Pandora Defends Its Royalty Payments In 10 Points

In the latest twist in the “Webcasting IV” rate-setting procedure, Pandora Media Inc P 1.62% filed a 200-page rebuttal to the Copyright Royalty Board (CRB). Pandora argued that SoundExchange’s plea for higher royalty rates does not apply to streaming internet radio.

In a report on the rebuttal, analysts at SunTrust outlined 10 key takeaways from Pandora’s rebuttal.

  • 1. Benchmarks for non-interactive statutory licensees should be the direct, open-market deals that non-interactive service providers have in place with individual record companies.
  • 2. Non-interactive services have the ability to drive competition among record labels without adverse effects.
  • 3. On-demand services such as those provided by Spotify are not direct competition to non-interactive services such as Pandora’s radio service.
  • 4. SoundExchange’s argument that webcasters have caused the recent decline in record sales is not supported by meaningful evidence.
  • 5. An Edison survey indicates that non-interactive services are competing with traditional radio services, not the record labels.
  • 6. Large record labels such as Universal Music Group and Sony Corp (ADR) SNE 1.59% are unlikely to negotiate for rates lower than the statutory rate for fear of causing a pricing war.
  • 7. Under the current structure, Pandora pays a significant amount of royalty fees relative to its total revenue.
  • 8. Increasing ad load would likely lead to fewer listeners and, ultimately, less royalty payments.
  • 9. SoundExchange’s analysis of the “flourishing Internet radio industry” includes hundreds of webcasters that pay minimal licensing fees and/or royalty fees well below the commercial statutory rates.
  • 10. Pandora compensates artists fairly, paying more than 2,000 artists greater than $10,000 per year and more than 800 artists greater than $50,000 per year as of 2013.

SunTrust currently has a Buy rating on Pandora.

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