Pandora’s Shares Soar After Favorable Music Royalty Ruling

December 16, 2015, 11:43 PM UTC
Gavel & Digital Tablet
Photograph by Getty Images

In a victory for Pandora, copyright judges issued a ruling on Wednesday that will only modestly increase the royalties the online radio service must pay to music publishers.

The decision, which applies to all free Internet radio services, means that Pandora must pay 17 cents to rights holders for every 100 songs listeners hear. Previously, it paid 14 cents per 100 plays.

Investors considered the ruling to be a win for Pandora, which managed to avoid much higher royalty rates that could have devastated its business. Following the ruling, shares [fortune-st0ck symbol=”P”] in the company rose 20% in after-hours trading.

The music industry had asked for the rates to be hiked all the way to 25 cents per 100 songs, while Pandora had asked the court to lower them to 11 cents.

The decision was handed down by three judges of the Copyright Royalty Board, a specialized body that fixes rates for various types of music and video licenses. On Wednesday, the board publicly released only the new rates; the decision explaining the judges’ reasons will only come out several days later, once the parties have time to review it.

Both sides will be able to challenge the decision before a federal appeals court in Washington DC, but the process would likely take years.

The new royalty rate applies to webcasting in 2016. For the four following years, it will increase only with inflation.

The judges’ decision will also have an impact on other companies that offer Internet radio, including SiriusXM and iHeart, but Pandora will be most affected because Internet radio is the core of its business. Its business model is different from so-called “on-demand” services like Spotify and Apple Music, which have different song rates since users can select exactly what songs they wish to hear. Paid services must pay 22 cents per 100 listens, under the latest ruling.

For more about the music industry, watch this Fortune video:



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