Pandora has revealed that its royalty payments to SoundExchange, the US licensing body which collects performance royalties on behalf of record labels and artists, have just increased by 8%.
The news was confirmed in a call with investors following Pandora’s Q1 fiscal results announcement on Thursday (April 23), in which it posted a three-month net loss of $48.3m.
In what Pandora CEO Brian McAndrews (pictured) called a “scheduled annual step-up”, Pandora has from January 1 been paying out an average $0.0014 per ad-funded stream and $0.0024 per premium stream to SoundExchange.
An 8% rise in SoundExchange royalties might sound impressive, but in per-stream terms, it’s a micro-increase: up $0.0001 from $0.0013 (ad-funded) and $0.0023 (premium) in 2014.
In Q1 2015, Pandora pulled in $52m in subscription income, down on the $53.7m it accrued in the same period of 2014.
The company is believed to have somewhere between 3m and 4m subscribers, making up around 4.4% of its total customer base.
Pandora paid out $126m in ‘content acquisitions costs’ in Q1 – essentially royalties to licensing bodies such as SoundExchange, BMI and ASCAP. That amounted to more than half of its total revenue.
Comparing Pandora to Spotify directly is no simple task: one is obviously a more passive ‘radio’ service, while the other on-demand streaming option. But Spotify has publicly revealed its average per-stream payout to rights holders – blended across premium and ad-funded tiers – stands at around $0.007.
Pandora will heads to federal court in the US on Monday (April 27) to argue its case to the Copyright Royalty Board over what its US statutory royalty payouts will be to SoundExchange from 2016-2022.
“Overall our our non-GAAP gross margin expanded in Q1… despite the increase in content cost in January due to the scheduled annual step-up in SoundExchange royalty rates, which increased to 8% this year.”
Brian McAndrews, Pandora
The radio firm is attempting to bring down its current per-stream payout, while SoundExchange wants to double it to $0.0025.
The CRB will also decide which ‘radio’ services amongst Pandora, iHeart Radio, Sirius XM and interactive and which are non-interactive. Interactive services, such as Spotify and iTunes, tend to agree royalty rates directly with copyright holders such as Universal Music, Sony Music and Warner Music.
Meanwhile, Pandora is also busy fighting publisher/songwriter US collection societies BMI and ASCAP over the performance royalties received by their members.
BMI currently receives 1.75% of Pandora’s revenue – around $4m in Q1 2015. But the digital company wants to reduce the figure to 1.7% to match the rate paid by most radio stations.
The ASCAP rate court ruled last year that Pandora must give 1.85% of its annual revenue to the BMI rival.
Despite the increase, Sony/ATV’s CEO & Chairman Martin Bandier slammed the decision, calling it “woefully inadequate” and a “clear defeat for songwriters”.
The likes of Sony/ATV, Universal Music Publishing and Kobalt are attempting to alter the US consent decrees to allow them to negotiate their members’ digital royalties with the likes of Pandora directly.
Pandora’s monthly active listener tally dropped by 2 million people across Q1 2015.
It reached an average of 79.2m people in the period, down 2.3m (2.8%) on the 81.5m who used Pandora in the last quarter of 2014.
However, overall Q1 revenue grew 18.8% year-on-year in to $230.8m.Music Business Worldwide