Globe Money Illustration
Tina Zellmer/Getty Images

Those who read through Judge Louis Stanton's decision on the court battle between performance rights organization BMI and Internet radio giant Pandora, wherein Stanton decided that Pandora will pay 2.5 percent of its annual revenue to the PRO. The decision tosses out terms like headline rate, effective rate, industrywide rate, and BMI-adjusted rates, sometimes using those terms interchangeably.

In sorting all of this out, the headline rate, or "the public rate" -- as a result of Sony/ATV, Universal Music Publishing Group and BMG withdrawing and cutting some kind of direct deals with the custom service, in conjunction with Judge Louis Stanton's ruling -- Billboard estimates that Pandora had to pay $49.6 million, or 5.39 percent of its revenue, to music publishers last year, on total revenues of $920.8 million.

Overall, Pandora's 5.39 percent rate means that U.S. publishers are no longer at a such a large disadvantage in terms of revenues, when compared against the revenues collected by labels. In 2012, Pandora's acquisition cost, i.e. royalty payments to labels and publishers, totaled 55.9 percent of revenue, of which publishing accounted for 4 percent and record labels accounted for nearly 52 percent. (This is the 13-to-1 revenue ratio, loathed and often quoted by publishing representatives.) That ratio now stands at 7.5-to-1 -- in 2014 Pandora paid 40.48 percent of its revenue to labels.

Before Judge Stanton's decision was released, Pandora said it was paying 4 percent of revenue in 2014 to publishers, according to the company's financial filings. This means the company's 2015 payout will not only need to accommodate the higher rates set by Stanton, but that it may have to play catch up with what it should have paid (some) publishers last year.

Here, Billboard's estimates of what Pandora should have paid publishers during 2014 -- in all cases, the actual revenue percentages are far lower than their headline rates.

UMPG:
Headline rate: 8.5 percent of revenue
Effective rate: 3.825 percent of revenue
UMPG minimum floor: $5 million
Estimated royally paid to UMG and its songwriters: $6.34 million
Actual percentage of Pandora revenue: 0.69 percent.

BMI:
Headline rate of 5.56 percent
Effective rate of 2.5 percent
Estimated royalty payment from Pandora to BMI and its songwriters:  $19.13 million
Actual percentage of Pandora revenue paid to BMI, after carve outs: 2.08 percent

Sony/ATV:
Headline rate of 6.46 percent
Effective rate of 2.9 percent
Estimated royalty payment from BMI songs to Sony/ATV and its songwriters:  $6.3 million
Actual percentage of Pandora revenue: 0.69 percent (0.24 percent for $2.25 million and (0.45 percent for ASCAP payment)

BMG:
Headline rate of 6 percent.
Effective rate of 2.7 percent
Estimated royalty payment from BMI songs to BMG and its songwriters:  $1.17 million
Actual percentage of Pandora revenue: 0.19 percent (0.12 percent for $1.15 million payment and 0.07 percent for BMI payment to BMG)

ASCAP:
Headline rate of 4.11 percent.
Effective rate of 1.85 percent
Estimated royalty payment from Pandora to ASCAP and its songwriters:  $17.03 million
Actual percentage of Pandora revenue: 1.85 percent

SESAC:
Headline rate of 4 percent
Effective rate of 0.4 percent
Estimated royalty payment from Pandora to SESAC and its songwriters: $3.68 million
Actual percentage of Pandora revenue that SESAC payment represents: 0.4 percent
Total estimated payout by Pandora: $49.6 million.

Total estimated percentage of Pandora revenue: 5.39 percent.

For readers who want to see the math behind the estimates, read on... 

Pages

Print