That's correct, Pandora pays SoundExchange the statutory Interactive Streaming rate for the sound recording rights. SoundExchange in turn pays the appropriate rights holder. This might be an artist, directly, but often it's a record label. The labels don't like the revenue flowing through SoundExhange because the process is transparent to their artists. Which means they can't hide the money.

Pandora also pays the publishers for the performance right, separately from SoundExchange. This can be a fixed percentage of revenue. Societies like ASCAP, BMI, and SESAC generally administer the rights on behalf of the publishers.

Lastly, Pandora also pays Harry Fox Agency the statutory rate for the mechanical rights. HFA in turn pays the song writers.

Here's a good breakdown from an old and entertaining (view comments) TuneCore blog post: http://blog.tunecore.com/2012/03/the-additional-10-5-spotify...