- Opinion backs Pandora's position; final decision due December
- Pandora says ruling ultimately brings certainty to market
Internet radio leader Pandora Media Inc. edged closer to an important win when a U.S. copyright official said judges who set music royalties should hear the company’s argument for lower rates, sending its shares higher.
Register of Copyrights Maria Pallante in an opinion backed Pandora’s position in a case setting rates for 2016 through 2020, and due to conclude in December. Pallante’s opinion dated Sept. 18 was e-mailed Monday by the rate-setting Copyright Royalty Board.
Pallante’s opinion reduces the chances that Pandora would suffer a “devastating loss,” Matthew Schettenhelm, a Bloomberg Intelligence analyst, said in a note. The opinion lets Pandora offer a pricing model lower than those offered by SoundExchange, the nonprofit that collects digital performance royalties and distributes them to artists, he said.
Pandora jumped 5.7 percent to $20.83 at 4:15 p.m. in New York after rising to $22.60 for the biggest intraday increase in almost a year. Through Friday, the shares were up 10 percent this year.
Pandora, the largest Internet radio service with more than 79 million listeners, has struggled to turn a profit in its 10 years of operation, due largely due to the cost of licensing music from record labels and publishers. Content costs represented 46 percent of the revenue in the second quarter.
The company is trying to grab advertisers from traditional terrestrial radio while it faces pressure from Web rivals Spotify Ltd. and Apple Inc. It’s also been battling record labels and other rights holders over how much it pays to play music.
Pallante agreed with Pandora that judges can consider its deal with Merlin, a global rights agency that represents more than 20,000 independent music labels and distributors. Pandora says those rates are reasonable and should be a benchmark. SoundExchange had argued the judges shouldn’t take into account the Merlin deal.
“We are pleased that the Copyright Office affirmed the admissibility of Pandora’s agreement with Merlin as a valid benchmark,” said Dave Grimaldi, director of public affairs for Pandora. “We look forward to the certainty that December’s decision will bring.”
Pallante’s decision is “a significant, positive catalyst for Pandora,” said Thomas Claps, an analyst at Susquehanna International Group LLP. The Copyright Royalty Board will reach its decision around Dec. 17, Claps wrote in a note to investors.
Current copyright royalty formulas rest on a legal framework that dates back to the early part of last century, and “the time is ripe to question the existing paradigm,” Pallante said in a February report on “Copyright and the Music Marketplace.”
Pandora’s position on the role to be played previous agreements was shared by IHeart Media Inc. and the National Association of Broadcasters, Pallante wrote in her Sept. 18 opinion.
Sophia Majlessi, a spokeswoman for SoundExchange, declined to comment.