Pandora, iHeartMedia, must pay higher webcasting royalties

Internet radio stations Pandora and iHeartMedia must pay more royalties, the U.S. Copyright Royalty Board just announced.

They have to pay right-holders 17 cents per 100 streams from between 2016 and 2020.

Pandora which had been paying 14 cents per 100 streams for its free, ad-supported service and sought a rate of 11 cents. iHeartMedia suggested 5 cents. Sound Exchange, which represents record labels and artists, wanted 25-29 cents.

Internet radio accounted for 12% of U.S. music sales in the first half of the year, according to the Recording Industry Association of America. Oakland-based Pandora has 80 million listeners.

Pandora shares went up 13% immediately after the decision was made public. Analysts explained this was so because the market had expected a higher royalty rise. “Any number under 20 was good for the company,” an analyst told Bloomberg. The new rate will now cost Pandora an extra $20 million, not the $100 million it could have been stuck with.

The higher rate, surprisingly enough, also opens the doors for more negotiation with the music industry. The Copyright Royalty Board ruling “was the last big impediment to that next-level conversation,” Pandora Chief Financial Officer Mike Herring said last week, before the ruling. “You’ll see a lot of new things come out of Pandora in the new year.”

As reported previously in TMN, Pandora is fostering closer ties with record labels so it can licence more content from them. This will help it expand to more countries than the US, Australia and New Zealand in which it operates. Like streaming services as Spotify, Apple Music and TIDAL, Pandora now has to strike direct licensing deals with the record companies.

The Copyright Royalty Board decision would drastically affect Pandora’s future profitability. Since going public in 2011, it has not turned profit and paid $400 million (or 44% of its revenue) to play sound recordings last year. It’s now facing new competition from the likes of Apple Music which has clearly taken some of its audience.