Internet music service Pandora buys radio station, so BMI sues

Pandora’s legal disputes with performance-rights organizations are heating up.

BMI, or Broadcast Music Inc., one of the groups that collects royalties from broadcasters to pay publishers and songwriters, is suing the Internet radio giant in response to its attempt to lower its rates by buying a traditional FM radio station.

Pandora revealed Tuesday it is acquiring a terrestrial station in Rapid City, S.D., to make a point about the rates it pays.

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Pandora has said it is unfairly forced to pay higher rates than traditional radio operators such as Clear Channel, which owns 850 physical stations and the Web streaming music service iHeartRadio.

Last year, Pandora, which has 200 million registered users and 70 million active users, sued the American Society of Composers, Authors and Publishers (ASCAP) -- a performance-rights group that competes with BMI -- to lower its payments.

New York-based BMI, in a complaint filed Thursday in New York, said it has proposed a “reasonable” payment rate for Pandora, which the company has rejected. BMI asked the federal rate court to set royalty fees for Pandora.

“BMI has proposed an increase in Pandora’s fees consistent with market rates to reflect the explosive growth of the Internet music market,” BMI said in its 19-page complaint. “We expect Pandora to claim that it is no different than commercial broadcast radio. That contention is wrong.”

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BMI argues its radio station license that covers terrestrial radio stations will not cover Pandora, even if it owns an FM station. Pandora doesn’t qualify for the lower rates just by buying “a single radio station” in a city with population that it less than 1%t of its Internet audience.

“Pandora’s stunt makes a mockery of performing rights licenses and the rate courts process,” BMI said.

Pandora disclosed its acquisition of the Rapid City station KXMZ-FM in an opinion piece published by the political news website The Hill and penned by its lawyer Christopher Harrison.

“This acquisition allows us to qualify for the same … license under the same terms as our competitors,” Harrison wrote. “Certain powerful music incumbents see Internet radio as a threat to the status quo. We see Pandora, and Internet radio, as a transformative way to connect listeners with music they love.”

Pandora’s critics argue this is a particularly brazen example of the company’s attempts to stiff music makers.

“Pandora continues to find new ways to give artists and songwriters a raw deal from the bottom of the deck,” the music industry advocacy group musicFIRST said in a blog post.

“We look forward to the court’s oversight of this matter,” said Pandora in an emailed statement. “Disputes regarding the reasonableness of fees between BMI and music users are adjudicated in federal court just as disputes between ASCAP and music users.”

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