As for Pandora, the company believes "greater rate certainty" is one of the deals benefits. While it will pay a higher share of its revenue, Pandora has locked in long-term rates ahead possible fluctuations. One issue is the expiration of Pandora's ASCAP license at the end of this year. Another question mark is the decision by the Copyright Royalty Board, to be announced before the end of the year, that will set rates for the performance of sound recordings for 2016 to 2020. Pandora has argued for lower rates. SoundExchange, representing record labels, has argued for a significant rate increase.
More rate uncertainty stems from the Department of Justice's current review of the consent decrees that govern ASCAP and BMI, the two performance rights organizations that control the U.S. performance rights to nearly all compositions. Pandora is effectively hedging against the possibility the DoJ will allow publishers to pull digital rights from the two PROs and negotiate directly with digital services. This new agreement allowed Pandora to negotiate with Sony/ATV with the current rate as a safety net.
In spite of the typically acrimonious relationships that exist between Pandora and music publishers -- at least publicly -- this is not the first time Pandora has negotiated a licensing deal directly with Sony/ATV. The first agreement was a 12-month deal signed in 2013 that gave the publisher a 25-percent rate hike. Similar deals were signed in 2013 with Universal Music Publishing Group for BMI repertoire and with BMG for both ASCAP and BMI repertoire last year. A publisher can negotiate directly with a digital services because ASCAP and BMI licenses with publishers are non-exclusive. Thus, a digital service can negotiate directly with a publisher or remain with the compulsory license with the PROs.
Pandora also stated the new agreement provides "the ability to add new flexibility to the company's product offering over time."
Investors reacted positively to the news by pushing Pandora shares up 7 percent to $12.62 in midday trading. In spite of the gain, Pandora is not much above its 52-week low of $11.38 set on October 30 and is 42.1 percent below the closing price a month ago of $21.80. Most of that decline happened the day after Pandora's October 22 earnings release that revealed slow listener growth and raised the possibility Apple Music had become a serious competitive threat.