Pandora co-founder Tim Westergren in February 2015.
Linda Davidson — The Washington Post/Getty Images
By Mathew Ingram
December 17, 2015

After months of anticipation, a federal board ruled that online radio stations like Pandora must pay higher royalties to publishers for the music they play. So why then did the company’s stock jump by more than 15% on the news? Aren’t higher fees bad?

The short answer is yes, higher fees are bad. But they aren’t as bad as they could have been, and that’s the main reason Pandora’s stock (P) jumped. Investors had been pricing in the worst possible scenario, and that didn’t come to pass.

SoundExchange, the lobby group that represents record companies and artists, had been looking for the Copyright Royalty Board to boost the standard licensing rate to 24 cents per 100 songs from 14 cents. Pandora, meanwhile, had argued that rates should fall to 11 cents. In the end, the board decided to raise rates to 17 cents per 100 songs.

Those fees are still going to hit Pandora fairly hard, given that its users listened to about 5 billion hours of programming in the most recent quarter, and the company will now have to pay about 15% more for each song. And it’s not as though the company is rolling in money: In the most recent quarter it lost about $85 million, news that caused the shares to fall by more than 30% in a single day.

While the company’s stock got a nice boost from the Copyright Board’s ruling, it’s also worth keeping that in perspective. Even with that jump, Pandora’s shares are down by more than 50% since February.

Some of that drop is a result of investors becoming increasingly disillusioned with the company’s business model, in particular its reliance on advertising for its free music tier. But the stock has also been under pressure because the arrival of Apple Music (AAPL) has made the market considerably more competitive.

As a result of all of those pressures, Pandora is in the midst of trying to reinvent itself—to evolve from being just an online radio service to something more. Part of that is adding new services, which is why it recently bought online ticketing service TicketFly for $450 million.

Another part of this attempted transformation is a move to become more like Spotify, in other words a streaming-music service that charges a monthly fee instead of free online radio. That’s why the company recently acquired music streaming service Rdio, which had filed for bankruptcy, for $75 million.

Streaming-music services often wind up paying more for their music than radio services like Pandora do, because of historical differences in how radio and streaming music have been treated by regulators. But they have the opportunity to cut deals with specific record labels for lower rates, whereas radio services just pay whatever the board tells them to.

This attempted transition helps explain why Pandora CEO Brian McAndrews recently wrote an essay arguing that unlimited radio-style free music—the very thing that created the company he works for—is ultimately a bad thing for society.

This argument is in part an attempt to curry favor with record companies, which also believe this. And Pandora is probably hoping that by siding with the record industry on the free music question, it can build some bridges that will allow it to cut more favorable music licensing deals. Because without those, it is pretty well sunk.

You can follow Mathew Ingram on Twitter at @mathewi, and read all of his posts here or via his RSS feed. And please subscribe to Data Sheet, Fortune’s daily newsletter on the business of technology.

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