* 125 musicians sign open letter opposing bill
* Allege that Pandora-backed bill cuts royalties 85 pct
* Letter to run in Billboard this weekend
* Internet radio, artists "all in this together" -Pandora
Nov 14 (Reuters) - Some of music's most notable names including Billy Joel, Rihanna and Missy Elliott have signed an open letter to Pandora Media Inc opposing the online music company's push to change how artists are compensated.
Pandora is currently lobbying lawmakers in U.S. Congress to pass the "Internet Radio Fairness Act," which would change regulation of how royalties are paid to artists.
A group of 125 musicians who say they are fans of Pandora argue the bill would cut by 85 percent the amount of money an artist receives when his or her songs are played over the Internet.
"Why is the company asking Congress once again to step in and gut the royalties that thousands of musicians rely upon? That's not fair and that's not how partners work together," said the letter, to be published this weekend in Billboard, the influential music industry magazine.
A statement with an advance copy of the letter was released on Wednesday by musicFirst, a coalition of musicians and business people, and SoundExchange, a nonprofit organization that collects royalties set by Congress on behalf of musicians.
"Internet radio and the artists whose music is played and listened to on the Internet are indeed all in this together," Tim Westergren, Pandora's founder and chief strategy officer, said in a statement.
"A sustainable Internet radio industry will benefit all artists, big and small."
The issue of how musicians are paid for Internet streaming of their songs has been a flashpoint for Pandora.
Pandora is a mostly advertising-supported online music company, founded more than a decade ago, that streams songs through the Internet. In October, it said its share of total U.S. radio listening was almost 7 percent, up from about 4 percent during the same period last year.
Pandora's success has been double-edged - the more customers it gains, the more money it has to pay overall for rights to stream music.
So far, that rate is set until 2015.
Pandora, along with other music services such as Clear Channel Communications, is supporting the bill on grounds that different providers, such as satellite and cable, pay different rates.
"The current law penalizes new media and is astonishingly unfair to Internet radio," Pandora said on its website.
"We are asking for our listeners' support to help end the discrimination against internet radio. It's time for Congress to stop picking winners, level the playing field and establish a technology-neutral standard."
The Internet Radio Fairness Act is a bipartisan bill sponsored by U.S. representatives Jason Chaffetz and Jared Polis along with Sen. Ron Wyden.
Shares of Pandora closed 4.6 percent lower at $7.31 on the New York Stock Exchange on Wednesday.