To Thwart ASCAP Pandora Buys a Radio Station
Pandora executives have repeatedly said they are reinventing radio with their online music curation service. In a somewhat surprising move last night Pandora announced it would be purchasing KXMZ-FM, in Rapid City, South Dakota from Jeff Warshaw. It was the only station Warshaw had in that market and it was separate from his Connoisseur group. The purchase price was $600,000 and there is an immediate LMA in place. Pandora will use the purchase to try to level out the playing field when it comes to the fees it pays to ASCAP.
In other words, if Pandora owns a radio station and Clear Channel owns radio stations and they both have a similar online consumer product, what makes the two companies any different? Pandora says it's being discriminated against and "incumbent industry players" are trying to undermine the Pandora mission by imposing unprecedented royalties.
Pandora pays two royalty streams, one for sound recordings and the other to composers for publishing rights. The sound recording fees are the bigger cost to Pandora. With this South Dakota purchase, Pandora would get a break on the smaller expense paid to companies like ASCAP. A settlement last year ended a dispute between radio and ASCAP and rolled back rates for radio. That also included radio's digital streams, like iHeartRadio.
In a blog post at The Hill, Pandora General Counsel Christopher Harrison writes, "We are in the midst of the latest battle, in which ASCAP and its members have abruptly shifted away from 100 years of business practice and attempted to create a new right to “withdraw” from ASCAP the right to license certain songs on what is essentially a case-by-case basis. That’s why we are filing a motion in federal district court in our pending rate case with ASCAP. The motion details discriminatory treatment of Pandora and other Internet radio companies by ASCAP and their publishing industry members.
In a statement issued to Radio Ink, Pandora explains the purchase this way. "We have been approached a number of times about opportunities in terrestrial radio though have never moved on those opportunities in the past. The catalyst for doing so now is a coordinated effort on behalf of publishers and the PROs against Pandora that seeks to discriminate against Pandora and significantly higher rates than those paid by our competitors. That said, we believe there are significant synergies between running Pandora and operating a local FM station, particularly in the areas of programming, marketing and advertising sales and we look forward to exploring these."
Harrison says in his blog that, "We look forward to broadcasting our personalized experience to the community in Rapid City, an area where over 42,000 residents already use Pandora. And we will apply Pandora’s insights about listening habits to program music that accurately reflects local listeners’ evolving tastes."