Pandora Defends Its Royalty Payments In 10 Points

In the latest twist in the “Webcasting IV” rate-setting procedure, Pandora Media Inc P 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 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. SoundExhange’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’s stock.