Pandora should pay 2.5% of revenue to BMI instead of 1.75%, court rules
Ben Sisario / New York Times :
Context & Ripple Effects
The BMI ruling lands mid-way through what is becoming a defining year for Pandora's cost structure: within months, the service also agrees to pay the RIAA $90 million for playing pre-1972 recordings, and a copyright board later lifts its performance royalty to 17 cents per 100 songs, up from 14, with inflation escalators through 2020.
The pattern extends beyond Pandora. Spotify spends 2016 cleaning up its own rights position via an NMPA mechanical-rights settlement reported between $21M and $30M, and by 2022 US publishers and the major streaming platforms — including Amazon, Apple, Google, and Spotify — move to negotiated 15.35% mechanical rates for 2023–2027 precisely to avoid fights like this one.
First-order effects
- Pandora's public-performance licensing bill jumps roughly 43% relative to its prior BMI rate — a direct hit to gross margin for a revenue-based royalty, felt immediately in every quarter going forward.
- BMI secures a judicially endorsed benchmark at 2.5%, strengthening its hand in future rate proceedings against other digital licensees.
Second-order effects
- Rights-holder groups read the ruling as momentum: the RIAA's pre-1972 claim settles for $90 million and the copyright board raises Pandora's per-play rate months later, suggesting litigated outcomes are resetting expectations platform-wide.
- Competing streamers face the same rate card — any ASCAP/BMI licensee now negotiates against a higher judicial anchor rather than Pandora's old 1.75% baseline.
Third-order effects
- If the pattern holds, streaming economics consolidate around negotiated multi-year rate deals — as in the publishers' 15.35% mechanical settlement — because case-by-case court fights prove costlier for both sides than pre-agreed schedules.
- Performance and mechanical royalties ratcheting upward structurally favors scale players; thinner-margin services carry the same percentage-of-revenue obligations against less revenue.
The trend: Music-streaming royalty costs are being reset upward through successive court rulings and rate-board decisions, pushing the industry toward consolidated negotiated settlements between publishers and platforms.