Why Pandora just paid the RIAA $90 million.
Pandora has just agreed to a $90 million settlement with the Recording Industry Association of America. It's one settlement in a sea of lawsuits against both Pandora and Sirius XM, all over the same incredibly weird copyright issue: internet streaming for pre-1972 sound recordings.
When I started writing this article, I counted something like five lawsuits over pre-1972 sound recordings. Now, I think I can say there's about eleven? I still can't really be sure.Three were decided last year—one in New York, and two in California. The New York case is going up on appeal, and one of the two California cases is also going up on appeal.
Imagine trying to keep Flo & Eddie v. Sirius XM, Flo & Eddie v. Sirius XM, Flo & Eddie v. Sirius XM, and Flo & Eddie v. Pandora Media separate in your head while writing an explanation of an incredibly arcane quirk of copyright that is looming over internet radio services like an apocalyptic shadowbeast summoned by legal necromancers. Does that sound like a clusterfuck to you? It sounds like one because it actually is one. Now please send me some sympathetic vibes. I will also accept flowers and cards from my bedside.
Wait, is Pandora illegal?
If what you're asking is, "Does Pandora pay artists?"—the answer is, yes, Pandora pays artists. When you're listening to your Ryan Adams radio station on Pandora, every play of "Blank Space" is going to net him a tiny tiny tiny amount of money. And after millions of plays, it adds up—Pandora is paying out a total somewhere between $300 and $400 million a year for rights in sound recordings.
There's a fair bit of controversy over whether internet radio pays artists enough. It's a question worth pondering, but hey, did you know? Your favorite FM radio station playing "Blank Space" to its thousands of listeners does so without paying Ryan Adams a dime.
It's what radio stations have always done. Theoretically, people listen to the radio to hear what's cool, and then they go out and buy it.
Of course, the music industry hates this arrangement, and has hated it for a century. Record labels have been lobbying Congress over it for years. And musicians and record labels haven't been in lockstep with this issue, either. During World War II, the American Federation of Musicians launched a two-year strike against the record labels, with one of their explicit aims being to force radio stations to pay fees to recording artists.
It didn't work out, and there is now a two-year hole in musical history, with the rise of bebop jazz going almost entirely unrecorded. All because of this weird quirk of copyright law.
Wait. So radio pays nothing to artists?
Not quite. AM and FM radio (also known as "terrestrial" radio) pays composers, but not recording artists.
Songs have two separate copyrights in them. One is in the composition, the other is in the sound recording. So for example, Ryan Adams (or more likely, his label) has a copyright in the sound recording of "Blank Space" that he released this year. But he doesn't own the rights in composition, because it's a cover of a song from Taylor Swift's 1989.
Radio stations have to pay composers for the songs they play. They don't have to pay the recording artists. Sometimes the recording artists are the same as the composers! Sometimes they aren't.
It can get pretty complicated, but in short, this discrepancy has spawned additional, ever-more twisted discrepancies on top of it all.
Okay, but how do radio stations go about paying composers anyways?
It would be really difficult to track down every single composer for every song that's played on the radio—so onerous that it would be nearly impossible to run a radio station. So under copyright law, radio stations and other entities purchase blanket licenses from associations like BMI and ASCAP, which lets them off the hook for everything they play.
Pandora has to pay those fees too.
And then some more, for the sound recording copyrights.
So if radio stations don't pay for sound recordings, why is Pandora paying artists for sound recordings?
Internet radio is classified differently from "terrestrial" radio—the FMs and the AMs and so on. A lot of uncertainty surrounded internet radio in the earlier days. In the early 2000s, Congress came to an uneasy truce with internet radio.
There was a lot of rich possibility in internet radio—terrestrial radio had never allowed for an infinite number of stations variable to individual tastes. The internet could set the stage for a flowering of a million subcultures and genres and underground scenes.
But the early 2000s also saw the height of the controversy around Napster and its successors. Copyright law had never been so politicized. Treating internet radio exactly the same way as terrestrial radio smacked of piracy—because, well, in a time of heightened aggression and extreme rhetoric, anything involving music and the internet smacked of the radical.
So Congress took the middle path. Internet radio—so long as it was "noninteractive," rather than a press-to-play service like the one available through Spotify—didn't have to procure individual licenses from each and every artist. I mean, that would have made it really hard to operate internet radio at all. Instead, Congress set up SoundExchange, which operates a Kafkaesque spreadsheet of music played and comes out with a magical number that internet radio stations must pay. So when you listen to Ryan Adams's "Blank Space," Pandora pays SoundExchange (which then pays Ryan Adams) and also BMI and ASCAP (which then pays Taylor Swift).
Well, that sounds like all the bases are covered. So, isn't Pandora in the clear?
Here's the incredible thing. Federal copyright law doesn't recognize copyright in sound recordings made before February 15, 1972.
If Ella Fitzgerald were being pirated, the composer could sue under federal law, but Ella's record company couldn't. But that doesn't mean she was SOL. What she'd do is resort to state law instead.
Yeah, there's state copyright law as well as federal copyright law. Like you've got your California copyright and your US copyright.
When the Copyright Act of 1976 extended protection to sound recordings, that part of state copyright became "pre-empted," meaning that it's more or less a dead law—a vestigial trace of something that, even if it's on the books, just doesn't matter anymore. But since the 1976 Act only did this for recordings made in 1972 and later, it means songs recorded before 1972 (that's still in copyright) falls into a gray area that is arguably governed by laws that no one has bothered thinking about for years and years.
And it's not like state law copyright was just a mini version of the federal copyright we know and love today. It was very different! It was all over the place! There was a law for California, and there was a law for New York, and there was a law for Florida. It was not great.
So what's different about state law?
Traditionally, Pandora argues, state copyright in California only covered two rights: the right to make a copy, and the right of distribution.
Federal copyright is composed of six different rights.
Usually, digital downloads are covered by 106(1)—the right to make a copy. So when you buy a copy of "Blank Space" from the Apple Store, it's because Apple has licensed that right from Ryan Adams's label (and is also paying additional royalties to Taylor Swift). When you download a copy of "Blank Space" through the Pirate Bay, you're violating that right.
Here's where things get a little weird. Listening to "Blank Space" through streaming and internet radio is, from a technical perspective, not so different from that digital download. The 1s and 0s are transmitted to you over the internet. The data transfer is temporary, but technologically speaking, a copy is made.
However, legally speaking, no copy is made.
Streaming and internet radio are covered under the sixth right. When you listen to internet radio inside your house, on headphones, it is, under copyright law, a kind of public performance.
If that seems weird as hell to you, it's because it is.
Please stop yelling at me, I did not make up copyright law.
OK, but what does California state law have to do with any of this?
Pandora and Sirius XM want to argue that California state copyright doesn't cover public performances, which means that internet radio services don't have to pay additional royalties for rights in sound recordings that were created before 1972. And to be fair, California state copyright doesn't mention public performances in sound recordings, or digital transmissions, or, you know, internet radio. All it says is "ownership rights."
Flo & Eddie, two artists who still own copyright in recordings they made as The Turtles, think that's enough to say that pre-1972 California copyright does cover internet radio.
In 2015, one of their California cases ended with a judge ruling that the California law does include public performances of sound recordings—meaning that Sirius XM and Pandora were on the hook. It's now on appeal before the 9th Circuit.
Charles Duan of Public Knowledge, whose organization has filed an amicus brief on behalf of Pandora, says that the decision is dangerous. "What the judge decided instead was that 'ownership rights' included 'all rights that could attach to intellectual property,'" he said. "That's pretty much a direct quote. Which is nuts. No US law has ever given public display rights to sound recordings; no law has ever given sound recording artists moral rights that visual artists have; certainly they don't get trademark- or patent-like rights [under the California law], either."
OK, so what does this mean for me?
Well, for one thing, this is the reason Pandora is paying out $90 million. It's been battling lawsuits all over the country, and now that it's settled with the Recording Industry Association of America, that's a big load off its shoulders. But the Flo & Eddie case in California is still pending, because Flo & Eddie aren't party to the big settlement. There's still a long ways to go, and a thousand possible lawsuits that could pop up at any time.
The problem for consumers is that these lawsuits are happening, not because Pandora and Sirius are blatantly flouting the law, but because it's not clear what the law actually is when it comes to internet radio and satellite radio. As long as the rules are this messy, no one wants to come join the game.
Let's be clear: the situation really does suck for Pandora. Its stock plummeted by over 30 percent when news of the $90 million settlement with the RIAA hit.
But the settlement also means that Pandora is never going to get bested by a Pandora lookalike. The numbers show that their royalties make up over half of everything SoundExchange receives from everyone. Pandora has something resembling a monopoly over non-interactive streaming, because it has gone through a gauntlet of lawsuits and is beginning to pay out millions in settlements. No newcomer is going to be able to compete, because they haven't fought Pandora's legal battles for themselves.
Pandora dominates this dismal, depressing, unpromising market completely, and it will continue to do so until Congress fixes the pre-1972 sound recordings issue. The next time you have a fleeting thought about how internet radio sucks, and could be better—well, now you know what's to blame. It's copyright.
(You can always blame copyright).