How much money Pandora saves in the ASCAP court verdict

ASCAP vs Pandora dollar chart 638w

Pandora just saved about $21-million.

The recently concluded ASCAP vs. Pandora trial, in which a royalty rate to ASCAP-represented publishers and songwriters was set through 2015, could be framed as a draw. ASCAP did not achieve a higher royalty rate, which it argued for, and Pandora was not granted a rate reduction. Federal judge Denise Cote locked in the existing rate, preserving the status quo. (See the RAIN trial summary here.)

But crunching the arithmetic shows the court decision comes much closer to Pandora’s desired outcome than ASCAP’s, and provides a view of how much money Pandora saved — or ASCAP lost, depending on the viewpoint.

The court ruling establishes that Pandora will continue paying 1.85% of its revenue to ASCAP. Pandora petitioned for a reduction to 1.7%, which is what terrestrial radio pays. ASCAP had a more complex proposal that contained a retroactive element (the trial started in 2012). In ASCAP’s proposed model, Pandora would pay the 1.85% rate for 2011 and 2012 (which it did), then get bumped up to 2.5% for 2013, retroactively. For 2014 and 2015, ASCAP asked for 3% of Pandora’s revenue. (See Billboard’s article here.)

Pandora, a publicly traded company, has declared its revenues for 2011, 2012, and 2013 (as well as earlier years that don’t figure in the litigation). For this exercise, 2014 and 2015 earnings are projected (e.g. guessed) on the basis of modest growth. Here is Pandora’s revenue trend from 2009 through 2013:

2009 $55,190,000
2010 $137,760,000 150% growth
2011 $274,340,000 99% growth
2012 $427,150,000 56% growth
2013* $600,233,000 41% growth

*Revenue for 2013 is accounted for an 11-month period. Pandora was operating with a peculiar fiscal year that ran from Feb. 1 to Jan 31. Last year the company aligned its accounting with the calendar by lopping off January and reporting an 11-month year. Fiscal-year 2014 will be Jan-Dec.

To fill in Pandora’s revenue for 2014-2015, in order to estimate how much Pandora will save on royalties, we noticed Pandora’s decelerating growth and gave it a modest 20% revenue gain for 2014, and a 10% gain for 2015. (This is conservatism, not pessimism.)

The upshot: Pandora saved $21,296,27 from ASCAP’s proposed rate solution, assuming decelerated growth in 2014-2015. To put it another way, that’s how much ASCAP lost in this trial. Pandora lost, too — by not achieving its goal of reducing the royalty rate Pandora lost $4,221,465 from its ideal solution of a 1.7% rate over the five-year period. Still, this trial clearly came through in Pandora’s favor.

Brad Hill