You might think that the biggest threat to Pandora right now is the just-announced iRadio, but Apple's upcoming music service isn't nearly as dangerous to Pandora's bottom line as record companies are. Pandora has been caught in a long and protracted battle to ensure that it can continue to get access to music rights for what it considers a fair price. Unlike Spotify or Rdio, Pandora licenses music under an internet radio licensing structure, but apparently even that isn't working out. So as it fights a legal battle on one front, Pandora is trying a bold flanking maneuver: it's buying a terrestrial FM radio station in order to secure its music licenses.
Pandora is trying a bold flanking maneuver
Pandora alleges that the American Society of Composers, Authors, and Publishers (ASCAP) is trying to derail its business by letting artists selectively back out from licensing songs. It has tried — and failed — to enact licensing changes in congress. So now Pandora has a pending case against ASCAP and will be filing a motion alleging that "ASCAP has violated the terms of its antitrust consent decree with the Department of Justice."
But while that case is ongoing, Pandora evidently feels that it could run into trouble and so it's buying an FM radio station in Rapid City, SD: KXMZ-FM. As Pandora's general assistant counsel, Christopher Harrison, puts it, ASCAP and BMI have given preferential treatment to terrestrial stations, so acquiring one gives Pandora access to those same, broader terms. It will broadcast in Rapid City, yes, but it will also theoretically get the same deals that competitors like Clear Channel's iHeartRadio get.
It could work for Pandora, but the company still faces a big fight from music publishers. The National Association of Music Publishers says that Pandora pays too little. More importantly, these companies have successfully managed to negotiate direct deals with Apple, Spotify, and others and want to do the same with Pandora, presumably leading to higher rates.