Pandora is feeling pretty pleased with itself.
The US digital radio service says it has paid out $2bn to the music business to date, across both publishing/songwriters and labels/artists.
Interestingly, Pandora says it has reached the milestone nine months after its lifetime payments to music industry rights-holders hit $1.5bn.
In other words, Pandora has paid out at least $500m since July last year, or around $55.6m per month during this period.
Bring out the bunting.
Predictably, Tim Westergren, the founder and recently reinstated CEO of Pandora (pictured) is beating his chest over the news.
“The rapid acceleration of royalty payments from internet radio is very promising news for the industry,” he said. “We are delighting listeners, driving discovery for new music, and creating powerful new promotional tools for musicians, all while creating a massive new revenue stream for labels and artists that has never existed before from radio.”
Big numbers, though, are ten a penny in the world of music streaming.
What does Pandora’s $2bn figure actually mean?
There are two interesting ways to slice Pandora’s data: (i) by judging the company on its own merits, and (ii) by judging it against other dominant digital players in the music business.
Let’s start with the first.
Here’s the annual payout of Pandora to music rights over the past five years, compared to its total revenues and operating costs (encompassing general/admin expenditure, plus marketing and product development).
Pandora’s annual payout to the music business has been pushed up 862.8% over the five years displayed here – a cumulative payment of $1.6bn.
That sounds especially impressive when you consider that, in the same time frame, Pandora’s overall revenue has showed slower growth, up 744.7%.
Round of applause for Mr Westergren?
Not quite. Context is everything.
In 2015 Pandora agreed to pay out $90m in a legal settlement regarding its use of pre-1972 recordings in the US market.
Within its FY 2015 SEC filing, it admits that $65.4m of this cash was handed over in 2015 – and then financially categorised under ‘content acquisition costs’.
Also known as… royalties. Cheeky.
So although the amount Pandora paid music rights-holders grew by $164m in 2015, more than a third of this money arose as a result of legal proceedings instigated due to its refusal to pay anything for pre-1972 pop music.
If we discount this money from Pandora’s figures, its payments to the music biz as a proportion of its total spend (across royalties and operating costs) are significantly decreasing – ending up at 46% in 2015.
Did Tim Westergren’s chest-beating just get a little quieter?
Perhaps it’s about to get quieter still.
Of that $164m music biz payment increase in 2015, a further $28.2m was related to publisher royalty rate increases – most pointedly, the one that BMI achieved after taking Pandora to court.
Just be 100% clear on this: Pandora paid $164m more to the music biz in 2015 than it did in 2014. Yet a whopping $93.6m of this figure was largely a result of legal action taken against it by exasperated rights-holders.
Then, there was a scheduled 8% rise in the rate digital radio paid to Sound Exchange in 2015.
None of these payment increases had anything to do with Pandora, who actively fought against the record business by lobbying to reduce the statutory per-stream payments its makes to SoundExchange – a figure set by the US Copyright Royalty Board at $0.0017 at the end of last year.
To finish off, let’s be generous and include all of these extra payments – arguably all forced onto Pandora against its will – as part of the firm’s supposedly generous outlay to the music business and its artists.
(We dare say Pandora has admirably included these payments within its own headline-grabbing $2bn figure.)
Go back to the top graph. Even with the pre-1972 legal settlement and other extra cash the music biz has to fight for, Pandora’s operating expenses outpaced its music biz payments in 2015 for the first time.
Meanwhile, its total expenditure on stock-based compensation in the year hit $111.65m.
No-one can say it doesn’t look after its own.
Now then. We hear a lot about these ‘X billions of dollars’ payouts to the music industry.
Just so you can keep tabs, Google said in November last year that its payments to rights-holders had topped $3bn across YouTube and Google Play Music.
Spotify announced that it had surpassed the same figure five months before, noting that it had paid out $300m in the first quarter of 2015 alone.
How does Pandora stack up against these two rivals?
Google’s claim must cover every day since it acquired YouTube back in October 2006 for $1.65bn.
Pandora was technically founded in 2000, but changed direction in 2005 – becoming a consumer-facing radio service via Pandora.com.
Let’s give it the benefit of the doubt (again) and take Pandora’s lifetime $2bn figure from the commencement of this launch.
It’s still more than a billion dollars behind Google.
And you won’t find many in the music industry running around telling people how generous YouTube is right now.
Unfair comparison? Bang to rights. Well said.
Let’s try Spotify instead, which was launched three years after the ‘new’ Pandora in 2008.
Spotify has doubled its paying consumer base over the past year, from 15m subscribers (Jan 2015) to 30m today.
Taking Spotify’s average royalty payout from early 2015, then, is a mite unfair and bound to be too low.
Oh well. It’s all we’ve got.
Remember: Spotify paid out $300m in the first three months of last year.
An average of $100m a month.
Pandora – which now has 20m fewer active users than Spotify’s 100m listener base – says it’s paid out $500m in the last nine months.
Except, as we’ve established, at least $65.4m of this figure was part of a legal settlement with record companies.
Without this chunk, Pandora has actually averaged a per-month payout of $48.3m to the music business since last summer.
That’s less than half of Spotify’s monthly payout.
As in, Spotify at the start of last year.
When it was half the size it is now.
Beware these big billion dollar payout announcements, friends.
They’re not always quite what they’re cracked up to be.Music Business Worldwide
