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Shares of Pandora Media Inc. rose Monday after a group of federal lawmakers introduced a bill that could lower the royalties the online radio service pays to artists and their record labels.
THE SPARK: Jason Chaffetz, a Republican from Utah, and Jared Polis, a Democrat from Colorado, on Friday introduced a bill called the "Internet Radio Fairness Act" in Congress that could lower Pandora's costs significantly. Similar legislation was introduced in the Senate by Ron Wyden, an Oregon Democrat.
The bills would put Internet radio services such as Pandora's and Clear Channel's iHeart Radio under the same royalty-setting standard that is applied to cable and satellite radio services such as Sirius XM Radio Inc.
The current rate-setting process for online radio has been discriminatory, Chaffetz said in a statement. He maintained that the bill would "level the playing field for Internet radio services."
Pandora founder Tim Westergren said in a blog post Friday that the company pays about half of its revenue out in performance fees alone, compared to 7.5 percent for Sirius XM. "The anti-Internet bias in federal law is nothing short of absurd," he said.
The bill has the support of the National Association of Broadcasters, a powerful lobby group representing nearly 15,000 radio stations in the U.S. The NAB's support could be important, since Pandora competes with radio stations for listeners' attention. But radio stations themselves are increasingly streaming music through their own websites and are struggling to make such businesses profitable.
MusicFirst, a lobby group backed by the major recording companies, attacked the bill, saying it amounts to a "government mandated subsidy" that will "break the backs of artists."
The group said a greater inequality is in the fact that terrestrial radio stations pay nothing at all to recording artists for airplay. It again pushed for a bill that would institute such a royalty, but the bill has been stalled in Congress for years.
THE BIG PICTURE: Pandora streams music along certain genres to mobile phones and computers and generates revenue primarily through advertisements. It went public with an initial public offering of shares in June 2011 at a share price of $16.
THE ANALYSIS: Performance royalties are Pandora's single biggest cost. Any reduction in those costs could provide a significant benefit to its bottom line. It's unclear if the legislation will become a priority after the November election, however.
SHARE ACTION: Pandora shares added 48 cents, or 4.6 percent, at $10.98 in midday trading Monday. In the last 52 weeks, shares have traded between $7.83 and $15.98.