Before it was made illegal, music companies used to pay Radio Stations in order to get their music on the air!

When Pandora/etc argue that it adds popularity to music, they aren't lying- You can see this effect in the national music sales numbers-

Music used to be primarily local- A DJ in a regional market would start playing songs, and they'd catch on in that area. You can track songs such as Louie Louie, which started on the west coast and moved east.

Terrestrial radio stations in the States don't have to pay performance fees in the United States - essentially, a fee to the record label that owns the recording of a song. Say, Whitney Houston's version of _I Will Always Love You_. In all other countries, they do. U.S. radio still has to pay a "mechanical" fee to the songwriter - in this case, Dolly Parton, who originally wrote the song. (ASCAP or BMI probably handles this on Dolly's behalf, as they do for the vast majority of songwriters.)

The fact that U.S. radio doesn't have to pay performance fees is an accident of history. There is a bill in Congress that would make terrestrial radio pay performance fees. (Satellite radio has to pay, so it's not really a "we hate the internet" thing.) In Chicago, there's a radio PSA every half hour asking listeners to call their Congressperson to express their concern against it.