To say that Pandora Media, Inc. (NYSE:P) stockholder for the past weeks were having a roller coaster ride is likely to be an understatement, as this current pace is not over. A month ago, Pandora announced its positive results for third quarter but the market rejected its stock with 15% dive in single day, which has come as a surprise. After all, their revenue and fourth quarter guidance was above expectations. All this was overshadowed by fears of deceleration of listener base due to rise in Apple iTunes (NASDAQ:AAPL) and Google Play Music (NASDAQ:GOOGL) services. Share went up 15% two weeks later when CEO McAndrew’s purchased a huge stake in the company.
Changing Royalty Rates
Apart from all this competition and loyalty, Pandora Media, Inc. (NYSE:P) stakeholder should be ready for another concern of changing royalty rates and for this, the company organized conference call and clarify its stance against the royalty rates set by US. Copyright Royalty Board, which will determine terms and rates from the 2016 to 2020 that will effect Pandora and many other radio service. The real problem is that the people of SoundExchange are asking CRB to raise the rate higher than Pandora (NYSE:P) can afford. SoundExchange rates are $0.0025-$0.0029 more than Pandora’s (NYSE:P) $0.0013 per performance. Pandora Media, Inc (NYSE:P) says it should be $0.00110 – $0.00129 for every non-subscribed performance and $0.00215 – $0.00240 per subscribed performance.
Pandora Media, Inc. (NYSE:P) lost $0.01 per share last quarter on GAAP basis, because of these tiny charges adding up, in addition to a bigger hurdle in the form of its content cost. Pandora (NYSE:P) CFO Mike Herring said Pandora Media Inc. (NYSE:P) content royalties paid to right holder were $100 million, and even more for last year and that made a total of $1 billion historical payout. He also said, if CRB accepts the proposal from SoundExchange; Pandora (NYSE:P) has to cut down number of hours to 75% for right holder’s music and that will reduce royalty payment by $741 million. On top of that, the study done by members of science team showed 2.31% sales boosts and 2.66% increase in new and catalog tracks played. 80% of the music Pandora (NYSE:P) plays is played on other FM radio.
A Debatable Question
Pandora Media, Inc. (NYSE:P) does have an alternative to the question of CRB raising the rates. The management feels they have to pay if they wish to operate by direct label dealings. If we look at the Pandora’s (NYSE:P) first-ever deal in August with Merlin Networks, they didn’t disclose any terms of the agreement, and briefly mentioned on Web IV call that they have an opt-in privilege. After few weeks, Pandora Media, Inc. (NYSE:P) made a multi-year agreement with BMG to use its BMI, ASCAP music catalog. Pandora’s (NYSE:P) investors are certain there will be fluctuations and it won’t affect direct deals with labels. If one sees from investors’ perspective, it’s a great opportunity to buy shares for long-term investors.