Pandora competes with local radio only if you think that local radio is ONLY music. That's never been true.
Pandora is more of a replacement for MP3 players, bypassing the downloading and playlist-making that most people saw as a chore. And, it's free for most users, making a wider range of music available than most people would purchase, while assuaging their guilt over stealing music.
Radio is still the easiest way to listen to moderated content. If that content is properly targeted toward local listeners, and offers enough value added elements to overcome the annoyances of badly produced spots, it attracts many times the listening audience of Pandora, iHeart "radio", satellite, or any combination of the three.
What owners need to do is play to the strengths of radio - local, timely, well-moderated content targeted at local users. Trying to out-jukebox MP3s or Pandora is a fools errand. Since 93% of people sample radio, the key is to give them what they can't get elsewhere. That model has worked since the 1920s. The new reality isn't really that much different from the reality that existed with vinyl, cassettes, CDs, and MP3s. What's changed is the corporate will to invest in their product, and the recognition of the strengths of their medium. By and large, CBS is doing it well. Clear Channel, Cumulus, and several others are doing it poorly.
Lastly, the only advantage to utilizing other delivery systems is if you're delivering content unavailable elsewhere. That means you STILL have to invest in programming, and in sales in order to turn listening into dollars. CC and its imitators are doing a poor job of that, too.