Pandora is now paying publishers 1/5th of the money it gives labels

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Pandora has struck direct licensing deals with the likes of Sony/ATV, Warner/Chappell, SONGS Music Publishing and Downtown Music Publishing in the past few months – and now we know part of what’s been offered.

Previously, Pandora paid out just over 4% of its annual earnings to the two biggest publishing PROs in the US, ASCAP (1.85%) and BMI (2.5%). This figure rises to somewhere around 7% including SESAC.

Speaking in an earnings call following Pandora’s quarterly results last week, CFO Mike Herring (pictured) confirmed that a new royalty payment structure is now in place.

This will see publishers who have signed a new deal with Pandora receive a share of cash from a pool equivalent to a fifth of the money it gives labels.

This not only changes the amount these publishers will receive, but also the basis by which they receive it.

In 2015, Pandora distributed $610m in ‘content acquisition costs’ – a euphemism for the licensing fees it had to pay labels and publishers in the US.

This figure made up 46% of the company’s total pre-tax expenditure in the year of $1.33bn ($697.3m on cost of sales and $636.7m on operating costs).

Under the old setup, 4% of this annual $610m figure would have been paid to ASCAP and BMI to pass on to their members – around $24m.

Including SESAC, that sum would have risen to around $40m.

“The majority of [new publishing] deals are structured based on a pro rata share of 20% of the sound recording pool.”

Mike Herring, Pandora

Pandora’s new agreements ditch the model of paying as a percentage of annual income. They bring publishers more in line with labels, with rights-holders paid on a structure based on a per-stream basis.

Mike Herring confirmed that these publishers will now be paid a share of 20% “of the sound recording pool”.

As we saw at the end of last year, the Copyright Royalty Board ruled that Pandora must pay sound recordings rights-owners $0.0017 per stream on its ad-funded tier and $0.0022 per stream to subscribers of its Pandora One tier – a blended per-stream rate across all users, says Pandora, of approximately $0.00176.

Using its latest annual financial results, MBW estimates that Pandora saw around 418bn streams over the course of 2015.

In the new world, with the new rates and new payout setup, that would have generated close to $700m for rightsholders.

In turn, Pandora would have paid out a share of 20% of this figure – $140m – to publishers who’d agreed to its new deal terms. Quite a jump on what they currently get.

“To clarify the impact of the new publishing arrangements for the U.S. based core radio service, the majority of the deals are structured based on a pro rata share of 20% of the sound recording pool, so publishers are paid based on usage of their works out of that pool,” explained Mike Herring.

“The deal is a different structure than previous PRO industry deals, which have traditionally been based on a percentage of a service’s revenue. Under those deals, if a service does not earn significant revenue, the total payments to the publishers are low and there is no incentive to earn.

“This structure, which is based on a percentage of the pool of sound recording payments, guarantees publishers that they will receive revenue from the service, while allowing Pandora to keep the upside when we are successful in monetizing above the per play rates.

“It is a great model for services like Pandora that are able to monetize well and a structure the publishing industry has embraced, a win-win solution that has ended years of acrimony.”

Pandora signed a direct deal with UMPG back in 2013, but whether it included a license for an on-demand streaming service is unclear. (The UMPG deal also only covered the BMI part of the publisher’s catalogue.)Music Business Worldwide

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