This Week In Royalties: Pandora's Fate, Kobalt's Financing, and SESAC's Future

May 12, 2017

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney.

What’s Next for Pandora Amid New Losses and Investment? (Music Business Worldwide) / (Billboard)
Benom’s Take:  Unfortunately, I think that Pandora’s days may be numbered. The company just can’t get a leg up on Spotify and it’s continually losing millions of dollars year after year. This week, Pandora is reporting more heavy losses amid a private equity investment of $150 million (pending regulatory approvals). The pending investment gives Pandora more cash on hand, but doesn’t leave much room for comfort given Q1 2017 losses alone are reported at approximately $132 million. Of course, I believe we need Pandora to stick around. If anything, just to keep the streaming market competition strong.

All of this deepens the chatter and speculation that Pandora is looking to sell. To add insult to injury, it appears Pandora listener and subscriber numbers are dropping steadily as well. These issues certainly hurt Pandora’s argument for a higher share price if a sale were to happen. SiriusXM’s parent company, Liberty Media, was supposedly an interested buyer. However, I don’t see the attractiveness of such a purchase from any Pandora competitor. Unless there is a clear strategy to incorporate Pandora’s service into their own and turnaround the losses quickly - who would want to overpay for a failing company?

Kobalt Music Raises $75 Million In New Capital (Billboard) / (Variety)
Benom’s Take: Same song, different verse. Kobalt Music has a strong reputation in the music industry primarily due to its A-list clientele and valuable licensing/royalty collection services. Kobalt is a music publisher and administration company for both musical compositions, as well as master (neighboring) rights and record label administration services. Though not as heavy as Pandora, Kobalt has continually reported losses and the financial backing it receives is steady and significant. As the article mentions, the company has always pursued company growth at the expense of profits. With this new investment, the current valuation of the company is now approximately $775 million.

There have always been rumors of if, when, and to whom Kobalt might sell. I do believe a sale may be the eventual end-game strategy for Kobalt’s executives. Regardless, the company is a force to be reckoned with in the world of music licensing and royalty collections and this new report shows Kobalt has no shortage of available funding to keep growing.

SESAC’s Plans to Grow After Blackstone Private Equity Acquisition (Billboard)
Benom’s Take: Even though SESAC has a small market share in public performance royalties for music publishers and songwriters, in some ways, it appears to have an advantage over competitors ASCAP and BMI. For one, SESAC is not bound to some of the strict government regulations ASCAP and BMI are bound to. Secondly, SESAC is a private, for-profit company, giving it flexibility to diversify its business vs. ASCAP/BMI’s “non-profit” status. Of course, I think up until 2015 the NFL was considered “non-profit,” so that term is relative depending on the context. Nevertheless, SESAC’s acquisition of other companies to expand into mechanical and digital royalty collections are good examples of this diversification and the advantage it can have in the performance royalty market.

ASCAP/BMI are unable to expand their business into anything outside non-dramatic public performance royalties until the U.S. Department of Justice decides to amend the current regulations. I say that’s unlikely to happen anytime soon, especially if Attorney General Sessions ends up in legal trouble regarding the Trump-Russia investigation. (Some politicians are calling for Sessions to resign as we speak.) Any shake up at DoJ or similar government institution usually puts music royalty and copyright issues to the backburner. So, if SESAC can capitalize on these advantages, Blackstone’s acquisition of SESAC is likely to pay off in the near future.