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Pandora confirms direct deals with Sony and Universal, but not Warner

By Chris Cooke | Published on Wednesday 14 September 2016

It’s all been about direct deals at Pandora over the last couple of years, and now it has the complete set. Well, almost. Not quite. But nearly. Who is this “Warner Music” anyway?

Pandora originally utilised the collective licensing system in order to license its personalised radio service in the US. A compulsory licence applies on the recordings side, administered by SoundExchange, while – because it has always been deemed Stateside that personalised radio only exploits the performing rights of the copyright – song licensing could be sorted via the performing rights organisations, principally ASCAP and BMI.

There are pros and cons to this approach of course. It meant Pandora got to market early, in an era when labels and publishers were slow to embrace new business models, and it means royalties are set by the Copyright Royalty Board and the rate courts, which the music industry would argue generally results in lower rates being paid overall. It also means that individual artists can’t veto their content from being streamed.

But the collective licensing approach also meant that the music community, few of which had direct relationships with the service, became openly critical of Pandora, especially after it became a public company and invested a lot of time and effort into driving its royalty commitments down via the aforementioned CRB and copyright courts.

Then there is the issue that the compulsory licence on the recordings side only applies to personalised radio and not fully on-demand streaming, and is only available in the US, thus preventing Pandora from diversifying its offer and expanding its market reach. A move into on-demand streaming would also require Pandora to think about the mechanical rights in songs, where no proper collective licensing system exists in the US.

With Pandora increasingly of the opinion that (currently entirely loss-making) ad-funded personalised radio is not a sustainable business on its own – but that things might just be OK if that can be combined with a move into the (currently entirely loss-making) subscription-based on-demand streaming market – it became clear that some direct deals with the record companies and the music publishers were going to be required.

Those deals have slowly been completed in recent years, both with publishers and labels, notably indie-label repping Merlin. But yesterday Pandora announced that it now had direct licensing arrangements in place with both Sony Music and Universal Music too. Plus its new and existing direct deals will allow the company to diversify into other areas of streaming, which will include the firm’s long-anticipated launch of a fully on-demand subscription service. Although the deals only relate to the US for now, so don’t enable the also long-anticipated global expansion, yet.

“These landmark agreements”, which include deals with a stack of indie label distributors in addition to Merlin and the two majors, “create a win-win partnership between Pandora and the music industry” the digital firm said yesterday. They “open up new revenue streams for artists and labels, while paving the way for Pandora to bring new products to market that enable enhanced subscription services, fuel new advertising opportunities and deliver unprecedented flexibility and ease of use to listeners”.

Confirming that his company now had direct deals, and therefore working relationships, with most of the record companies and music publishers, Pandora chief Tim Westergren told reporters: “This was a truly collaborative attempt to find a solution that would support artists while profitably growing our respective businesses. And that is exactly what we achieved. Working together, we can reshape the digital music market and grow a great business that provides tremendous value to the music industry for decades to come”.

But where exactly is Warner Music? It’s thought the mini-major is actually quite close to signing up to a direct deal with Pandora too. The streaming firm’s rush to announce without that final deal in place was possibly the result of Amazon’s expected imminent announcements around streaming music, Pandora bosses keen to get details of their incoming new products into the headlines first.

Meanwhile, the other interesting question about all this is what happens to performer equitable remuneration? Under the compulsory licence utilised by Pandora, Performer ER applies, which means that artists receive 50% of the money directly, those payments not being subject to recoupment or deductions under any record contract. But in the US, Performer ER only applies when money is collected by SoundExchange.

That said, in the past, when direct deals have been done that circumvent SoundExchange, Performer ER has usually still be paid. Though quite how that will work this time – especially as the labels won’t pay ER on the fully on-demand element of Pandora once it goes live – remains to be seen.

Anyway, here are some quotes about how brilliant everything is going to be…

Charles Caldas, CEO of Merlin: “We are very pleased to broaden our relationship with Pandora, and to see additional revenue opportunities being created for our members. Independent music has always been at the heart of Pandora’s experience, and we are confident that Pandora’s users will appreciate and enjoy the music from Merlin’s market-leading member labels and artists as a vital element of the newly enhanced experience”.

Doug Morris, CEO of Sony Music: “This partnership should be a very encouraging sign for the entire industry. Pandora is a company founded and run by a musician. We are naturally aligned and look forward to growing the music business together and collaborating to support our artists in the digital era”.

Lucian Grainge, CEO of Universal Music: “We are pleased to work with Pandora to enable compelling new products and services for one of the largest music streaming audiences in the world. Working collaboratively, we have created a thoughtful partnership that enables innovation and has the potential to delight music fans and benefit the entire music ecosystem of recording artists, songwriters, labels and publishers”.