Pandora: striking the right note Music downloads are dying; long live the streaming king. What about the royalties, though? In the US, providers of on-demand streaming - where users can pick each song they hear - pay higher royalties than more radio-like services, in which users only pick a genre. That favours Pandora, which sits in the latter category, versus Spotify and Beats. But the royalty rates that Pandora pays expire at the end of 2015. New ones will be determined by the Copyright Royalty Board next year. The ruling could radically affect Pandora's business model. This uncertainty has weighed on Pandora's share price: it has nearly halved from a peak in March. The problem is one of definitions. Music rights holders argue that highly personalised online radio is pretty similar to on-demand streaming. Thus, the royalties from both services should be comparable. Pandora says the two services are different: its users cannot choose the songs they hear. The CRB's mandate is to determine what a fair market price for the royalties would be. That is tricky, given the pricing power of the big labels and the scarcity of previous deals to use as benchmarks. Pandora pays roughly half of its revenues out to rights holders. If the CRB's rates are close to those proposed by the music industry, this could rise to two-thirds, pushing Pandora into the red in 2016, according to calculations by Nomura. At the other end of the spectrum, if the rates are closer to those proposed by terrestrial radio broadcaster iHeartMedia, Pandora's payments could drop to 12 per cent of revenues in 2016. The most likely outcome is somewhere in between: if Pandora's own proposal is adopted, its royalty payments would fall to one-third of revenues. Pandora's enterprise value is three times forward revenues, which is low compared to the likes of Twitter, Facebook and Google; for a company whose business model lies in the hands of three judges, the discount is merited.