Pandora 2016 Annual Report Download - page 17

We have introduced a programmatic advertising buying solution into the market primarily for national digital display
and remnant performance advertising inventory. We intend to continue invest in our programmatic advertising buying solution
in the future.
Our integration into standard radio media-buying processes and measurement, our in-car advertising solutions and our
local advertising sales force are key elements of our strategy to expand our penetration of the radio advertising market. Our
success in executing this strategy is subject to numerous risks and uncertainties, including those described in “Risk Factors.”
Pandora Subscription and Other Revenue
Subscription and other revenue is generated primarily through the sale of Pandora One, a premium daily, monthly or
annual paid version of the Pandora service, which currently includes advertisement-free access and higher audio quality on
supported devices. Pandora One is primarily available for purchase through major app stores and through the Pandora website.
For the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014 and 2015, subscription and
other revenue accounted for 18%, 20% and 19% of our total revenue, respectively.
Ticketing Service Revenue
Ticketing service revenue is generated primarily from service and merchant processing fees generated on ticket sales
through the Ticketfly platform. Ticketfly sells tickets to fans for events on behalf of clients and charges a fee per ticket, which
generally increases as the face value of the ticket increases, or a percentage of the total convenience charge and order
processing fee, for its services at the time the ticket for an event is sold. Ticketing service revenue is recorded net of the face
value of the ticket at the time of the sale, as Ticketfly generally acts as the agent in these transactions. Ticketing service revenue
is included in our consolidated operating results from October 31, 2015, when we acquired Ticketfly, and accounted for
approximately 1% of our total revenue.
Pandora Content, Copyrights and Royalties
To secure the rights to stream music content over the internet, we must obtain licenses from, and pay royalties to,
copyright owners, or their agents, for the sound recordings that we perform, as well as the musical works embodied in each of
those sound recordings, subject to certain exclusions. These licensing and royalty arrangements strongly influence our business
operations. We stream spoken word comedy content pursuant to a federal statutory license, as described under the section
captioned "Sound Recordings" below, which in some instances we have opted to augment with direct agreements with the
licensors of such sound recordings. For spoken word comedy, the underlying literary works are not currently entitled to
eligibility for licensing by any performing rights organization ("PRO") for the United States. Rather, pursuant to industry-wide
custom and practice, this content is performed absent a specific license from any such PRO or the copyright owner of such
content.
Sound Recordings
The number of sound recordings we stream to users of the Pandora service, as generally reflected by our listener hours,
drives the vast majority of our content acquisition costs. We obtain performance rights licenses and pay performance rights
royalties for the benefit of the copyright owners of such sound recordings and the recording artists, both featured and non-
featured, on such recordings, mainly pursuant to the Digital Performance Right in Sound Recordings Act of 1995 (the "DPRA")
and the Digital Millennium Copyright Act of 1998 (the "DMCA"). Under federal statutory licenses created by the DPRA and
the DMCA, we are permitted to stream any lawfully released sound recordings and to make reproductions of these recordings
on our computer servers, without having to separately negotiate and obtain direct licenses with each individual sound recording
copyright owner. These statutory licenses are granted to us on the condition that we operate in compliance with the rules of the
statutory licenses and pay the applicable royalty rates to SoundExchange, the non-profit organization designated by the
Copyright Royalty Board (the “CRB”), a tribunal established within the U.S. Library of Congress, to collect and distribute
royalties under these statutory licenses.
The rates we pay pursuant to the federal statutory licenses can be established by either negotiation or through a rate
proceeding conducted by the CRB. In 2009, certain webcasters reached a settlement agreement with SoundExchange
establishing alternative rates and rate structures to those eventually established by the CRB for services not qualifying for the
settlement rates. This settlement agreement is commonly known as the "Pureplay Settlement" and it established rates at the
greater of the per-performance royalty rate or 25% of revenue applied through the end of 2015. We have elected since 2009 to
avail ourselves of the Pureplay Settlement. On December 16, 2015, the CRB announced the new per performance rates that
apply for commercial webcasters for calendar years 2016 through 2020 (the “Web IV Proceedings”). Effective January 1, 2016,
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