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Pandora has to pay higher royalties starting in 2016

The music industry, however, wants more.
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Pandora and similar services like iHeartRadio and SiriusXM will have to give a bigger part of their earnings to music labels starting January 1st next year. The Copyright Royalty Board has ruled that online radio stations have to pay labels 17 cents per 100 song plays by non-subscribers and 22 cents per 100 plays by subscribers. Pandora's rate used to begin at 14 cents per 100 plays, and even then it was never profitable -- in fact, it had to pay over $400 million in royalties in 2014, which was already 44 percent of its revenue.

Pandora's chief executive Brian McAndrews seems to be OK with the price increase, though. In a statement, he said: "This is a balanced rate that we can work with and grow from. This decision provides much-needed certainty for both Pandora and the music industry." The ones who sound unhappy with the decision are the music labels, which wanted a much, much higher royalty hike.

Record label representative SoundExchange was pushing for a heftier 25 cents per 100 song plays, causing Pandora investors to panic. The company's stocks plummeted before the Royalty Board's decision came out, and then it rose by 22 percent during after-hours trading. SoundExchange's spokesperson told The New York Times: "It's only fair that artists and record labels receive a market price when their music is used. We believe the rates set by the C.R.B. do not reflect a market price for music and will erode the value of music in our economy." The group says it will review the decision and consider its options, which means it'll likely continue to demand a higher royalty rate. Hopefully, that doesn't translate to more expensive monthly fees for Pandora One in the future.

[Image credit: Denise Truscello/Getty Images for Pandora Media]

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