Pandora Media Inc. (P) Is Up Sharply After Royalty Rates Ruling

Pandora says its blended rate will rise 15 per cent.

Internet radio leader Pandora was hit Wednesday with a 21 percent hike in the royalties it must pay back after prolonged bickering with record labels. But hey, if transforming itself into the latest Spotify competitor doesn't woo shareholders, Pandora can try selling more concert tickets and finding new ways to monetize mountains of music data that nobody else has.

The Internet radio giant hailed the ruling as "balanced" and its shares jumped, but artist and label group SoundExchange decried the decision, saying it "will erode the value of music". The services offered different proposals to reduce the rate: SiriusXM proposed $.0016, Pandora proposed $.0013, iHeartRadio proposed $.0005 (an 80% reduction from its current rate). In a statement reacting to the decision, Pandora did not complain about the increase.

Pandora's chief executive Brian McAndrews seems to be OK with the price increase, though.

On the other hand, Pandora suggests that the rate be lowered to 11 cents per 100 tracks. "The new rates will allow artists and independent labels to participate in this success at a higher level".

The Copyright Royalty Board's decision sets rates for non-interactive services like Pandora, iHeart Radio and Sirius XM for the next five years. When a service exploits the compulsory licence it must pay royalties via collecting society SoundExchange, with rates ultimately set by the CRB.

Over the a year ago Pandora has made aggressive efforts to expand its offerings beyond the streaming radio product it's best known for. Pandora's recent acquisitions of concert ticketing company TicketFly, and on-demand streaming service Rdio, suggest it has ambitions in these sectors.

At the same time, investors should also remember this doesn't apply to music covered under Pandora's various direct licensing deals with music publishers, notably including agreements with BMG, Sony/ATV, and most recently Warner/Chappell.

Despite the increase, Pandora's stock is up in after-hours trading.