Pandora Media, Inc. has launched its long-awaited Pandora Premium on-demand competitor to Spotify according to reports from journalists who previewed the platform.
Pandora built Pandora Premium on top of its 2015 acquisition of RDIO’s assets in a controversial bankruptcy and is reportedly leveraging its Music Genome technology that allows Pandora to build on-demand playlists based on an artist’s name or work. Premium evidently transposes Pandora “stations” to Premium “playlists” with what sounds like largely the same functionality, including transferring “thumbs up” ratings in the historical interactive/noninteractive webcasting service. The Premium service evidently uses prior choices to recommend future music in the known-unknown dichotomy. And of course it sounds like you can download all the tracks.
What is different about Pandora’s on-demand service is that it implicates a license for songs that Pandora did not have to obtain for its webcasting service—the mechanical license for on-demand services and downloads. Pandora is evidently negotiating direct deals with major publishers and also is trying to encourage other songwriters to sign up to a “standard” mechanical license. (Remember—each sound recording has two separate and distinct copyrights, the sound recording and the song being recorded. Each may be owned by the same people or by different people. On-demand services like Spotify and now Pandora Premium must obtain song licenses separately from their sound recording license, or risk being sued for copyright infringement by songwriters as has happened already.)
Pandora’s Government License for Songs
Another option available to music services is the one that concerns us in this post—they can obtain a “compulsory license” for the songs they use. Originating in 1909, a “compulsory license” is a uniquely American creature of the law that is an anachronistic government-mandated taking of the private licensing rights of songwriters. That compulsory license also requires payment of a government-mandated royalty rate that Congress set at two cents per copy in 1909 and then forgot to raise for 70 years, so songwriters have been digging out of that hole for a long time. A slight improvement came in 1976, and the rate slowly drifted upward to 9.1 cents where it has stayed since 2006 and will stay for another five years. (The government sets these “minimum statutory rates” to approximate a free market that arguably has never existed—but the government does it with great panache, so they seem to get away with taking the songwriters’ property.)
As long as Pandora observes certain formalities, Pandora can force songwriters to license to the Pandora Premium service. These formalities are quite important as they are the condition upon which the government permits Pandora to exercise a kind of eminent domain authorized by the Fifth Amendment to the U.S. Constitution.
In order to exercise these compulsory license rights, the government requires Pandora to notify the song copyright owner of Pandora’s intention to use the compulsory license for the owner’s songs. This individual notification is one reason why companies like Pandora would prefer to get a relatively few direct licenses for a lot of song titles and pay an advance up front for those direct licenses. Services like Pandora are then faced with a situation where they have licensed sound recordings, but incomplete licenses for the songs recorded. What to do?
The easy answer is don’t use the music and let the sound recording owner know that the service can’t clear the publishing because they can’t find the song copyright owner. The chances are good that the market will produce that information in order for the sound recording to be exploited by Pandora.
The Science of Looking But Not Finding
However, digital music services do not seem to like this option and want to use the music anyway. That means they either use the music without permission and beg for forgiveness or they force the songwriter to license to them by using the government’s compulsory license. But since use of the compulsory license starts with notification to the song owner, that means that the service try to locate the song owner. If Pandora fails to locate the song owner, Pandora has the right to send that notice to the Copyright Office (17 U.S.C. Sec. 115(b)(1)).
Once Pandora sends the notice to the Copyright Office, the company gets all of the benefits of the compulsory license but bears none of the burdens including being absolved from paying statutory royalties (17 U.S.C. Sec. 115(c)(1)). How can Pandora accomplish this neat trick?
First, by not looking too hard to find the song copyright owner. Unlike other countries that have updated their copyright laws, the U.S. Copyright Act only requires Pandora to search for song ownership in the public records of the Copyright Office and nowhere else. Said another way, Pandora only has to search in the least likely place to produce the information they need to leverage the compulsory license. And yet this is the law, although some have called it a loophole.
The law does not require that Pandora search even the records of its own agent which maintains a product called Songdex that is advertised as containing “detailed relational data on tens of millions of songs, recordings and their owners, covering virtually all of the commercially significant music in existence”. Pandora need only search the public records of the Copyright Office which will almost never include new releases and only has digitized records filed after January 1, 1978. Pre-1978 titles must be searched through the paper records of the Copyright Office card catalog.
When A License is Not A License
According to Rightscorp CEO Christopher Sabec, Pandora has filed approximately 1,193, 346 “address unknown” NOIs with the Copyright Office between April 2016 and January 28, 2017. I have been informed by other sources that representatives of Pandora have stated that the company intends to pay statutory royalties retroactively for any songwriter who comes forward and complies with the formality of registration, but I have yet to see a public statement by Pandora of this intention.
Even if Pandora does pay retroactively on 1,193, 346 songs and counting, that will likely create yet another mind numbing black box distribution that did not need to happen. Of course, Pandora is not alone in leveraging this loophole—Amazon and Google are even greater offenders: Amazon Digital Services LLC filed 19,421,902 and Google filed 4,625,521 as of January 18, 2017 according to Sabec. (Try to ignore the irony of the statement “Google can’t find x”.) You can check the filings on the Copyright Office website at this link, but you have to decompress and index hundreds of files from Spotify, Google, Pandora, Amazon, Musak and others.
If the government continues to permit this copyright loophole to exist, it is needlessly creating a serious problem for songwriters. The European Union dealt with this issue years ago by establishing reasonable search best practices that could well inform an effort in the U.S. to bring fairness to songwriters rather than sanctioning a loophole that is unlikely to lead to justice.