‘Shameless’ Pandora set to claw back $1.5m from songwriters with FM buy

Pandora could be set to cut its bill to songwriters by $1.5m a year, after its buyout of a local FM radio station was green-lit in the US.

The Federal Communications Commission  effectively started an approval process for Pandora’s $600,000 acquisition of South Dakota’s KXMZ FM on Monday (May 4) – although it still needs to formally rubber-stamp the sale.

The deal, originally signed in summer 2013, has been long delayed due to an ASCAP complaint over a US law which prevents broadcast radio stations being owned by foreign companies – a protest now dismissed by the FCC.

Why does Pandora, a personalised digital ‘radio’ service, want to get its mitts on a terrestrial radio broadcaster?

In a word, money.

The current statutory royalty rate that Pandora, a digital ‘personalised radio’ service, must pay US songwriter/publisher collection society ASCAP is set at 1.85%.

“In the history of those trying to profit off creators without paying them fairly, this move ranks as the most cynical and shameless.”

David Israelite, NMPA

As a terrestrial radio owner, however, it is likely that Pandora could reduce that annual gross payout percentage to 1.7% – the rate agreed by ASCAP with the Radio Music Licensing Committee

What could that mean for Pandora in real terms?

The platform expects to turn over a billion Dollars this year, which makes the maths fairly straightforward.

If Pandora achieves its revenue forecast and knocks down its 1.85% ASCAP royalty to 1.7%, it will save 0.15% of its total annual income each year. That’s approximately $1.5m which currently goes to songwriters and publishers every 12 months.

Unsurprisingly, music industry groups – who already accuse Pandora of vastly underpaying creatives – have been left fuming by the news.

NMPA President and CEO David Israelite said: “In the history of the struggle between creators and those who try to profit off of their work without paying them fairly, this move by Pandora ranks as the most cynical and shameless.

“Sadly this small station in South Dakota has become a pawn in Pandora’s game to pay the creators on which it built its business even less.

“Now, there can be no doubt that Pandora has declared war on songwriters.”

ASCAP rival BMI currently receives 1.75% of Pandora’s revenue.

The digital company is also battling to reduce that figure to 1.7% – which could net it a further annual saving of $500,000.

Pandora’s revenue grew 18.8% year-on-year in the three months to March 31, to $230.8m.

However, it paid out $126m in ‘content acquisitions costs’ in Q1 – the biggest factor in it posting a $48.3m net loss in the period.

Discussing the KXFM bid, Dave Grimaldi, a Pandora director, commented: “This move makes sense to us beyond the licensing parity alone.

“We are excited to apply Pandora’s insights about listening habits to music programming that will reflect local listeners’ evolving tastes.”Music Business Worldwide

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