Battling Rihanna puts Pandora in box on lower music royalties

, Bloomberg

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Rihanna
Rihanna

Pandora Media Inc., the money-losing Internet music service, has almost 60 million listeners to enlist for support while lobbying Congress for help to lower the royalties it pays to musicians.

Rihanna's Facebook page can top that, with 63 million fans. And the 24-year-old singing superstar, whose "Diamonds" is No. 1 on Billboard magazine's Hot 100, is just one of 125 artists who this month went public to oppose Pandora's bid to cut fees for performers.

Heading into a fight Pandora says is crucial to its prospects for profitability, the most popular U.S. music streaming site faces the challenge of overcoming, or at least accommodating, resistance from stars its fans turn to Pandora to hear.

"When the very artists they are streaming — the artists they are featuring, the artists that are even cooler than Pandora — start to push back, that's a real bind for them," said Rogan Kersh, a political science professor at Wake Forest University in Winston-Salem, North Carolina, who does research on lobbying. "It's a major lobbying setback."

Pandora hit an all-time low of $7.08 on Nov. 16, two days after dozens of performers — including Maroon 5, Katy Perry and Ne-Yo — said in a statement they've given Pandora "a discount on rates for the past decade" and reject further reductions.

Pandora and allies, including CC Media Holdings Inc.'s Clear Channel Media and Entertainment, are pressing lawmakers to pass the Internet Radio Fairness Act, scheduled for a Wednesday hearing before the U.S. House Judiciary Committee. The measure would change standards the federal Copyright Royalty Board uses to set performer fees.

Performer Royalties

The bill would bring Internet radio services, which now pay a fraction of a penny in performer fees for every song they play, under the same standard applied to satellite and cable radio services like Sirius XM Radio Inc., which now pay a percentage of revenue.

Such a change could cut Pandora's content costs by as much as half and be a "major catalyst" for the company's earnings, Rich Tullo, an analyst at Albert Fried & Co., said in a Sept. 24 report.

For the quarter ended July 31, Oakland, California-based Pandora lost $5.4 million, or 3 cents a share. It paid $60.5 million for content acquisition, or 60 percent of its $101 million revenue. Growth of advertising, which accounts for 88 percent of revenue, hasn't kept up with royalties that rise with the time listeners spend on its service, Pandora said in a filing with the Securities and Exchange Commission.

Digital Music

At Sirius XM, which got 87 percent of its sales from subscriptions, U.S. royalties were 8 percent of revenue during the three months ended Sept. 30, according to an SEC filing.

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