"This is a purely economic issue," Parks Associates analyst Harry Wang told the E-Commerce Times. "You have this top-line growth in terms of service. Pandora monetizes by advertising, and a small portion that comes from subscription. The business has been growing over the past few years."

Competition has been building in the streaming music space. Just this week, Apple announced its new iTunes Radio service.

"Pandora is trying to lower the cost very cunningly by acquiring a terrestrial radio station, and can enjoy a different set of rules," said Wang.

Royalty rates differ based on the way music is delivered.

Even among streaming Internet services, different rates may apply.

"Everyone pays a different rate, and everyone tries to lower the rate," said Parks' Wang, noting that Google pays an even higher rate than Pandora for its on-demand music service.

If Pandora's acquisition of KXMZ-FM is approved by the FTC, it will open the door for all kinds of questions going forward, suggested Parks' Wang.

"It definitely muddies the water a lot if Pandora prevails in this case," he said.

From the article, "Pandora Fights Fees with Terrestrial Acquisition" by Enid Burns.

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