BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

Pandora Builds On Its Direct Deal Goal With ASCAP And BMI Licensing Agreements

Following
This article is more than 8 years old.

The year seems to be ending on a great note for Pandora Media , which started 2015 with an uncertain future. The company has managed to keep the royalty rate hike under control and made a couple of acquisitions to make its music platform better and provide artists with certain non-monetary incentives. The Internet radio provider has even struck significant direct deals with music publishers for greater rate certainty and an expanded portfolio of offerings. Following its multi-year licensing agreement with Sony/ATV, Pandora recently inked two multi-year licensing agreements with ASCAP and BMI, which are among the bigger performance rights organizations (PROs) in the world. The specific terms of the agreement have not been disclosed, but it is apparent that all the parties have a lot to gain from these deals. Pandora has often come second to its direct competitor, Spotify, because the latter has a much bigger music library and a more interactive platform. While Pandora’s acquisition of Rdio provides it with Spotify-like components for its music platform, its direct deals with publishers and global rights organizations is aggressively bolstering its music offerings. Therefore, it makes ample sense to say that with royalty issues taken care of, Pandora’s next plan is to curb the competition.

Our current price estimate for Pandora stands at $19, implying a significant premium to the current market price.

See our complete analysis for Pandora Media

Pandora has signed separate licensing deals with ASCAP and BMI, for their combined portfolio of over 20 million musical works. For ASCAP, the deal offers benefits in terms of improved royalty payments for songwriters and publishers. For BMI, in addition to better royalty payments, the deal ensures that Pandora drops its appeal for the BMI/Pandora rate court trial. Earlier this year, Pandora had filed an appeal against a ruling that said Pandora should pay 2.5 % of its revenues to BMI, while the same court had upheld the rate of 1.85% for ASCAP.

For Pandora, direct deals such as the ones mentioned above help in improving its offerings portfolio, which is the prerequisite for garnering listener attention. With a higher number of users, the company should be able to attract more advertisers and even propel its subscriber growth by leveraging improved features of its platform (Rdio’s acquisition) and a bigger music library. Spotify already has a huge music library of over 1.5 billion songs and it adds almost 20,000 songs daily. Due to this and its social media component, Spotify is doing a much better job of converting free users to subscribers. Over 25% of Spotify’s users are subscribers while the figure is around 5% for Pandora.

Hence, by enhancing its music offerings, Pandora may be aiming to improve the proportion of subscribers in its user base, which can help it expand operating margins and ultimately generate profits. When Pandora announced its deal with Sony/ATV earlier, some reports suggested that it was approaching others with similar deals as well. We believe that even after getting ASCAP and BMI agreements, the company will still be looking for other music publishers.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap | More Trefis Research

Like our charts? Embed them in your own posts using the Trefis WordPress Plugin.