Pandora Media management recently highlighted their plans to not only expand internationally but also offer more listening formats than just internet radio. However, their plans are on hold as the Copyright Royalty Board (CRB) sets the licensing rates for the years 2016 through 2020.

Pandora.com
Pandora.com

The ruling from the CRB will have major bearing on what Pandora ends up doing, so investors are naturally wary due to concerns about content costs, which could stay nearly the same or climb much higher. If the CRB raises the rates significantly, Pandora’s bottom line will be severely impacted.

Pandora Media has a strong case

In a report dated March 23, Canaccord Genuity analysts Michael Graham and Austin Moldow said Pandora made a rebuttal to the CRB recently and that the rebuttal is consistent and sets for a strong case for why the rates shouldn’t change much. The streaming radio service provider said its deal with Merlin, which set rates a bit lower, is the best benchmark in terms of setting rates across the music industry. The Canaccord Genuity team thinks the company’s case “aligns most closely with the legal questions at hand.”

Sound Exchange also gave a rebuttal to the CRB—to the tune of 627 pages, which then exploded into 1,358 pages. The analysts said while at first, Sound Exchange was keeping its strategy under wraps, the rebuttal “more fully reveals [its] hand.”

They think the firm’s rebuttal emphasizes lumping Pandora and other non-interactive radio streamers in with Spotify and other interactive streaming services. Sound Exchange also revealed the deal for iTunes Radio, which they think was offered as a bit of a “calculated move” at the time so that Pandora wasn’t prepared for it.

Should Pandora pay more for content?

Further, they say Sound Exchange claimed that Pandora’s rates with Merlin were lower because of “the shadow of the statutory rates.” Pandora, on the other hand, claims the statutory rates had either little impact or else actually raised Merlin’s rates.

The Canaccord Genuity team thinks Pandora’s argument will be more convincing to the judges and that a “status-quo (ish)” ruling seems more likely. If this is the case, then Pandora’s content costs wouldn’t change much, and they note that this would be a positive catalyst for the company’s stock.

As of this writing, shares of Pandora Media were down 2.43% to $16.09 per share.