Why Pandora bought an FM radio station

As with any innovative technology, we have encountered many attempts by the incumbent industry players to undermine Pandora’s mission to connect millions of fans with the music and artists they love. These organizations seek to impose unprecedented royalty increases that are neither reasonable nor competitive. We are in the midst of the latest battle, in which ASCAP and its members have abruptly shifted away from 100 years of business practice and attempted to create a new right to “withdraw” from ASCAP the right to license certain songs on what is essentially a case-by-case basis.

That’s why we are filing a motion in federal district court in our pending rate case with ASCAP (the motion will be publicly available soon). The motion details discriminatory treatment of Pandora and other Internet radio companies by ASCAP and their publishing industry members.

The motion outlines how we believe ASCAP has violated the terms of its antitrust consent decree with the Department of Justice by (a) discriminating in license fees and terms between Pandora and other similarly situated licensees such as Clear Channel’s iHeartRadio; (b) failing to provide required transparency in identifying songs ASCAP claims it can license to Pandora; and (c) creating a scheme by which member-publishers can withdraw their catalogs from ASCAP's license for Pandora but allow them to remain for everyone else, including competitors like iHeartRadio.

In our motion we describe how ASCAP’s rules were amended to allow selective withdrawals. Under these new rules, in late 2012 a major publisher withdrew its new media rights from ASCAP, forcing Pandora to negotiate a direct agreement against a ticking clock. During negotiations, ASCAP and the publisher increased the pressure by refusing to provide Pandora the list of tracks that were being withdrawn, exposing Pandora to copyright infringement liability of up to $150,000 per work. At Pandora’s scale, such liability would be enormous. Faced with such potential liability, Pandora negotiated an agreement that resulted in increased rates. Shortly thereafter, additional major publishers took steps to withdraw their catalogs from ASCAP, again with respect to Pandora.

ASCAP created additional ways to circumvent its antitrust consent decree. Our motion also describes how ASCAP refused to provide Pandora a license under the same terms as the iHeartRadio service, for only one reason: iHeartRadio is owned by a terrestrial broadcaster.

Terrestrial broadcasters and their Internet properties were given preferential treatment via a January 2012 agreement between the Radio Licensing Marketing Committee (RMLC) and ASCAP and BMI. To put this in perspective, at least 16 of the top 20 Internet radio services that compete with Pandora operate under the RMLC license that has not been made available to Pandora.

So, today we are also announcing the purchase of KXMZ-FM, a terrestrial radio station broadcasting out of Rapid City, South Dakota. This acquisition allows us to qualify for the same RMLC license under the same terms as our competitors. While this might seem like an unexpected move for Pandora, it makes sense even beyond the licensing parity. Pandora excels in personalizing discovery and terrestrial radio is experienced in integrating with a local community. We look forward to broadcasting our personalized experience to the community in Rapid City, an area where over 42,000 residents already use Pandora. And we will apply Pandora’s insights about listening habits to program music that accurately reflects local listeners’ evolving tastes.

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. Every day we introduce artists to scores of new listeners who can't find them on the traditional FM dial. The status quo is a dead end for the vast majority of working musicians and the Internet is driving a sea change that will fundamentally shift the equation away from big industry players towards a more democratic and inclusive industry for both listeners and artists. For this to become reality, Internet radio must be embraced – not discriminated against.

Harrison is assistant general counsel at Pandora.