Spotify told Bloomberg it has “no announcements to share at this time,” but:

The new format would be similar to Pandora’s, which operates like radio and is cheaper to operate because royalty rates are lower and set by Congress.

The new service would start by year-end and be supported by advertising, said the people, who weren’t authorized to talk publicly. The company has begun notifying some content partners of its plans, they said.

In the most recent figures released, Spotify said it has 10 million registered users worldwide and three million paying subscribers. Pandora has 150 million registered users.

Spotify already offers a radio feature on its desktop app, but it is not mobile yet.

Bloomberg explains Pandora users “have access to any artist whose music has been published, because the service operates under federal rules. Royalties paid by Pandora and other online radio companies are set by the Copyright Royalty Board, a division of the Library of Congress.” So a radio service would allow Spotify to offer some music it doesn’t have the rights to already, and could also pull needed advertisers to the platform.

DAR.fm, which launched yesterday, offers users access to 600 radio stations and thousands of shows. A standard DAR.fm account gives a user two gigabytes of storage, which Robertson says can hold up to 100 hours of internet-radio programming. That’s because internet radio streams typically stream at a lower sound quality than MP3′s that are downloaded from iTunes or another source.

The service is both cost-free and ad-free for now; further down the road, Robertson says he’ll think about how to make money off the service, and says advertising is likely to be a key part of that.

There are other services that record internet radio, such as Radioshift. Robertson is hoping his service will have an advantage by storing music in the cloud, and offering support for a wide array of home and mobile devices.

“We’re excited about it because we think it modernizes radio, which really hasn’t changed in 100 years. This makes radio on-demand and interactive.”

Robertson’s last project cloud-based music projects-storage service MP3tunes.com, and MP3 search engine Sideload.com-were accused of violation copyright law by the EMI record label back in 2007. The case was argued in January and a decision in that case could come any day now.

He first acquired fame in the online music space by creating MP3.com, one of the first cloud-based music services. That company had to shut down after litigation brought by Universal Music Group. His chances of winning the current case are greatly improved, however; the legal landscape in this area has changed, especially after court victories by both YouTube and Veoh. Today, Google (NSDQ: GOOG), Microsoft (NSDQ: MSFT), and Apple (NSDQ: AAPL) all offer ways to store music files in the cloud as well.