Pandora To Pay 25% Higher Royalties To Sony/ATV

Pandora’s costs are set to rise after agreeing to a 25% royalty increase with music publisher Sony/ATV, according to a New York Post story, citing industry insiders.

The online radio service has been locked in a running battle with the music industry over royalty rates. The company has been among those supporting legislation introduced in Congress in September -- the Internet Radio Fairness Act, that would lower royalties services like Pandora pay to record companies.

In November, Pandora opened another front by suing the American Society of Composers, Authors and Publishers (ASCAP) to reduce its royalties to music publishers and songwriters. The deal with Sony/ATV, a joint venture between Sony Corp. and the Michael Jackson estate, was apparently reached after Sony/ATV pulled its digital rights from ASCAP and BMI as of Jan. 1.

The royalty agencies collect about 4% of Pandora’s total gross revenue on behalf of copyright holders. In a research note Thursday, JP Morgan analyst Doug Anmuth downplayed the development, saying the potential royalty increase applies only to a small piece of Pandora’s royalty costs.

Even if Pandora were to see a 25% rise in royalties across ASCAP, BMI and SESAC (Society of European Stage Authors & Composers), he estimates it would only increase costs by $6.4 million, or 1% of estimated fiscal year 2014 revenue.

Pandora declined to comment for the Post story. For its fourth quarter, the company expects to report an adjusted loss of 6 cents to 9 cents a share and revenue between $120 million and $123 million. The estimates released last month fell well below analysts’ expectations.