What: Shares of Pandora Media (P) were up 13.7% as of 11:00 a.m. EST Thursday after the U.S. Copyright Royalty Board issued a decision in the current "Web IV" royalty rate-setting proceeding.
So what: Specifically, Pandora's per-performance rates for ad-supported listeners will increase from $0.0014 to $0.0017 next year, but will also decrease for paying subscribers from $0.0025 to $0.0022. Because Pandora's ad-supported base is much larger, however, it estimates its "blended" per-performance rate in 2016 will be $0.00176, or a 15% overall increase from the $0.00153 blended rate paid under its current "Pureplay" agreement negotiated with royalty collector SoundExchange.
That's higher than the rates Pandora requested when the proceedings were commenced by CRB last year. At the time, Pandora argued for new rates in the range of $0.00110 to $0.00129 for ad-supported listening, and $0.00214 to $0.0024 for subscribers.
During a conference call to discuss the decision yesterday, however, Pandora CEO Brian McAndrews noted the 15% increase was almost exactly in line with Pandora's expectations. For perspective, we should also keep in mind SoundExchange was arguing the CRB should implement a much larger increase in the blended rate to a range of $0.0025 to $0.0029. In the end, the CRB's decision effectively split the difference.
Now what: "This is a balanced rate that we can work with and grow from," elaborated McAndrews. "The new rate structure will enable continued investment by Pandora to drive forward with a thriving and vibrant future for music."
At the same time, investors should also remember this doesn't apply to music covered under Pandora's various direct licensing deals with music publishers, notably including agreements with BMG, Sony/ATV, and most recently Warner/Chappell. Pandora also has in place direct-label agreements with Merlin and Naxos.
Nonetheless, this removes a significant source of uncertainty for Pandora, as it offers a definite benchmark for what the company needs to do to drive profitable growth as monetization continues to improve. With that in mind, I think investors have every right to celebrate today's decision.
