According to The Washington Post, the popular web radio service Pandora is on the verge of shutting down because of recent increases in royalty fees paid to SoundExchange, a company that takes care of artists and record companies in royalty negotiations. Radios don’t usually pay performance royalties but SoundExchange is striving to change that.

Pandora is particularly related to Apple due to their release of the iPhone music application called Pandora Radio. It is the 7th most popular application on Apple's iTunes store and it attracts 40,000 new customers a day. The best thing about it is the fact that a listener can create a station according to his own personal tastes. That’s the reason why thousands of songs are played simultaneously.

The troubles faced by Pandora reflect the constant tension between music producers and internet companies, which since the advent of music sharing site Napster 10 years ago have used digital technology to distribute music without reimbursing music companies.

A year ago Web radio stations were forced by a federal panel to pay double than before to performers and record companies.

Pandora currently makes money through web-based advertising only. "We're funded by venture capital. They're not going to chase a company whose business model has been broken," founder Tim Westergren told the Washington Post.

Internet radio companies pay around 6-7 percent of revenue: roughly 1.6 cents per hour per listener. But they are now asked to pay 2.91 cents an hour per listener. As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren also explained.

Pandora has more than 1 million daily listeners being one of the nation's most popular Web radio services. Pandora uses a proprietary system called the Genome Sound Project, to identify music that users might like according to the song and band preferences they input.

"Our artists and copyright owners deserve to be fairly compensated for the blood and sweat that forms the core product of these businesses," said Mike Huppe, general counsel for SoundExchange.

According to the Washington Post, Congressman Howard L Berman is trying to broker a last-minute deal between webcasters and SoundExchange but the two sides appear to be far apart.

"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."