What does a ‘compromise’ costs these days, anyway? About a hundred million…
Instead of lowered recording royalty rates, the deeply-feared US Copyright Royalty Board (CRB) has now raised Pandora’s streaming royalty rates a considerable notch. Specifically, Pandora and other streaming radio providers will be required to pay 17 cents per 100 song streams for every recording for non-subscribers, an amount that doesn’t even cover remaining publishing rights.
The rate eases to 22 cents from 25 cents per 100 streams for subscribers. Sounds great, though paying listeners represent about 3-4% of Pandora’s active userbase.
The decision represents a 3 cent hike from the current rate of 14-cents per 100 songs, or a 21.4 percent increase. Based on recording royalty obligations of nearly $450 million last year alone, the stepped-up rate will easily saddle Pandora with another $100 million in royalty obligations next year — and that’s if streaming volumes remain steady.
Pandora captain Brian McAndrews applauded the compromise. “This is a balanced rate that we can work with and grow from,” McAndrews stated. Just recently, Pandora posted a quarterly loss of nearly $90 million, before creating some nervousness with a $450 million purchase of Ticketfly. That is part of an ultra-aggressive expansion campaign that also includes a $75 million (and counting) acquisition of bankrupted Rdio, and a $50 million dash for analytics firm Next Big Sound.
Back to the more sober rate hike discussion, the reaction in another quadrant of Manhattan has been amazingly upbeat. A normally sour Wall Street actually seems to like this decision, mainly because it adds some certainly to Pandora’s future. And, it’s far better than the worst-case scenario. In after-hours trading Wednesday, shares of ‘P’ bumped upward, with shares up roughly 13% in Thursday morning action.
“…last year, Pandora committed close to $450 million, or nearly half its annual revenues, to recording royalties.”
Meanwhile, lobbying record industry folk wanted something higher, according to sources. Instead of 14-cents, some rate-hawks were screaming for something in the deep 20-cents range, all while Pandora was angling for a drop to 11 cents. The result was a classic compromise, though not necessarily one that Pandora can bankroll. According to the latest tallies, Pandora now boasts 80 million users, one of the largest mobs in the music industry. But hefty userbases come with hefty costs: last year, Pandora committed close to $450 million, or nearly half its annual revenues, to recording royalties.
And the metrics are moving in the wrong direction: user acquisition is slowing, while royalty obligations are accelerating. And the competition is increasing: big-spending Spotify is approaching 100 million users, while the YouTube megalith is now moving towards the scariest thing in the world for competitors: neatly-cached song playlists on mobile devices.
The detailed rate schedule is here.