Streaming In 2016: How It Impacts Pandora

What effect will the Copyright Royalty Board's ruling have on the company?


The success of music streaming services has challenged the way both music artists and record labels make money. Some have embraced services like Pandora and Spotify as the new norm, while others have passionately denounced them, stating that they put the artist at a disadvantage. This culminated in Jay-Z setting up Tidal, which is based around an artist-owned model, with increased royalties.

While the emergence of Apple Music, Tidal and Spotify has dented Pandora's once dominant slice of the streaming market, a recent ruling by the Copyright Royalty Board (CRB) could damage their position even further. Pandora has the most unhealthy subscriber ratio out of all the media streaming services. Pandora, unlike Apple Music and Spotify, does not allow its users to choose specific songs, instead operating as an online radio station. The main advantage of paying for the service is that songs can be skipped within their radio playlist.

Pandora's model has been targeted by the CRB. In December 2015 the board announced that online radio companies would have to pay 17 cents per 100 song plays through to 2020, up from the current rate of 14 cents. While the service's senior management team won't be happy with the increase, the decision represents a compromise. SoundExchange, the performance rights organization, wanted the rate to rise to 25 cents, with Pandora wanting it to be lowered to 11. The company's CEO, Brian McAndrews, feels that Pandora can still function, believing that the compromised rate had provided them with much-needed boost, allowing its shares to soar following the announcement.

The ruling, however, will increase costs at a time when rising competition had already threatened to destroy them. 'The fundamental challenge for Pandora is now they've got increasing royalty payments and slowing user growth driven by growing competition,' states Research Analyst, Richard Greenfield. Pandora's expected downfall should level the playing field, with Recode stating: '[the ruling] will hopefully encourage even more innovation in online radio. It’s a hard space to be in, because there was always so much confusion and uncertainty about the costs, but now the rates have been set for the next four years, more content will be able to survive.'

If competition rises in the online radio industry it can only be beneficial for artists. Not only will their royalties increase, their will be more players, and therefore more opportunity for their music to get heard. Pandora's fate, however, may have been sealed. There's a good chance that their outdated business model has caught up with them, with their low paying-subscriber count testament to this.

Whatever the case, 2016 is going to be a make or break year for Pandora.


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