Why the music industry is trying -- and failing -- to crush Pandora

[Commentary] 2014 marks the 15th anniversary of the launch of Napster, the file sharing service that disrupted the music business and conditioned a generation of consumers to expect to be able to listen to their favorite songs for free.

Pandora has been seeking to lower the amount it pays to publishers in royalties to be in line with that paid by terrestrial radio stations -- 1.7% of gross annual revenue.

The American Society of Composers, Authors and Publishers (ASCAP) has been seeking to increase rates to as high as 3% of Pandora’s gross revenue, citing the much higher rates paid by other digital services, such as Spotify. The court ended up ruling in March 2014 that the rate would stay unchanged at 1.85%.

But the tactics used by the music industry against Pandora were the really interesting part. But one piece of information about the songs in the Genome Project library -- “the most sophisticated taxonomy of musical information ever collected” according to Pandora -- remains lacking: Who actually owns them. And for Pandora, this would soon prove to be a massive problem.

In November 2012, Pandora commenced legal action to get the dispute with ASCAP resolved. Mindful of the fact that if they did not come to an agreement with Sony, which owned the rights to large swathes of music in Pandora’s play catalog, Pandora in early November 2012 requested from both Sony and ASCAP a list of Sony tracks available for license so it could remove them from its service.

According to the ruling, Sony “quite deliberately” withheld this information to weaken Pandora’s hand in the negotiations. A couple of months later, Universal also withdrew its digital rights from ASCAP, seeking a similar outcome. ASCAP denies that it was involved in any “troubling,” coordinated behavior against Pandora. But it is clear that this fight is far from over.