Pandora (P) +4.1%, adding to yesterday's gains (I, II), after The Verge's Greg Sandoval reports...

Pandora (P) +4.1%, adding to yesterday's gains (I, II), after The Verge's Greg Sandoval reports the company is talking to both music labels and artist groups about resolving royalty disputes. The report comes shortly after Pink Floyd penned an op-ed in USA Today attacking Pandora's attempts to lower rates, and less than a month after Pandora bought a radio station in an effort to lower a portion of its royalties. Pandora paid $0.11/stream last year, and is set to pay $0.13/stream next year and $0.14/stream in 2015. Content acquisition costs made up 66% of FQ1 revenue. Sirius XM's (SIRI) music costs, by comparison, made up just 7.5% of its 2012 revenue.
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  • DIgitalMediaView
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    To call these talks preliminary and narrow in scope would be a profound understatement, but anyone who thinks a resolution here will lead to lower content costs for P has not been following the plot. The music companies are looking for a lot more from Internet radio, especially now that they were able to secure a big uplift in the iTunes Radio deal (per plays reportedly 50% higher, minimum rev share 100% higher). P pays a high percentage of their revenue to licensing right now because their ad load is so miniscule compared to terrestrial radio, less than 10%. That is how they have scaled--the standard internet disruption playbook of giving away a content service with minimal friction points in order to scale, and figuring out how to turn a profit later (if ever). As soon as they increase the ad load to balance the books, growth will slow down or even reverse, and the party will be over. And then AAPL, which doesn't need to worry about direct profits from content services, will be in the poll position to dominate the market.


    The sat radio economics that P always brings up are not comparable because of sat's "rocket science" distribution costs and different programming mix. The bigger comparison point is the rate existing terrestrial radio businesses like ClearChannel and CBS must currently pay for Internet radio licensing, almost twice as much as P. If there will be equalization in the future, the big guns in the radio business will be looking to close their gap with pure play rates that companies like P pay, which, again, means higher not lower licensing costs for P.
    26 Jun 2013, 09:38 AM Reply Like
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