FCC approves Pandora’s acquisition of South Dakota radio station

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The logo of streaming music service Pandora. (Image: Pandora Media/supplied)

The logo of streaming music service Pandora. (Image: Pandora Media/supplied)

The Federal Communications Commission (FCC) has given regulatory approval for Pandora Media, operators of the widely-popular streaming music service, to acquire a radio station in South Dakota.

The decision, which was handed down by the FCC Monday evening, came three years after Pandora sought to acquire Rapid City-based pop station KXMZ as a way of lowering the company’s licensing obligations to royalty managers ASCAP and BMI.

The FCC’s decision was delayed after the agency determined Pandora to be a foreign-owned company because the streaming music operator failed to supply adequate evidence that at least 75 percent of its company was owned by American citizens. Federal regulation forbids a “foreign government or its representative” from possession a radio license in the U.S.

In its 2014 application for KXMZ’s license, the California-based Pandora submitted mailing addresses for some of its owners, which the FCC determined was not enough for Pandora to meet its requirement under the domestic ownership rule. Pandora, a publicly-traded company, later told the FCC it could not definitively comply with the agency’s requirement regarding domestic ownership due to Securities and Exchange Commission privacy regulations. Pandora requested the FCC ease its ownership rule by raising the cap on foreign owners to 49.99 percent, a proposal the agency later denied.

On Monday, the FCC granted Pandora a waiver under federal foreign ownership rules, something that had been widely objected to by ASCAP and other royalty managers.

Pandora has been aggressive about acquiring KXMZ in order to qualify for lower payment rates to ASCAP, BMI and others. Currently, performance rights organizations like like ASCAP and BMI set a royalty rate for streaming music services and an entirely different rate for over-the-air broadcasters who also stream online.

Pandora currently pays ASCAP 1.85 percent of its gross revenue in order to legally stream music to its customers. As an over-the-air broadcaster, Pandora would be eligible to pay ASCAP a lower royalty rate of 1.7 percent.

This logic was cited by ASCAP when it asked the FCC to block Pandora’s acquisition of KXMZ’s license. But the FCC rejected ASCAP’s argument, saying Pandora’s business logic for KXMZ’s license was irrelevant to the agency determining whether the company qualified for a foreign ownership waiver.

In a statement released on Tuesday, Pandora’s director of public affairs David Grimaldi said the acquisition of KXMZ made sense “beyond the licensing parity alone,” noting that it would allow Pandora to qualify for other incentives given to over-the-air broadcasters under various radio licensing agreements that it otherwise wouldn’t qualify for as a standalone streaming service.

ASCAP told the music magazine Billboard that Pandora’s acquisition of KXMZ’s license was “a transparent ploy squarely aimed at paying songwriters even less for online music streams.” The performance rights organization said it would be considering what “other steps” it can now take in light of the FCC’s decision.

Pandora agreed to purchase KXMZ away from current owners Connoisseur Media for $600,000. Under Pandora’s ownership, the company says it will re-format the station to play songs based on the listening habits of 40,000 Pandora users in the Rapid City market.

Pandora’s stock closed up two cents to $17.90 a share on Tuesday.

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