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How Apple's iRadio Could Pose a Problem for Pandora

Stocks in this article: AAPL P

Like Spotify, Apple negotiated, and is negotiating, direct deals with the music industry. If published reports are true and the negotiations play out as expected, Apple will be paying more for music across the board than Pandora does.

But, remember, Pandora pays the compulsory rate. That's the route it chose to go. Relative to companies that do direct deals, Pandora actually has a sweet deal, just not in comparison to broadcast, satellite and cable.

There's no question, however, that with Apple willing to pay more than Pandora does (it is interesting to see Apple in a position where it must concede at least a little) it puts Pandora in a tough spot as it makes an argument for a more equitable payment structure. It still has a strong case when it compares itself to broadcast, satellite and cable, but a much weaker one next to much of the rest of Internet radio, which pays more than Pandora.

But again, don't lose sight of the distinction between the various methods of paying royalties, particularly compulsory vs. direct licensing. The industry might require a fundamental overhaul of this somewhat convoluted structure.

But, despite rhetoric over royalties, the music industry doesn't hate Pandora. It still cuts deals with the company. Consider, most recently, Pandora Premieres, which provides listeners early, full-length access to new albums one week before their official release.

However it plays out, expect Pandora to continue to grow as a key partner for the music industry, for major names as well as local/indie acts. That's an often overlooked key to success in the digital age of music . . . striking a balance between disruption of and partnership with the music industrial complex.

With or without Apple, Pandora has major plans to do more of both -- disrupt and partner -- as it enters the next phase of its maturation as a company. That could mean more revenue, a lead role in righting some of the music industry's wrongs, more records sold, more concert tickets purchased and an even stronger bond between music listener and the diverse mix of Internet radio platforms that Apple will most likely only make richer.

-- Written by Rocco Pendola in Santa Monica, Calif.

Rocco Pendola is TheStreet's Director of Social Media. Pendola's daily contributions to TheStreet frequently appear on CNBC and at various top online properties, such as Forbes.
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