The arcane system by which songwriters, publishers and other rights-holders get compensated when their music is played on the radio in the United States is complicated enough, with quasi-governmental bodies that decide how many pennies each instance will cost, and so on. But at least the fees that are charged aren’t so high that they threaten to make it uneconomic to run a radio station (not yet). Internet radio, by contrast, is almost at that point, according to Tim Westergren, the founder of Pandora (and a former musician), one of the leading Internet streaming-audio services — and one I used to enjoy using until it was forced to cut off access to users outside of the United States.

This danger, which Westergren describes in the Washington Post story linked above, isn’t new. The Pandora founder was warning about it in interviews over a year ago, and so were other Internet audio players. The freight train that is currently bearing down on Pandora and similar services got underway more than six years ago, and since then there has been much frantic lobbying by both sides. Finally, last year, a federal agency boosted the rate that Internet radio stations have to pay — it has already doubled, and by 2010 will have tripled. Westergren says the licensing fees that Pandora has to pay this year will consume about 70 per cent of the company’s revenues of about $25-million.

As many people have pointed out — including Doc Searls, who posted a good overview last year — the music industry clearly sees Internet radio as an opportunity to institute fees that it hasn’t been able to get from regular radio stations (although outside of the United States, payments to artists based on radio play are fairly common). Not surprisingly, the industry has been trying to change that state of affairs as well, in many cases using the Internet radio decisions for leverage, and even going so far as to argue that radio airplay is a “form of piracy.”

Obviously, some of what Westergren is saying — and has been saying for the past year or more — is designed to put pressure on the music industry and get it to agree to lower royalty rates, something the Washington Post says is being promoted by at least one congressman. But all hyperbole and spin aside, if those rates don’t get reduced there appears to be a very real chance that services like Pandora may cease to exist, and I think that would leave us all a little poorer as a result — and not just music listeners, but musicians as well.

It’s nice to think of the Internet as a place without borders — in other words, without all the walls and boundaries and checkpoints that we’re used to in the “real” world. Unfortunately, that’s just not the way it is, and the Pandora music-sharing site is only the latest example. The thing I find most surprising about Pandora isn’t that it is being forced to put its content in a box, it’s that the company has been able to remain unboxed for so long.

Content owners and rights-holders of all kinds use IP sniffing to block users from different countries (and of course countries like China use similar means to block foreign content that might unduly influence the local populace). As a Canadian, I’m well acquainted with this practice, since it is the same process that prevents me from watching episodes of Heroes on the NBC site if I forget to have my PVR record it, or blocks me from watching clips from Saturday Night Live and other shows. Why? Because Canadian broadcasters make their living by licensing those shows, and they don’t like to think about people watching them on the Interweb any old time they want.

As Tom Conrad of Pandora points out in the comments section of Mike Arrington’s post at TechCrunch, it’s not enough to do deals with groups like Canada’s SOCAN — which handles rights for composers and “publishers.” Sites that are considered to be Internet radio like Pandora have to sign deals with the record labels as well, and that is where the sticking point lies. As Mike Masnick notes at Techdirt, the record industry could teach advanced classes in how to shoot yourself in the foot.

And Mark is quite right that this isn’t the only fight that Pandora and Last.fm have on their plate: there’s also the ongoing battle over the new fees for streaming Internet radio, about which there is more info at the Broadcast Law blog (thanks to Lucas Gonze for the link). If you want to get involved somehow, check out the Save Internet Radio site.

Like many other music lovers who are also Web-heads, I’ve tried — and like — Pandora, the “collaborative filter” for music that was profiled in this past weekend’s New York Times, although I also quite like Last.fm, which some believe is a better service for finding new music. But the thing that struck me about the NYT piece on Pandora wasn’t anything about the service itself, or even the story really. It covered the usual info about how thousands of songs have been categorized according to their music “DNA.”

It’s quite a cool product (Cynthia Brumfield at IPDemocracy writes about it here and O’Reilly has more info here). But what really struck me was the picture that ran with it:

Two rows of people, crammed in fairly tightly, each sitting in front of a monitor and keyboard, with headphones on. Is it just me, or does this photo look a bit like a digital sweatshop? I know the lede of the story — all about cool bass player Seth Ford-Young (he’s played with Tom Waits!) and how he is one of the “New Tastemakers” — makes it sound as hip as anything, but to me it looks like a call center in Mumbai somewhere, except everyone is listening to music instead of providing tech support for Dell or whatever.

Don’t get me wrong, I think the service is great, and I’m sure listening to music is better than doing call-center work, but damn — is that Web 2.0? We need to get better collaborative filters, so those poor people can go outside.