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Pandora is going to have to pay labels more for their music

Copyright board sets higher rates for every stream

Theo Wargo/Getty Images

Over the last year Pandora has made aggressive efforts to expand its offerings beyond the streaming radio product it’s best known for. It purchased Ticketfly to try and make money off live events and acquired a big part of Rdio to create an on demand streaming music service. But the majority of its revenue still comes from streaming radio, where the royalty rates it pays are set by the Copyright Royalty Board, a panel of three federal judges in Washington.

Labels wanted rates even higher

Today, that board updated the rate to 17 cents for every 100 streams of a song. That is a big increase for Pandora, which has struggled to turn a profit and seen its share price slide significantly over the last year. Until now, it had been paying roughly 14 cents for every 100 songs that customers streamed. Pandora wanted the rate decreased to 11 cents per 100 streams, while labels were arguing for 25 cents. The new rate goes into effect in 2016 and lasts through 2020, although it may be adjusted in subsequent years to reflect price fluctuations.

Pandora has moved to mend relationships with the big record companies by agreeing to new rates for older music, paying $90 million in a deal that CEO Brian McAndrews said would "move the conversation forward and continue to foster a better, collaborative relationship with the labels." It also signed a deal with Sony ATV that would up its payments to songwriters.

But Pandora didn’t go as far as negotiating directly with the labels for streaming rights, something Apple reportedly did when setting up its Beats One radio service. The decision to continue relying on the Copyright Royalty Board may increase Pandora's costs, but its stock is up in after hours trading following the announcement, with investors perhaps relieved that rates weren't set even higher.