Pandora Settles Pre-1972 Lawsuit With $90 Million Payment

24 Oct 2015 | Author: | No comments yet »

Pandora Coughs Up $90M to License Older Songs.

When Apple revealed this week that its new streaming service, Apple Music, had 6.5 million paying users, industry commentators debated whether that was a healthy or disappointing result for a company with such a giant reach. Pandora Media Inc. plummeted the most since going public in June 2011 after issuing a sales forecast that fell short of analysts’ estimates and recording charges of $81.8 million to settle legal disputes with the music industry.

The labels – ABKCO Music & Records, Capitol Records, Sony Music Entertainment, UMG Recordings and Warner Music Group – were represented by the Record Industry Association of America, and argued that Pandora was violating copyright laws in not paying royalties on music that was more than 43 years old.In a bit of a tricky situation for streaming services, federal copyright law applies only to songs created after 1972, but some state laws apply to pre-1972 tunes. The Internet radio company is facing stiff competition from Spotify Ltd. and Apple Inc. while battling record labels and music publishers over how much it pays to play their songs.

Due to a U.S. copyright loophole, Pandora has played these songs without compensating Warner, Sony, Universal and other labels that own the rights to the master recordings in recent years. Sales this quarter will be $325 million to $330 million, Pandora reported Thursday, less than the $351.5 million average of estimates compiled by Bloomberg. “We now see competitive actions sapping growth from Pandora’s model, as the ‘cost of admission’ to direct talks with labels is getting pricey,” analysts at Piper Jaffray Cos., who downgraded the stock to neutral, wrote in a note Friday.

Pandora’s policy prompted a backlash among classic artists — Buddy Holly’s estate had called non-payments by Pandora and SiriusXM an “injustice,” and Stax soul guitarist Steve Cropper, who appeared on numerous Otis Redding and Sam and Dave hits, complained to Rolling Stone last year: “I’m part of a catalog of music from the Sixties that got re-released in the Seventies and Eighties, and some today, so I still get an income. The plunge in Pandora’s share price was to some degree the market’s judgment on the company’s outlook in the increasingly competitive field of streaming music, as Apple, Spotify and numerous other players spar for customers in a growing market. Brian McAndrews, Pandora’s CEO, said that the music streaming site was “excited to have found a resolution” with the record labels that filed their suit in April 2014.

But they just keep chipping away and chipping away.” The Recording Industry Association, which represents the major labels, sued Pandora over the non-payments last year — shortly after Flo and Eddie of the Turtles filed suit on similar grounds. This week, YouTube introduced a subscription plan including music and video. “The fear from the investor world is that there is going to be a continued battle to fight for users,” said Richard Greenfield, a media analyst at BTIG Research, “and that will depress what is already is not much cash flow even further.” In a conference call on Thursday discussing the company’s third-quarter financial results, Brian P. McAndrews, Pandora’s chief executive, played down the arrival of Apple Music in June, saying that the new service had only a “muted” impact on Pandora’s popularity.

For the years beyond that, the streaming service will have to work out future deals with the labels, with whom McAndrews said Pandora hopes to “continue to foster a better, collaborative relationship”. But Pandora also downgraded its financial guidance for the rest of the year on Thursday, saying that it now expected its adjusted earnings to be in the range of $51 million to $56 million, down from the $75 million to $85 million it had predicted three months before.

We appreciate the collaborative and constructive approach of Pandora’s team in resolving this longstanding issue for artists and labels.” The RIAA sued SiriusXM in 2013. Its expected revenue for the year was lowered by about 2 percent, to a range of $1.153 billion to $1.158 billion. “We are shocked by guidance implying monetization is hitting a wall,” wrote Robert S. The thought, at the time, was that such a large payout would encourage record companies to pursue similar settlements with other services—which seems to have panned out.

Mad Max will roar back out of the apocalypse while Mad Men rides off into the sunset, rock’s Antichrist Superstar and hip-hop’s Yeezus will rise again. In another report, Barton Crockett of FBR Capital Markets wrote, “We expected a modest impact from the Apple Music launch, but it turned out to be more fundamentally challenging than we thought.” Pandora has long been the largest Internet radio outlet in terms of users, and it has withstood challenges before, including the introduction of Apple’s iTunes Radio in 2013.

According to the RIAA chairman and CEO, Cary Sherman, both settlements ensure “that an iconic generation of artists and the labels that supported them will be paid for the use of their creative works”. It number of active users — those who tune in to the service at least once a month — peaked at 81.5 million at the end of last year, and in its third quarter fell to 78.1 million. Services like Spotify, Apple Music, Rdio and Google Play let users pick exactly what song to listen to, but also have radiolike features similar to Pandora, letting users listen passively by feeding them songs tailored to their tastes. “Historically, Pandora’s marketing was viral; it marketed itself,” Mr. Greenfield said. “Now because there is so much competition, to generate the same level of revenue, they have to spend more to get there.” Investors have also long been concerned about the cost of music licenses.

The company said that it had reached a $90 million settlement with the major record labels on royalties for songs from before 1972, an issue that has caused uncertainty for many companies. One of Pandora’s biggest costs will be set when the Copyright Royalty Board, a panel of federal judges, sets recording royalty rates for the next five years.

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