Pandora, the top Internet radio brand -- really the YouTube of Internet radio -- and the top free app for the iPhone in 2008 has struck an ad sales deal with Clear Channel, according to AdAge:

Clear Channel's radio ad sales rep firm, Katz Media Group, will start selling display and audio ads for Pandora through its Katz 360 digital sales group

Pandora comes to Katz 360 with a fledgling display-ad business that just introduced audio inventory in late 2008, yielding a total $18 million in 2008, or 95% of the company's revenue. Doug Stern, Pandora's director-audio sales, expected that total to double by the end of 2009 before the Katz 360 deal, and is now even more optimistic that Pandora will fit into advertisers' mind-set as often as it does listeners.

To date, Pandora has been using Google on its iPhone app to monetize inventory with AdSense banners. Apparently there are occasional audio ads that appear on Pandora, but I've never encountered one.

I'm a daily (and heavy) user of Pandora but, as I said to founder Tim Westergren at the EconSM show earlier this year: the minute I start hearing audio ads interrupting the music I'm gone.

Pandora has spoken in the past about a subscription offering (for its heaviest users). Audio ads could be part of a dual strategy to monetize inventory but also to drive those (like me) who listen to Pandora, in part because there are no ads, to a subscription offering. 

We'll see how it plays out but there's danger in injecting conventional audio advertising into Pandora and alienating its audience -- or at least me.

Pandora, which owes its success in large measure to its iPhone app, has now become a clear (channel) acquisition target.