While music streaming is the star of the music industry’s renaissance, Pandora is making headlines for the opposite reason: SiriusXM expects to write down its music streaming service by about $1 billion, a 28.6% decline from the $3.5 billion price paid fewer than two years ago.
In a press release issued Thursday, the company singled out an expected impact of Pandora’s “royalty cost structure” on its financial performance. New CEO Jennifer Witz went deeper during Thursday’s Citi TMT West Conference, explaining that expected increases in per-play royalty costs will have “a meaningful impact on Pandora’s profitability” in the coming years. Not only must Pandora battle Spotify, Apple and Amazon for streaming relevance, it knows when a royalty rate hike is coming.
Witz was referring to “Web V,” the rate-setting proceeding currently before the Copyright Royalty Board, that will set the per-play royalty owed by non-interactive -- the opposite of premium, on-demand access -- Internet radio services from January 2021 through 2025. (Pandora also has a subscription service that pays rates negotiated with rights owners.) A rate increase could further erode margins by deepening the difference between how successfully Pandora monetizes listening time and what it pays rights holders.