BMI wants an order forcing Pandora Media to pay more for the right to stream its clients’ music over the Internet.
NEW YORK — BMI and Pandora are squaring off in a federal court here over a bitterly fought case that has become the latest symbol of the digital disruption upending the music business.
The immediate issue is money: BMI, or Broadcast Music Inc., which collects licensing fees for some 600,000 songwriters and publishers, wants an order forcing Pandora Media to pay more for the right to stream its clients’ music over the Internet.
But at the heart of the rate-setting case are fundamental questions about cultural content in the digital age.
On one hand, the Internet offers the possibility for vastly increased distribution of music and other cultural works. On the other, it has proved less efficient at making money from it, setting up the battle between content producers and their agents against digital distributors.
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“This all goes back to the birth of radio,” said Mark Weinstein, a University of Southern California business and law professor.
The BMI-Pandora case, he said, marks another landmark in a historical business struggle dating to the early days of radio when record labels initially refused permission to play records over the air.
In court papers, the Internet company argued that its service is a passive experience similar to radio operations and, as such, should be governed by deals BMI has struck with a group representing radio giant Clear Channel and other owners of so-called terrestrial radio stations.
Those radio stations pay 1.7 percent of revenue for rights to broadcast the 7.5 million works licensed by BMI. But BMI wants Pandora to pay 2.5 percent.
In its effort to reinforce its claim of operating a radio business, Pandora bought station KXMZ in Rapid City, S.D., two years ago. But BMI said that doesn’t make it a radio station, arguing that the Pandora experience is vastly different in quality and sheer scale.
In its court papers, BMI said that Pandora’s service enables listeners to create their own customized radio stations using technology known as the Music Genome Project to parse 450 attributes of a song to match the listeners’ preferences.
And with 200 million listeners, it said, Pandora provides “1.5 billion listening hours per month,” far more than any regular radio station delivers.
BMI called Pandora’s radio-station purchase a “brazen effort to artificially drive down its license fees.” Conventional radio stations pay an average of $150 million a year each for licensing fees. Pandora paid only 4 percent of its $920 million in revenue last year — or nearly $37 million — to songwriters and publishers.
About half of Pandora’s revenue last year went to performers and record labels under a separate agreement.
David Israelite, chief executive of the National Music Publishers’ Association, a trade group supporting BMI, said the business problems have been compounded by Pandora’s “scorched-earth” approach to negotiations.
“They’re the most aggressive of any of the players in the space in trying not to pay songwriters fairly,” he said.
Pandora spokesman David Grimaldi said the court is the right place to settle the matter: “We are confident in our legal position, and look forward to continuing to serve the tens of thousands of artists who spin on Pandora and the 81 million active monthly users who enjoy listening to them.”