This article was published 9 years ago

Why Pandora bought a radio station in South Dakota

downtown Rapid City South Daokota
Downtown Rapid City, South Daokota – Image credit: Flickr / Joe Wolf

Pandora announced in June 2013 that it was buying Connoisseur Media KXMZ-FM Rapid City, South Dakota for $600,000. The FCC approved the sale yesterday. Why Pandora bought the station was not to compete with iHeart or CBS radio but how much it pays music licenses.

Per the New York Times:

In June 2013, when Pandora, an Internet radio service, reached a $600,000 deal to buy KXMZ-FM in Rapid City, S.D., the company said that owning a terrestrial station would give it access to industry deals for cheaper songwriting royalties. Pandora, which competes with radio stations for listeners and advertising, has long complained that it pays much more in total royalties than radio stations do.

The reason Pandora pays much higher music fees than radio stations is because radio stations don’t have to pay a performance-fee to copyright holders. Music streaming services like Pandora and Rdio as well as SiriusXM satellite radio have to not only pay fees to copyright holders through groups that represent them like ASCAP (American Society of Composers, Authors and Publishers), Broadcast Music (BMI) and Society of European Stage Authors and Composers (SESAC) but also a performance-fee.

Radio broadcast groups are exempt from the performance-fee. A House bill is currently being debated “Fair Play Fair Pay Act” would change the copyright law and add radio stations to pay a performance-fee for songs played on the air. Will it succeed? Keep this in mind: This is the third attempt.

The next battle will be in the courts. Groups representing copyright holders do not want Pandora getting a break on their music licensing fees. If Pandora prevails, others will follow suit.