Pandora Strikes First Partnership Deal With Music Agency

Pandora Media Inc. (P), the pioneering Internet radio service, reached a partnership agreement with Merlin, the rights agency that represents independent record companies, in its first direct deal with music labels.

Pandora will create customized channels for artists, letting them communicate with fans, according to a statement today. Merlin, a global rights agency with more than 20,000 labels as members, will have access to data collected from Pandora’s more than 75 million monthly active users.

“This is really significant,” said Brian McAndrews, Pandora’s chief executive officer, in a telephone interview. “Pandora has used the data that we have, we’ve done incredibly well to reinvest in the business. We have not, up to this point, shared this data with artists and labels.”

The Merlin deal shows how Pandora is trying to improve its contentious relationship with the music industry, an obstacle to expansion outside of the U.S. Major labels including Universal Music’s Capitol Records and Sony Music Entertainment sued Pandora in April for failing to pay for using music recorded before 1972. In June, the U.S. Justice Department said it will review agreements that govern songwriter royalties.

While terms are confidential, the deal with Merlin is structured to protect revenue for labels that participate, according to the statement. Royalty payments to artists will increase as the partnership expands, the companies said.

Setting Precedent

Merlin was formed in 2008. Its members include distributors such as Beggars Group, Epitaph Records and Tommy Boy, representing bands such as Queens of the Stone Age, Bad Religion and Interpol.

Artists and labels will be able use the data from Pandora to select tour locations, for example. The information will also allow labels to help Pandora decide which of their artists to promote.

The independent labels’ move will pressure others to reach similar deals with Pandora because artists will want higher royalties than what is promised to them through the decades-old agreements, said Jerry Reisman, a partner at law firm Reisman, Peirez, Reisman & Capobianco LLP, who represents artists and recording studio Hit Factory.

“It gives Pandora more power within the industry,” Reisman said in a telephone interview. “It’s going to be a little more expensive, but what it’s going to do is its going to give them direct access to artists.”

Other Deals

Pandora is open to other deals that can create opportunities with artists and labels, McAndrews said. The deal won’t have a significant impact on costs, while declining to provide specifics, he said.

The company said this week that it’s considering adding talk formats to its music programming as it expands service in automobiles.

“For the independent sector, Internet radio is an increasingly important part of the digital market, and we want to see it continue to grow, and grow fast,” Charles Caldas, chief executive officer of Merlin, said in a statement.

Pandora rose 1.6 percent to $25.29 at the close in New York. The shares have dropped 4.9 percent this year.

To contact the reporter on this story: Sonali Basak in New York at sbasak7@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net James Callan, John Lear

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