An Analysis the Lawsuit Filed by BMI against Pandora

The link between strategy and performance extends beyond conventional corporate business to performing right organizations and internet radio sector. In fact, the emerging competitiveness powered by technological advancements exerts pressure on non-profit organizations to formulate new competitive strategies to achieve competitive advantage in the long term. Equally, internet radio platform has devised methods of maintaining competitive advantage as seen in the acquisition of small terrestrial radio station by Pandora Media. However, BMI filed a lawsuit claiming Pandora purchased the radio station in order to pay publishers less royalty fees. Therefore, this paper will explore the business aspects of this case in terms of how performing rights organization sector try to sustain competitive advantage, lower cost and eventually sustain profitability. In addition, business resolution of this case will be explored as an option to legal redress.

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To gain competitive advantage in the technology driven economy especially in United States, performing rights organization such as BMI rely on big data business espoused in internet radio where songs of their affiliates (singers, songwriter and publishers) are modified and sold through cable, internet or internet radio among other digital avenues. Essentially, with emergence of social media platforms such as Facebook and YouTube, configuring and selling music and other intellectual properties has defied traditional business intelligence approach. Resultantly, performing rights organizations are increasingly seeking licences and royalties from online entertainment platforms such as internet radio. Additionally, internet radio sector has faced immense pressure over time to diversify in order to maintain competitive edge in the music industry. As explained by Christman (2013), Pandora sought to acquire terrestrial radio station as a back door attempt to maximize profits through lower royalty fees. Notably, the case filed by BMI against Pandora shows that copyrights earlier used to protect original works of individual artists, are now central to innovation in the music, broadcasting, and film among others (Davis, 2010). Therefore, although Pandora had a license to play music by BMI-affiliates, acquiring a terrestrial radio station appeared to undermine the right to royalties for various publishers. However, on business perspective, Pandora was striving to sustain competitive advantage in the highly competitive digital music market. In addition, performing rights organizations in United States are pushing for the review of royalties such that they reflect market rates and internet streaming music growth (Christman, 2013). This is because of selective withdrawal of digital rights by some music publishers especially in BMI in order to obtain market rates for their music. Equally, according to Davi & Walker (2013) continued negotiations for copyright licenses by performing artist, publishers and end-user in digital platforms such as internet radio enhances digital properties covered by BMI. Thus, incorporating more artists and publishers enhances performing rights organization competitive advantage because of revenue growth. Equally, as noted by Ambler (2013) BMI felt that royalties paid by Pandora were not satisfactory to the artist responsible for its music content.

Moreover, according to Spillan, Parnell & Singh (2008) business can build competitive advantage through striving towards achieving low-cost strategy. Therefore, in reference to BMI and Pandora lawsuit, Pandora attempted to lower royalty fees by acquiring a terrestrial radio station (Ambler, 2013). This business venture was meant to capitalize on royalty fee exemptions available for traditional radio stations in America. Incidentally, owners of the terrestrial radio station operated an internet radio at lower royalty fee. This signifies the extent which internet radio sector in United States is willing to explore in order to reduce cost and maximize returns as a method of extending competitive advantage. Ultimately, performing rights organization in United States ensure that disputes regarding reasonableness of fees between them and music users are adjudicated by federal court especially where anti-competitive behavior is involved (Ambler, 2013).

Essentially, Pandora decided to acquire terrestrial radio station in order to exploit an opportunity where traditional radio stations enjoyed lower royalty rates with a view of maximizing profits. Further, Pandora negotiated for lower royalty fees consistent with what its competitors were remitting to ASCAP and other performing rights organizations. Capitalizing on lower royalty fees in traditional radio segment (Ambler, 2013) would ensure Pandora sustains profitable business since its competitors enjoyed lower ASCAP rates. Equally, acquiring a new radio station that operated internet radio provided Pandora with a viable avenue to increase its listener’s base. Further, Ambler (2013) notes, Pandora embraced the option of lawsuit and gimmick instead of increasing the royalties it paid to BMI as a way of pursuing their business model towards profitability. Notably, internet radio sector in United States has increasingly exploited the option of acquisitions as a strategy to penetrate low-cost music user market to boost their profitability.

On the other hand, performing rights organizations clamor for higher royalty rates consistent with broadcasting and internet radio streaming growth, which increases revenues for the internet radio stations (Christman, 2013). Remarkably, this is a strategy utilized by performing rights organizations in United States to sustain revenue collections competitively. Moreover, enhancing the scope of licenses with music users ensure performance right organizations maximize returns in form of increased fees. This has always been the case in America where music users negotiate extended agreement that cover wide ranges of services such as digital broadcasting, cable and internet streaming of artists of publishers contents. Unlike internet radio sector, performing right sector in America is not primarily profit oriented thus it relies on maximization of royalty collection to attain competitive advantage. In addition, performance rights organizations such as ASCAP and Sound Exchange are reluctant to support low royalties because it will mean less revenue. On the other hand, internet radio sector is trying to increase number of advertisements slots per every unit of music streamed to grow their profits (Braganca, 2013).

Finally, by incorporating Greylock Partners as part of the Pandora media stakeholders makes it an indirect stakeholder to the BMI. Equally, BMI affiliated music artists and publishers remain key indirect stakeholders to Pandora Media. This indirect stakeholder’s relationship arises because both corporations represent interests of distinct but connected shareholders in music industry. For instance, BMI represents music artist and publishers who in the future might become investors in Pandora media as a way of diversifying their business prospects. Therefore, this indirect relationship between both company stakeholders can be utilized to achieve a business solution to the lawsuit by BMI against Pandora e.g. through business negotiations as opposed to legal redress. Equally, in case Greylock Partners acquire controlling stake in Pandora Media in the long run, they will become direct stakeholders of BMI. Ultimately, both performing rights organizations and internet radio sector are interdependent because they find congruence in providing maximum returns to artist contents.

References

Ambler, C. (2013). BMI sues Pandora over royalty rates. Retrieved from: <http://www.forbes.com/sites/charlesambler/2013/06/13/bmi-sues-pandora-over-royalty-rates/>

Braganca, M. (2013). Pandora’s provocation. Retrieved from: <http://www.thembj.org/2013/08/pandoras-provocation/>

Christman, E. (2013). BMI files suit against Pandora. Retrieved from: <http://www.hollywoodreporter.com/news/bmi-files-suit-pandora-568452>

Davi, S., & Walker, J. (2013). BMI files rate action against Pandora. Retrieved from: <http://www.bmi.com/press/entry/561960>

Davis, L. (2004). Intellectual property rights, strategy and policy. Economics of Innovation and New Technology, 13(5), 399-415. DOI: 10.1080/1043859042000188683.

Spillan, J. E., Parnell, J. A., & Singh, M. (2008). Competitive strategies in emerging economies, Journal of Transnational Management, 12(4), 55-76. DOI: 10.1300/J482v12n04_04.

 

 

 

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