Pandora Media Inc (NYSE:P) recorded solid top line growth last year as rapidly rowing RPMs rise, along with the numbers of listeners and hours used. But will these trends continue, even as the costs of content increase? Canaccord Genuity analysts Michael Graham and Maria Ripps think they will, and they have put together a study of the Internet radio company’s content costs.


Shares of Pandora Media Inc (NYSE:P) rose as much as 2% today, and the Canaccord Genuity analysts continue to rate the company’s stock as a Buy with a $35 per share price target.

Negotiating content rates goes on and on

The analysts note that the content cost negotiation process is one that never ends. Since Pandora Media Inc (NYSE:P) is an Internet company, investors may not have initially been comfortable with this fact since it is essentially a marriage of technology with radio. However, the Canaccord Genuity team thinks investors are starting to understand this fact and become more comfortable with it.

Currently the CRB has just started the process of setting new rates for 2016 to 2020, and there are two rate court proceedings going on right now. They think one of the two proceedings will end late next month, while the other will end next year. The last time around, the organization was several months late in announcing its rates, which ended up more than doubling over their five-year life—rising from .0008 per stream in 2006 to .0019 per stream in 2010. After a two-year court battle though, webcasters did get some relief from this rate structure.

Based on the “economic logic,” they believe that this time around, the rates will be “materially lower.” However, they stop short of actually forecasting this.

Breaking down Pandora’s content costs

In 2012, Pandora Media Inc (NYSE:P) paid more than 60% of its revenue to acquire content. However, the Canaccord Genuity team thinks this metric will fall to 46% next year.

Right now based on their analysis, they estimate that Pandora Media Inc (NYSE:P) pays about 49% of its revenue as performance royalties to SoundExchange. They estimate that the company pays about 5% of its revenue to music publishers.