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Why Pandora bought a radio station in South Dakota

The music-streaming company Pandora has bought a small radio station in South Dakota. Owning a radio station could allow Pandora to pay smaller royalties that apply to... radio stations.

The biggest name in Internet radio is buying an FM station. Pandora says the move will help the company get its content at a lower cost, but music publishers are crying foul.

If the FCC signs off on the sale, Pandora will be the proud owner of KXMZ-FM in Rapid City, S.D., and save about 1 percent of its revenue on music publishing rights.

Music industry veteran Larry Miller says Pandora is buying the station to make a point without breaking the law. “This is the latest volley in what is likely to be very long match.”

Terrestrial radio stations and their owners pay lower royalty rates. That includes Pandora’s rival Clear Channel Communications, which owns 1,200 radio stations in the U.S., as well as the online service Iheartradio.com.

Pandora says it’s not fair for Clear Channel to get a better royalty rate for both. The American Society of Composers, Authors and Publishers (ASCAP) sets license fees and pays out royalties. 

The group’s president Paul Williams says it’s the artists who are getting the raw deal. “The purchase of this radio station was clearly a stunt, a device to find a way to not fairly pay songwriters and composers who deserve to be paid for their work,” Williams explains.

With the business models in music broadcasting changing so quickly, there’s no royalty structure yet that works for everyone’s bottom line, according to Chris Bavitz, with Harvard Law School’s Berkman Center for Internet and Society.

“It’s hard to imagine that we’re going to get to a one size fits all music royalty rate for musical compositions,” Bavitz says. Until then Pandora is getting into the FM radio business.

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