Pandora is Being Crushed By their Royalty Fees

At a time when internet radio is exploding out of control, Pandora is getting ripped off when it comes to the royalties they pay out, and it is hurting the company pretty seriously. Over the last few years millions of people have come to know the Pandora internet radio service pretty well, and this service is well known for being able to supply listeners music that they like, based on its algorithm that works with information about other music that you like. The system works well for finding new music, and plenty of people have begun to rely on Pandora, but the company isn’t doing quite as good as you would expect it to.

Royalties

The main reason that the company is having a hard time is because of the massive amount of royalties that they are paying out to record labels. Nearly 60 percent of the company’s total revenue is going toward paying royalties which is a substantially larger ratio than companies like Spotify, and Sirius XM radio. To give you an idea of what they are up against while Pandora is paying around 60 percent of its revenue to satisfy royalties, Sirius XM is paying around 7.5 percent of their revenue, and cable TV is only paying around 15 percent of their revenue toward the cause.

The Other Half of the Problem

Even though Pandora is paying more money per song played than many other forms of media, the other problem is that they really don’t charge much for the music that they are playing. There is a very minimal subscription fee of 36 dollars a year if you want to hear music without any ads, but other than that people don’t have to pay money for the service at all. To top it off Sirius XM makes nearly 8 times as much money as Pandora does and yet they are paying in less money for royalties.

A Possible Solution

Pandora is working hard to get themselves a solution that will make the playing field a little more fair. They are working hard to get a bill passed that fights for royalty parity which will lower the amount in royalties that they play per song by nearly half. That would cut down on the amount of revenue that they have to spend on the music and leave more room for growth for the company. If the bill is not passed the company is going to have an even more difficult time in 2015 when the royalty rate goes up from the current .11 cents a song up to .14 cents a song. That rate jump is going to suck up even more of their royalties and make competing in internet radio even more difficult. It is unclear whether or not Pandora is going to get the decrease in royalty fees that they are after. Many record companies argue that instead of lowering the amount that Pandora is paying, they should be increasing the amount that Sirius XM is paying in order to make it fair once more. With new companies springing up all the time, and plenty of internet radio services to compete with Pandora they need to come up with a different model or get a cut on the royalties they are paying if they want to keep competing.