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Aug 18 2008 3:27PM EDT

Pandora: Requiem For Internet Radio?

Sam Gustin asks: Is internet radio doomed?

Pandora, the wildly popular internet radio service, is sounding the alarm of its impending demise. In an interview with the Washington Post, founder Tim Westergren said his company is "approaching a pull-the-plug kind of decision."

Last year, the Copyright Review Board more than doubled the per-song royalty fees that Web radio broadcasters must pay to industry group SoundExchange, which represents many artists and record companies. Satellite radio broadcasters pay much less than that, while terrestrial radio stations pay nothing at all.

Shortly after hearing the news, Westergren said he thought, "We're dead." Westergen said Pandora will pay royalty fees this year equal to 70 percent of its anticipated revenue of $25 million.

According the Post, Rep. Howard L. Berman, a California Democrat, is trying to hammer out a deal between SoundExchange and internet radio companies, but he didn't sound optimistic.

"Most of the rate issues have not been resolved," Berman said. "If it doesn't get much more dramatic quickly, I will extricate myself from the process."

For his part, Westergren said he can't imagine that investors would be interested in funding companies that must operate under such an onerous royalty structure.

"We're funded by venture capital," he said. "They're not going to chase a company whose business model has been broken. So if it doesn't feel like its headed towards a solution, we're done."

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