Pandora Doesn’t Want to Pay for Music Made Before 1972

Source: Thinkstock

Source: Thinkstock

Recording companies including Sony (NYSE:SNE), Comcast (NASDAQ:CMCSA)-owned Universal, Time Warner’s (NYSE:TWX) Warner Music, Capitol Records, and the independent label ABKCO filed a suit in New York State Supreme Court in Manhattan against the popular online radio service Pandora (NYSE:P) over recordings made before 1972, which aren’t protected under the same copyright laws as recordings made after that year. Federal copyright law doesn’t cover recordings made before 1972, though they are protected through various state laws. The record companies allege that they aren’t being properly compensated for the pre-1972 music they own.

Pandora believes that those state laws adequately protect the music in question. “Pandora is confident in its legal position and looks forward to a quick resolution of this matter,” said a Pandora spokesman in a statement seen by Bloomberg Businessweek. This is only the latest in the online radio service’s battle to pay as little as possible in royalties for the music it offers.

“Pandora’s refusal to pay Plaintiffs for its use of [Pre-72] recordings is fundamentally unfair. Pandora’s conduct also is unfair to the recording artists and musicians whose performances are embodied in Pre-72 Recordings, but who do not get paid for Pandora’s exploitation of Pre-72 Recordings. It is also unfair to other businesses that compete with Pandora but obtain licenses and pay for the right to stream Plaintiffs’ Pre-72 Recordings to the public, while Pandora does not,” the suit reads. “As a result, Pandora deprives Plaintiffs and their artists of compensation, while profiting enormously from and gaining an unfair advantage over others who do pay to copy and publicly perform Plaintiffs’ Pre-72 Recordings.”

A similar lawsuit over compensation for pre-1972 music was filed against SiriusXM Satellite Radio (NASDAQ:SIRI) in California back in September. “The conduct of SiriusXM presents the paradigmatic example of a commercial business that is based on, uses, and profits from the intellectual property created by and owned by others, without obtaining the right to do so, and without paying for it,” the complaint reads.

A statement from the Recording Industry Association of America points out that a variety of popular Pandora stations, including “’50s Rock and Roll” and “’60s Oldies” rely exclusively on the music in question. “These multi-billion dollar digital music firms, both hugely successful and publicly traded on Wall Street, refuse to pay artists and rights holders for the use of these classic recordings in their programming just because they were created before 1972,” the statement reads, speaking of both Pandora and Sirius.

The RIAA also quoted some of the artists affected by Pandora’s refusal to pay for music made pre-1972. “I’m a big fan of Sirius XM and Pandora but I just can’t understand why both companies are intentionally refusing to compensate artists like me. It’s a historic injustice that there exists a deliberate refusal to compensate artists such as myself and all of my peers who made recordings before 1972 because of a quirk in the U.S. copyright laws,” said legendary soul singer Sam Moore.

Buddy Holly’s widow, Maria Elena Holly, pointed out that many of these older artists and their families rely on royalties for their income. “Many artists from the 1950s are retired and struggling to support themselves or have families or heirs who are trying to make ends meet. That’s why royalties from all platforms and services that play their music are so important,” Holly said in the RIAA statement.

According to SoundExchange, the patchy state laws that will cover pre-1972 music until they are superseded by federal law in 2067 have resulted in the loss of tens of millions of dollars in royalties for artists and record companies in 2013 alone.

Pandora has been pretty successful thus far in its legal battles against anyone who wants the company to actually pay for music, including the American Society of Composers, Authors and Publishers. Digital downloads fell in 2013 for the first time since Apple (NASDAQ:AAPL) opened the iTunes Store ten years ago, and industry watchers have blamed the rising prevalence of online streaming and radio services for that decline.

Through a weird legal quirk pointed out by The New York Times, on demand services like Spotify do pay for pre-1972 music, while radio-based services like Pandora and Sirius do not. On demand streaming is growing in popularity, but the majority of the industry’s profits and listening hours still go to Pandora. If Pandora convinces the New York Supreme Court that it doesn’t have to pay for music made before 1972, there will be one more nail in the coffin of the music industry as a whole and the artists responsible for that music will watch the money they make from their work continue to dwindle.

More From Wall St. Cheat Sheet:

Follow Jacqueline on Twitter @Jacqui_WSCS