BMI vs. Pandora
Introduction
Broadcast Music Inc, BMI is a Music performing rights organization based in the United States. Pandora on the other hand is undoubtedly the country’s largest audio streaming service provider. In June 2013 BMI took Pandora to court over what appears to be antitrust allegations by the plaintiff. This lawsuit followed Pandora’s move of purchasing a terrestrial FM station. The bone of contention between these two parties was the fees that were being paid by Pandora to BMI for the streaming of songs owned by artistes who use Broadcast Music Inc as a platform for the distribution of their songs. The main reason why BMI took offence at Pandora’s purchase of the FM station was the fact that this would allow Pandora to successfully avoid paying fees charged to online music distributors. Pandora’s purchase of the FM station was strategic in that this web-based company intended to take advantage of the regulatory environment which favored online distributors of music who owned radio stations. Local radio stations are exempt from the royalty fees while online retailers of music get to pay lower rates than those who operate strictly online. This would in effect deny the singers, songwriters and producers payments for their hard work. BMI further insist that Pandora pay a higher rate for royalty than it currently does. This is based on the fact that Pandora is currently paying higher rates for other suppliers’ catalogues, Sony being one of the main ones. At the same time, Pandora insists that it should be charged the flat rate rather than being considered subjectively by BMI. Based on the facts surrounding this case, this document seeks to highlight survival strategies employed by both internet-based streaming services as well as performing rights organizations. This is because the details that emerge concerning the case provide the audience with interesting insights on how business is run (Karp, 2013).
The Pursuit of Competitive Advantage by Performance Rights Organizations
One of the ways in which performing rights organizations gain competitive advantage is through the use of long-term contracts such as the one signed between Broadcast Music Incorporated and Pandora. This agreement ensured that for the five years that it was applicable, BMI maintained business transactions with the main supplier of online music in the USA. This tactic saves the performing rights organization time and other resources that would ordinarily go into promotion of content.
Another strategy that is used by performing rights organization to gain competitive is through ensuring that they have a wide pool of artistes registered with them. This guarantees a constant supply of music to the market they serve.
Another tactic of gaining competitive advantage by the performing rights organizations is through direct negotiations with their customers. BMI is reported to have negotiated with Pandora over the issue of increasing the amount paid for the music supplied. Other companies prefer to negotiate as individual catalogue owners rather than maintain their presence in groups such as BMI. Sony is one such organization and it succeeded in making Pandora pay higher for the music it supplied.
Another tactic that emerges is through the performing rights organizations charging preferentially depending on the platform through which the music presentation takes place. Since internet streaming of music is more of a premium service, the charges levied to such firms is higher than that paid by terrestrial FM stations. The lower charges paid by traditional radio stations is effective for marketing the music as well as the artistes considering the fact that radio has a much wider audience than the internet. This way, present and potential customers have the motivation to listen to more songs online since they were introduced to the songs on radio.
Subjective pricing appears to be another technique that is used by performing rights organizations to maximize on profits. In the court case above, one of the reasons why they wanted to charge higher rates was that Pandora was making millions of dollars in turnover.
Last but not least, the main argument that is used whenever performing rights organizations are negotiating is that musicians, songwriters and their producers need to profit adequately from their work. This way the main motivation of the negotiations will be the rights of the people who come up with the music and not just profitability. This brings in the ethical aspect which will tend to favor the singers.
The Pursuit of Competitive Advantage by the Streaming Service Providers
One of the methods used by Pandora to gain competitive advantage is through offering a limited streaming service to the mobile internet users and this is usually capped to a certain number of hours a week. The catch is that one needs to have an account with them and this then aids them in marketing their products to customers.
The streaming providers also cut costs by going for the lowest rate possible and sticking to it as they did with BMI for the length of their contracted period. This not only helps them to cut costs but also aids them in charging rates that are lower than their competition in the market. This guarantees higher turnovers as well as increased profitability in the long-run.
Another tactic that is used by providers of online music streaming to cut costs of operation is through acquisition of terrestrial FM stations which changes their status and thus entitles them to paying lower premiums for the music they distribute. This is the main reason why Pandora opted to purchase KXMZ FM.
Another strategy that these companies use to maintain competitive advantage is through applying for or lobbying for the charging of a flat rate for online companies as this will get them rates paid by much smaller companies.
Stakeholders
Customers who pay for streaming services are the direct stakeholders of Pandora and Indirect stakeholders of BMI. This is because the actions of Pandora including listings and charges will directly affect them. They are indirect stakeholders of BMI because they will only experience the ripple effects of BMI’s actions such as ending of the contract which will mean that after some time, some of the music they access will become unavailable.
Musicians on the other hand are direct stakeholders of BMI and indirect stakeholders of Pandora. This is because they deal directly with BMI and this means that they submit their music here and get royalties paid after a set period of time. With Pandora, they are indirect stakeholders since they will only be affected by the dealings between Pandora and BMI. By Pandora pulling out of the arrangement, the artiste’s revenues from royalties will decrease because Pandora had the largest market Segment for online music.
References
Karp, H (2013) BMI sues Pandora over fees. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424127887324049504578543912835027842.html on August 7, 2013
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