Pandora Pre-72 Settlement Could Be 'Notable' For Balance Sheet, Margin And Label Relations

• Pandora Media, Inc. P shares have risen 30.49 percent over the past three months, reaching a high of $21.98 on October 6.
• Barton Crockett of FBR & Co. has maintained an Underperform rating on the company.
• Crockett believes that a settlement associated with the litigated regarding the rights fees for pre-1972 music could impact Pandora Media’s margins, balance sheet and label relations.

Analyst Barton Crockett explained that various music service providers had earlier assumed that no performance rights were owed for music recorded before 1972, based on a federal law that established such right for songs recorded in and after 1972.

However, with artists suing for payments and achieving success in court, Sirius was the first to settle, which has led to speculations that Pandora Media would follow suit.

“The New York Post reported that Pandora will pay $60 million for past performances, and another $30 million for pre-1972 recordings played in 2016. The article stated that the deal is expected to be approved by the company at a board meeting on October 20,” Crocket mentioned.

The EBITDA for 2015 is currently estimated at $84 million. However, if Pandora Media has to pay the $30 million annualized fee, it could have a significant impact on margins. If the CRB makes a higher rate decision, it could lower the EBITDA in 2016.

“Pandora had cash and investments at the end of June of $461 million. The company is paying cash of $225 million for the pending Ticketfly acquisition. This settlement could take the balance down another $60 million, with questions about potential incremental cash burn next year,” the report explained further.

In addition, Crockett expressed concern regarding the possibility that Pandora Media might need to undertake a capital raise for global label deals following the CRB ruling.