Pandora bought a tiny terrestrial radio station called KXMZ-FM only yesterday, but already Broadcast Music Inc. has filed a lawsuit alleging that the deal is an abuse of performance-rights licenses owned by the online streaming music service. It demands the court sets fair royalty rates for Pandora to pay.
Pandora says the performing-rights society charges exorbitantly high royalty rates for its online music. Purchasing the small South Dakota radio station was Pandora's attempt to sidestep its high royalty rates because it became, in effect, a traditional radio provider with the traditional (cheaper) royalty structure. This is what has irritated BMI, which says it is merely "asking the Federal Rate Court to set royalty fees for Internet radio service Pandora on behalf of the organization’s 600,000 songwriters, composers, and music publishers."
Royalty rates issues were reportedly behind many delays in the arrival of Apple's newly announced iTunes Radio service. The company had allegedly been pressing for lower royalty rates than rival services, and finding the music industry inflexible on the matter.