Pandora’s 2016 Royalty Bill Just Increased by $100 Million…

tip_of_iceberg

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.

13 Responses

  1. Anthony Manker

    The subscription royalty rate did not “jump” to 22 cents – it’s actually down from 25 cents. Of Pandora’s ~80 million users, ~3 million are premium subscribers.

    Reply
    • Paul Resnikoff
      Paul Resnikoff

      Ah, ok. I didn’t realize it actually eased. But 3 million… that’s something you”re right. Assuming that data is correct, it’s still a small portion of actual users.

      Reply
  2. Musician Who Understands

    Exactly.

    What a pathetic attempt to spin lemonade out of lemons.

    This rate is exactly what Pandora wanted. Even Soundexchange is calling it terrible for them and saying that they are “considering all options” (i.e. appeal or Congressional intervention).

    But hey, whoever said that anything posted on this site is ever even remotely insightful or actually helpful?

    Reply
  3. John

    Anyone knows what does the below statement means ? Songza has a lot of playlists, does that mean that they need to pay $500 * number of playlists that they have ?

    “Licensees must pay the Collective a minimum fee of $500 each year for each channel or station.”

    Thanks

    Reply
  4. Name2

    The detailed rate schedule is here.

    Wow. You’re not even gonna try to break this down in plain English for your readers, instead of the Pandora-Paranoia-Latin you wrote the article in??

    Reply
  5. John

    Anyone knows what does the below statement mean ? Songza has a lot of playlists, does that mean that they need to pay $500 * number of playlists that they have ?

    “Licensees must pay the Collective a minimum fee of $500 each year for each channel or station.”

    Thanks

    Reply
  6. superduper

    So basically an extremely crappy royalty rate raised to a slightly less crappy royalty rate? LOL.

    Also I don’t get how raising royalty rates can be a bad thing (even if it still is crappy and not enough), and that we should feel bad that Pandora is taking a “hit”for the 20+ % royalty rate. I mean it still isn’t enough and this only highlights the fundamental instability of streaming services, because I think that if artists were getting fairly compensated all streaming services would be out of business (and that is a bad thing for the music industry if they think that streaming is a good idea).

    Reply
    • Casey

      It’s a bad thing because of what it does to small streamers and startups. No small or startup streaming radio service can afford these rates. It is completely impossible to bring in that much advertising revenue without a massive team dedicated solely to that purpose. And there is no way to build an audience if you require subscriptions.

      The old rates had exceptions for small companies so they could get established. Now they are screwed no matter what.

      Reply
      • Bingo

        You got that right. With the absence/expiration of the Small Webcaster compliment most if not all of this class of station is doomed. Say “audios” to independent free-form radio.

        Rumor has it that SoundExchange is still deliberating the SWA and will release a statement on Monday. Breath held.

        Reply
      • superduper

        What does this mean for the future of non-interactive streaming then? I would say that generally if artists are not making enough money from it, then it is a failure. And it seems like Pandora can’t even AFFORD to pay artists much more than the paltry amount that they are paid. The same can also be said for interactive streaming like Spotify and Apple Music, so what about the future of those?

        Reply
  7. It Means...

    Well, it is complicated, we know but, essentially what it means when it says: “Licensees must pay the Collective a minimum fee of $500 each year for each channel or station” is:

    “Licensees have a minimum fee of $500 each year for each channel or station.”

    Does Songza have a lot of channels or stations?

    You’re welcome.

    Thanks

    Reply

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