Pandora lands private deals with ASCAP & BMI; charges into 2016 with key relationships and rate certainty

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Pandora announced breakthrough content licensing deals this morning with ASCAP and BMI, the two largest Performing Rights Organizations (PROs) representing songwriters, publishers, and composers. With two separate multi-year agreements, Pandora puts to bed acrimonious lawsuits that have troubled the relationships between the market-leading Internet radio platform and music rights-holders for two years.

Terms of the royalty rates in these deals are not disclosed, but the announcement notes that “the respective parties worked together to build an innovative approach to public performance licensing.” The combined agreements represent 20-million pieces of music.

Peace in the Courtroom

As part of the BMI agreement, Pandora withdraws its appeal of a royalty-rate court case that Pandora lost. In that court ruling, delivered in May, Pandora was charged to pay 2.5% of revenue, a 43% raise from the 1.7% statutory rate it had been paying. (The government-set rate enables music services to legally use music, but the rate can be challenged and litigated.)

In another courtroom confrontation, Pandora got the upper hand over ASCAP, winning both the original case and ASCAP’s appeal. In May of this year, ASCAP President Paul Williams said, “Pandora will stop at nothing in their ongoing effort to shortchange songwriters.”

Today’s announcement presumably represents a transfusion of good will that solves all the bad blood between these major players in the music delivery market. “We’re extremely pleased to reach this deal with Pandora that benefits the songwriters, composers and publishers we are privileged to represent,” said Mike O’Neill, President and CEO, BMI. “Not only is our new agreement comparable to the other direct deals in the marketplace, but it also allows us to amicably conclude our lengthy rate court litigation and focus on what drives each of our businesses – the music.”

Deal-making Into 2016

Additionally, the blockbuster quality of a simultaneous pair of major agreements underlines Pandora’s enthusiastic deal-making lately. In recent months Pandora has forged agreements with Downtown Music,  Warner/Chappelle, Sony/ATV, and SONGS Music Publishing.

None of this happy handshaking bears on Pandora’s payments to record labels — that is a different kind of licensing which represents a much higher share of Pandora’s revenue. The ASCAP and BMI deals come just days after the Copyright Royalty Board (CRB) issued its every-five-years ruling of webcaster royalty rates to labels. While the 2016 rate raises Pandora’s payments by a projected 15%, rates in future years are tied to inflation and might remain just about the same. That outlook pleases Pandora, and with several major publishing deals in its pocket, the online radio giant is looking at the new year in an upbeat mood.

The deal-making lays the groundwork not only for general cost stability, but for Pandora’s planned and announced on-demand music service that will launch sometime next year. That product strategy, which will put Pandora nose-to-nose with Spotify as one of two hybrid powerhouses (interactive and non-interactive under one brand) pushes Pandora into direct negotiation by legal necessity. Interactive on-demand services cannot avail themselves of the CRB webcasting rate, which applies only to radio-like Internet streaming.

So, looking at Q4 of this year, we see Pandora turning a corner into 2016 with a business plan that promises a new value equation for users, more certainty in its finances, and more direct relationships with key music owners. The ASCAP and BMI deals are important mile-markers on the path.

Brad Hill