Rihanna, Billy Joel, Jimmy Buffett and scores of other music stars are fighting mad over a move by music-streamer Pandora to cut the amount of royalties it pays them.
By one account, the move by the Oakland, Calif.-based Internet company could reduce royalties by $229 million, or more.
The group, which calls itself MusicFirst Coalition, wants lawmakers to leave the current royalties structure as it is.
“Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon?” the group wrote in a letter. “That’s not fair and that’s not how partners work together.”
The music business is tightening its strings just weeks ahead of a House Judiciary Committee review of the Internet Radio Fairness Act (IRFA), which aims to level the playing field on rights fees among the likes of traditional radio stations, Sirius XM satellite radio and Pandora, which all pay different rates.
Money-losing Pandora pays roughly 63 percent of its revenue to cover content costs while Sirius pays 9 percent.
The size of the fees is regulated by a three-judge panel, part of the Copyright Royalties Board, which reports to the Library of Congress.
If Pandora’s Capitol Hill play succeeds and its royalty payments are slashed, it could lower the amount it spends on content from the estimated $267 million it will fork over this year to $38 million — a drop of about $229 million, according to Richard Tullo, an analyst with Albert Fried & Company.
That could change Pandora into a profitable enterprise, turning a net loss of 24 cents to a profit of $1 per share in earnings, he said.
Pandora, which went public 17 months ago at $16 a share, rapidly garnered a 76 percent market share of Internet radio listenership.
But it has been a solid money-loser. It posted a loss of $25.6 million in the six months ended July 31.
News of MusicFirst’s push — and continued fears that Apple will soon jump into the business — have left Pandora shares on the ropes. The stock fell 4.6 percent to $7.31 yesterday, a 52-week low; it is down 27 percent year to date.
While Pandora has been taking most of the heat for pressing DC lawmakers to pass the IRFA, the measure is also being backed by the nation’s biggest radio owner, Clear Channel, which is looking to transform itself into a digital venture.
“The [IRFA] is the right permanent solution,” Pandora founder and Chief Strategy Officer Tim Westergren said in a statement. “We look forward to partnering with all parties on building a sustainable and equitable future.”
Denver-based Wedge Partners analyst Martin Pyykkonen said the music industry noise could mute Pandora’s shares for a while.
“These artists are crying foul, but look at the volume of streams delivered,” Pyykkonen said.
“It will be interesting to see in their latest quarter whether they are selling more ads.”
A bigger ad load could help boost revenue at Pandora, though the company has resisted that to keep its product attractive to music consumers.
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