Pandora's stalled bid to purchase a South Dakota radio station -- a strategic move that would lower its royalty bills -- appears to be picking up steam. Sources tell Bloomberg that Federal Communications Commission chairman Tom Wheeler has endorsed the idea of granting Pandora a waiver of the FCC's foreign ownership rule, a hurdle in transferring a broadcasting license for KXMZ, Rapid City.
The Oakland-based digital company acquired KXMZ for $600,000 in June 2013 in an effort to take advantage of the lower rates that streaming services owned by terrestrial radio stations enjoy. Pandora currently pays performing right organizations ASCAP 1.85 percent of revenue and BMI 1.75 percent, or 3.6 percent of revenue. On revenue of $902 million last year, that equals $33.1 million, or $17 million to ASCAP and $16.1 million to BMI.
In January 2014 Pandora received word from the FCC that it had failed to comply with supplying the agency with ownership information so it can determine if Pandora is at least 75 percent owned by U.S. citizens, which deems foreign ownership must be capped at 25 percent. Since Pandora only supplied mailing addresses, the FCC said that it could not determine if the owners are U.S. citizens. "Therefore Pandora may not rely on this data in making its foreign ownership certification," the FCC letter stated.
In an earlier filing to the FCC, Pandora claimed it had "reasonable grounds" to believe it complies with the 25 percent rule, however, it argued that SEC regulations on shareholder privacy prevented it from disclosing the citizenship of more than half of the beneficial owners of Pandora shares. It therefore asked the commission to raise the foreign cap to 49.99 percent, which the FCC declined.
Wheeler's reported request for a waiver for Pandora follows his comments at this month's National Association of Broadcasters conference in Las Vegas, where he admitted the FCC is exploring ways to ease the 25 percent limit on foreign ownership. There is potential support already from current members of the commission, including Michael O'Rielly, who blogged about the issue in March.
"Without judging the merits of the pending petition or application, it seems reasonable in our global marketplace to use another measurement, including the possibility of a representative sample size to evaluate foreign ownership," O'Rielly said. "To require publicly-traded U.S. companies to identify and supply to the FCC the precise details of their shareholder make-up, which can change on a daily or hourly basis, does not comport with the highly dynamic electronic and international nature of capital markets."
UPDATE 4/29: Pandora has provided the following statement regarding the KXMZ deal:
"Pandora is radio, and the acquisition of KXMZ would qualify Pandora for the same RMLC license under the same terms as our competitors. This move makes sense to us beyond the licensing parity alone. Pandora excels in personalizing music discovery, and terrestrial radio is experienced in integrating with a local community. We look forward to broadcasting in Rapid City, where over 42,000 residents already use Pandora. And we are excited to apply Pandora's insights about listening habits to music programming that will reflect local listeners’ evolving tastes."