SoundExchange Doesn't Like New Pandora Rate

“We believe the rates set by the CRB do not reflect a market price for music and will erode the value of music in our economy.”

SoundExchange is not hiding its disappointment at new webcasting royalty rates set by the US Copyright Royalty Board yesterday. (Click Here for Posting)

A panel of federal judges has ordered Pandora Media Inc. and other Internet radio stramers to pay higher royalties for sound recordings in a ruling that could have broad ramifications for the music industry.

The Copyright Royalty Board on Wednesday ruled that online radio companies will have to pay 17 cents per 100 plays of songs through 2020. That's a notable increase over the current rate of 14 cents per 100 streams.  For the past five years, AM/FM broadcasters have been paying a rate of 25 cents for every hundred songs played on a stream-only channel. Starting in January, that also drops to 17 cents. The new rates take effect Jan. 1.

The LA Times reports the decision appeared to mark a compromise between the wishes of the labels and the streaming service. SoundExchange was asking for 25 cents for every 100 songs, while Pandora was seeking a lower rate of 11 cents.

“The fundamental challenge for Pandora is now they've got increasing royalty payments and slowing user growth driven by growing competition,” said BTIG Research analyst Richard Greenfield, who follows the company.

Still, the long-anticipated ruling came as a relief to investors. Uncertainty over future royalties had weighed on Pandora's stock. Its shares soared more than 20% in after-hours trading following the announcement. The stock had closed Wednesday at $13.44, down about 40% from its 52-week high in October.

The board's decision also affects royalty payments from iHeartRadio, the online service run by the AM/FM radio giant iHeartMedia, and satellite radio company SiriusXM.

The ruling does not apply to on-demand services such as Apple Music and Spotify, which have direct deals with the record companies that determine royalty payments.

 In response to the announcement of new webcast royalty rates, NAB Executive Vice President of Communications Dennis Wharton issued a statememt:

"We are reviewing the CRB decision, but are pleased that streaming rates have begun to move in the right direction. Broadcasters want to expand into new distribution platforms; the challenge has been that rates are too high for thousands of local stations. We hope today’s decision alleviates some of the rate burden and will enable more radio stations to stream music, which will benefit artists, songwriters and our millions of listeners." 

On background, for the past five years most local radio stations have paid streaming rates nearly double those of “pureplay” streaming services. For example, most NAB member radio stations that stream music pay 25 cents for every 100 songs streamed, compared to the rate paid by Pandora, which is 14 cents for every 100 songs streamed.