Pandora faces FCC setback in bid for South Dakota FM radio station

The Federal Communications Commission has temporarily shot down online music service Pandora’s(s p) bid to take over  a terrestrial radio station after finding the company’s application did not overcome foreign ownership hurdles.

As Billboard reports, the FCC has sent Pandora a letter saying it has stopped processing its application because the company failed to demonstrate that enough of its shareholders are American (agency rules limit foreign nationals’ ownership of radio and TV stations).

The FCC decision for now halts Pandora’s quest to take over KXMZ-FM in Box Elder, South Dakota. The small town radio station, which plays “today’s best hits,” has become an improbable flashpoint between Pandora and music licensing agency ASCAP, which is urging the FCC to reject the application.

Pandora, which reaches around 70 million listeners over the internet, is seeking to buy the station as part of a publicity campaign to call attention to unequal rules that result in traditional AM/FM radio stations paying lower royalty rates when they play a song. The discrepancy arises in part because online services like Pandora and Spotify have to pay “performance rights” in addition to songwriter royalties.

While the radio station’s fate is in limbo for now, Pandora and ASCAP will go before a federal judge in New York this month to argue the royalty rate issue.

The issue is contentious as some musicians argue that online music services are gouging musicians. Pandora and Spotify have shot back that they pay far more in royalties as a percentage of their revenues than do traditional music providers.