After a slew of direct deals were announced in the wake of the Webcasting IV rate determination in December, we now know what Pandora agreed to pay publishers after Pandora CFO Mike Herring explained the financial terms of those direct deals in yesterday's (Feb. 11) earning call.
The upshot is of these licensing deals represents a 150-percent raise over the prior years' royalties. The deals don't exactly create parity between record labels and publishers, but the gap between their royalties has been greatly reduced.
Pandora is paying these publishers, on a pro rata basis, 20 percent of the royalties it pays for sound recordings. Previous licensing deals paid publishers, via PROs, on a percent of revenue basis. Now, publishers get a fifth of whatever labels and artists get.
Pandora had typically paid PROs, which handle royalties for song compositions, about 1/13th the royalties it paid to SoundExchange, which collects and distributes royalties for the performance of sound recordings. In 2014, Pandora paid 92 percent of its content costs to SoundExchange and the remainder to the PROs (ASCAP, BMI and Sesac), according to an investor presentation. A jump from about 8 percent to 20 percent of sound recording royalties represents an increase of 150 percent.
Rates for sound recordings in 2016 are 0.17 cents for advertising streams and 0.22 cents for subscription streams. Pandora previously said it believes it will pay a blended rate of 0.176 cents per stream based on its mix of listening from its free and paid services. Publishers will get a fifth of that.
If labels are getting a blended rate of 0.176 cents per stream in 2016, publishers' and PROs' direct licensing deals will pay 0.0352 cents per stream.
Pandora's Herring said the direct deals are favorable to Pandora because they provide a knowable, fixed royalty rate that does not fluctuate as revenue increases. The new deals allow Pandora "to keep the upside" when it generates more revenue for each stream -- as is the case with fixed rates paid to SoundExchange. The old percent-of-revenue deals provided Pandora "no incentive to earn," he said.
Whether songwriters actually feel an impact is another matter. Would Pharrell's opinion change if the royalties from his share of 43 million streams of "Happy" rose to $6,750 from $2,700? Maybe not. But he still would have received a big raise.