Pandora Records Charges for Interim Truces With Music Owners

  • Internet service also suspends drive for radio-industry rights
  • Shares fall after quarterly results miss analysts' projections

Pandora Media Inc. recorded third-quarter charges of $81.8 million for temporary truces to two disputes with the music industry. The Internet radio service also reported results that missed analysts’ estimates, and the shares fell.

Pandora, based in Oakland, California, recorded costs of $57.9 million to settle with record labels over royalties for pre-1972 recordings. The company also suspended efforts to obtain the lower royalty rates that conventional radio stations enjoy, resulting in a charge of $23.9 million, according to a statement Thursday.

Pandora will shoulder the costs of the two concessions to remove obstacles to the expansion and improvement of its service, which has been posting net losses due to the expense of licensing music. The settlements give Pandora time to seek a long-term resolution to disputes with labels and music publishers that own the rights to songs.

“We pursued this settlement in order to move the conversation forward and continue to foster a better, collaborative relationship with the labels,” Chief Executive Officer Brian McAndrews said in the statement.

Pandora fell as much as 21 percent to $15.10 in extended trading after the announcements. The shares were little changed at $19.19 at the close in New York and have gained 7.6 percent this year.

Pandora, the largest Internet radio service, said third-quarter revenue rose 30 percent to $311.6 million. That compared with projections of $312.8 million, the average of 28 analysts’ estimates compiled by Bloomberg. Profit excluding items totaled 10 cents, meeting projections.

Listener hours totaled 5.14 billion, up 3 percent from a year earlier, Pandora said.

This quarter, the company forecasts revenue of $325 million to $330 million. That’s less than the $351.5 million average of 28 analysts’ estimates.

Music owners say they are insufficiently compensated for their artists’ work. The settlement over pre-1972 songs runs through 2016, while Pandora also halted its pursuit of lower royalty rates from the Radio Music License Committee.

The company is also awaiting a decision from a U.S. rate court that will decide how much it must pay record labels. Content costs amount to Pandora’s biggest expense.

On Oct. 7, Pandora agreed to acquire the online ticketing business Ticketfly Inc. in a deal valued at about $450 million. The transaction included about $225 million in cash and 11.6 million of Pandora common shares, the Internet radio service said in a filing that day.

(An earlier version of this story corrected references to music owners in the headline and second paragraph.)

Before it's here, it's on the Bloomberg Terminal. LEARN MORE