How Pandora Has Caught a Break (Twice) In Its Battle Over Royalties

Michael Sanborn
KXMZ-FM in Rapid City, S.D.: Pandora’s first terrestrial radio station.

The company enjoys twin wins in its long-running battle over royalties.

The week of May 4 began well for Pandora, which has been embroiled in legal battles over royalty rates for years. The result may be even lower payments for songwriters and publishers, who already believe they are underpaid in the digital economy.

On May 4, the FCC dropped its objections to Pandora’s acquisition of the small FM radio station KXMZ-FM in Rapid City, S.D. -- which it agreed to acquire in June 2013 for $600,000 -- clearing the way for the Internet radio giant to potentially receive lower royalty rates and other financial advantages for companies that own broadcast and digital radio services. Then on May 6, the U.S. Second Court of Appeals determined that the 1.85 percent of Pandora’s total revenue set by the ASCAP/Pandora rate court ruling is reasonable -- ASCAP had appealed that rate, which is in effect until the end of 2015, seeking a higher one.

If the FCC finally approves the transfer of the stations broadcast license so Pandora can complete its acquisition of KXMZ in June, the custom radio service can appeal to the ASCAP rate court judge to operate under the Radio Licensing Marketing Committee license, entitling it to even more favorable rates.

If Pandora’s request is granted, its ASCAP rate would drop to the RLMC digital and terrestrial rate of 1.7 percent of revenue, while its advertising deduction (to offset commissions paid to advertising firms) would grow from 15 percent of its advertising revenue to 25 percent of its overall revenue. If these rates were applied to Pandora’s 2014 revenue, the company would have realized up to $3.3 million in savings, with its royalties reduced from an estimated $15 million to $11.8 million.

Pandora’s best-case scenario could be a blow to songwriters and publishers, but the company still must clear several hurdles before it can realize those still-hypothetical savings.

A version of this story first appeared in the May 16 issue of Billboard.