
to two words: be strong. Horowitz wrote:
My take: [Pandora’s outside counsel] and Pandora are
scared. They just want to settle with ASCAP and
settle fast. Be strong. Time is on your side.
Pandora is now under intense pressure to settle with
ASCAP. They have to put this behind them. You can
really push Pandora and get a much better settlement
as a result. They are reeling. They will pay more, a
lot more than they originally intended, to do that.
Horowitz forwarded this same email to other ASCAP board members,
including Sony’s Martin Bandier, and BMG Music Publishing’s
Laurent Hubert. Besides these ASCAP Board members, Horowitz
sent the email to David Israelite of the National Music
Publishers Association (“NMPA”), which is a music industry trade
group based in Washington, D.C. LoFrumento assured Horowitz
that he was approaching Pandora with the mindset Horowitz
In other words, this was all a coordinated effort, rather than actual market competition. The ruling further confirms the fact, as Pandora had publicly stated
, that ASCAP and Pandora had actually agreed to terms on a rate, and then ASCAP backed out of the deal, suddenly demanding much, much higher rates, leaving Pandora in a difficult spot at the last minute on some negotiations.
Either way, the judge makes it quite clear that he views ASCAP's activities as "coordinated" with the major publishers, rather than any sort of independent competitive market, as ASCAP had tried to tell the judge. Furthermore, the judge notes that the publishers, along with ASCAP, put Pandora in an impossible "gun to the head" kind of situation to agree to massive increases to the publishers, by withholding the list of songs that would soon be "infringing" if Pandora didn't agree to a much higher deal.
With only a few business days remaining in the year 2012, ASCAP refused to provide Pandora
with the list of Sony works without Sony’s consent, which Sony
refused to give. Without that list, Pandora’s options were
stark. It could shut down its service, infringe Sony’s rights,
or execute an agreement with Sony on Sony’s terms. Then,
despite executing a confidentiality agreement with Pandora, Sony
made sure that UMPG learned of all of the critical terms of the
Sony-Pandora license. And LoFrumento admitted at trial that
ASCAP expected to learn the terms of any direct license that any
music publisher negotiated with Pandora in much the same way.
[....] What is important is
that ASCAP, Sony, and UMPG did not act as if they were
competitors with each other in their negotiations with Pandora.
Because their interests were aligned against Pandora, and they
coordinated their activities with respect to Pandora, the very
considerable market power that each of them holds individually
The judge certainly finds Sony and ASCAP's behavior in withholding the list of songs it was withdrawing from Pandora incredibly suspect, and further that the testimony from Sony's representative was simply "not credible" on this issue.
Brodsky received this request for a list of the Sony works,
but never responded. In their telephone conversations during
the month of November, Rosenbloum reiterated the request for a
list of works on several occasions but never got any response.
Rosenbloum repeated the request once more at a breakfast meeting
that he and Pandora’s Kennedy had with Sony’s Brodsky and
Bandier on November 30. Again, Sony did not respond.
The list of Sony works was potentially important for
several purposes, and Pandora referred to those several purposes
in its discussions with Sony. In addition to wanting to be able
to remove the Sony works from its service if Pandora and Sony
could not come to terms, Pandora needed the list so that it
could understand how to apportion any payments between the EMI
and Sony catalogues since the payments would apparently be made
at two different rates. Pandora also wanted the list so it
could evaluate whether the substantial, non-refundable advance
that Sony was demanding would likely be recouped.
Sony had a list readily at hand, since the Compendium
required that a publisher and ASCAP work together during the 90
day period before the effective withdrawal date to confirm
precisely which works were being withdrawn. Sony understood
that it would lose an advantage in its negotiations with Pandora
if it provided the list of works and deliberately chose not to
do so. Brodsky’s explanation at trial that he did not provide
the list because he believed that negotiations were proceeding
smoothly and did not want to impose an unnecessary “burden” on
Sony’s staff is not credible. The negotiations were not going
smoothly; the list had already been prepared and its production
imposed no burden. As Brodsky recognized in his testimony, the
list was “necessary” to Pandora in the event the parties did not
reach a deal. Sony decided quite deliberately to withhold from
Pandora the information Pandora needed to strengthen its hand in
its negotiations with Sony.
The judge recounts how Pandora also tried to get the list from ASCAP directly, and ASCAP after conferring with Sony similarly refused to give Pandora the list. The ruling also details how when ASCAP broke the handshake agreement it had with Pandora, it basically left Pandora less than a week to come to terms with Sony or be at risk for huge liability for playing Sony songs that it couldn't remove since no one would give it a list. In other words, Pandora was given effectively less than 5 days to negotiate a deal with Sony, without even knowing the basic information it needed to know. When Pandora further asked for the list just so it could figure out how much of its music database would be covered by Sony's license, Sony again
refused to give the list, but just said that about 30% of the music consisted of Sony and EMI combined.
Then there's the fact that Sony officials then leaked information about the deal terms all over the place, despite a confidentiality agreement.
By mid-January 2013, and despite the existence of a
confidentiality agreement, Sony leaked the key terms of the
Pandora license to the press. The headlines in three articles
said it all: “Sony/ATV ‘Now Has the Power to Shut Pandora
Down…’”; “Sony/ATV gets 25 percent increase in Pandora
royalties”; and “Sony/ATV’s Martin Bandier on new ‘quite
reasonable’ Pandora deal.” A New York Post article featured a
photograph of Sony’s Bandier in shirt sleeves with a large cigar
in his mouth, as it reported that Sony had “wrangled a 25
percent increase in royalties” for a one year license.
The judge also notes that it's quite clear that, despite denials, Sony broke the confidentiality agreement and leaked these deal terms:
Although Brodsky denied knowing that anyone at Sony had leaked
the terms of the license to the press, the evidence is that Sony
did just that. Despite reporting dutifully that Sony had
“declined” to comment on the terms of the deal, the articles
referred to anonymous industry insiders as their source and
quoted Bandier’s analysis of the deal. While Pandora had
absolutely no interest in seeing the 25% hike in its rates known
to other licensors, Sony hoped that its rate would be a jumping
off point for the next publisher’s negotiations with Pandora,
and it was. Pandora had its attorneys call Sony to complain of
the breach of their confidentiality agreement.
The whole ruling is quite a read. It shows over and over again how ASCAP and the big publishers basically did everything possible to collude and screw over Pandora, potentially harming songwriters in the process, by giving those songwriters less clarity and less information about licensing rates and how much they were owed. The claim from Universal that Pandora would regret going to rate court doesn't seem to have come about, as it's the publishers and ASCAP itself that have come out of this whole process with a massive black eye.