Why Pandora Shares Are Going Crazy

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Music listening service Pandora saw a dramatic dip and then a dramatic 22% spike in after-hours trading Wednesday, as investors were reading the tea leaves and then learned of the royalty rate decision.

Investors had been waiting all year for the Copyright Royalty Board’s decision, which determines how much Pandora and other digital radio services, including iHeartRadio, will be paying artists for the next five years. They settled on 17 cents per 100 song plays for non-subscribers, up from 14 cents for every 100 songs. The rate is 22 cents for every 100 songs played by subscribers.

“This is a balanced rate that we can work with and grow from. The new rate structure will enable continued investment by Pandora to drive forward a thriving and vibrant future for music,” said Brian McAndrews, chief executive officer of Pandora, in a statement. “Working collaboratively with partners across the music industry is a top priority as we connect listeners with music they love, and artists with their audience.”

While this will be more expensive for the unprofitable company, Pandora investors were bracing for a worst-case scenario, which is why the shares are trading up on the news. Some in the music industry had been asking for at least 25 cents for every 100 songs.

Unlike Spotify and Apple Music which negotiate with record labels directly, Pandora  is subject to a flat fee across the board because it is considered a radio service.

The new rates will go into effect on January 1st.

Developing story…stay tuned for updates.