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Pandora scores follow-up hit with BMG license deal

Direct pact with BMG, which manages royalty rights for stars like Beyonce, comes soon after its first deal with labels, another sign the music industry is picking up Pandora's good vibrations.

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Pandora sealed its second direct deal with a music-rights manager. Joan E. Solsman/CNET

Fresh off its first direct deal with music labels, online radio service Pandora has sealed another licensing agreement, this time with BMG, a music-rights manager for megastars.

Pandora shares were up 2.2 percent at $26.66 on the news Thursday, earlier rising as much as 5.3 percent. Financial terms of the deal were not disclosed, but investors are heartened by any moves to bring Pandora's licensing costs under steadier control.

Royalties are Pandora's biggest cost by far, and the company has traditionally paid licensing rates set by a panel of judges every five years. Solidfiying direct deals with rights holders and managers not only gives Pandora more certainty about its costs but also warms its relations with the music industry, after years of adversarial standoffs.

Thursday, Pandora said its multiyear agreement covered US licenses for BMG's complete catalog of musical works that are paid through BMI and ASCAP, the two biggest organizations that track down the plays of songs on services like Pandora and collect and distribute the fees for that listening. BMG represents songwriters such as Adele, Beyoncé, Jay-Z, One Direction, Rihanna, Bruno Mars and will.i.am.

Mike Herring, the chief financial officer of Pandora, said talks with BMG for the deal started in earnest about 7 months ago, after some dark clouds over the two sides cleared following a court ruling.

"The perspective was 'Isn't there a better way than to keep suing each other?'" he told CNET News, on the sidelines of a Goldman Sachs media investor conference in New York.

The deal comes a year after Pandora won a favorable court ruling on the issue. A federal court in New York said Pandora had the right to play all of the songs in the ASCAP library, after publishers like BMG attempted to remove their online licensing rights from ASCAP as a way to negotiate directly with Internet radio services such as Pandora.

With Thursday's deal, Pandora gives BMG the type of direct deal it was angling for all along.

The agreement also comes a month after Pandora signed its first direct deal with music labels through Merlin, a group representing more than 20,000 independent labels worldwide. The Merlin partnership and the BMG deal suggest warming ties between Pandora and the music industry, after years of fractious interactions with artists small and large.

"I'd like to think that's the beginning of a new relationship with Pandora and the music industry generally," Herring said Thursday at the conference.