US webcasters will face sharp rises in royalty fees that could be "fatal" to the nascent industry, a coalition of web broadcasters has claimed.
Some believe the decision could be the end of US web radio
The increases will start on 15 May and will eventually charge royalties every time an online listener hears a song.
The decision to impose the fees was made by a panel of judges who threw out requests to overturn an earlier ruling.
Public and commercial broadcasters claim it will force cuts to services used by an estimated 50 million people.
"If these rates stand... I believe we'll see a virtual shutdown all of US webcasting," wrote Kurt Hanson, CEO of AccuRadio, on the SaveInternetRadio.org blog.
"That will be bad for listeners, webcasters, musicians, and the record industry alike."
But SoundExchange, the not for profit group which will collect the fees on behalf of labels and artists, welcomed the decision.
"Our artists and labels look forward to working with the Internet Radio industry - large and small, commercial and non-commercial - so that together we can ensure it succeeds as a place where great music is available to music lovers of all genres," said John Simson, executive director of the group.
The decision to increase fees was made by the Copyright Royalty Board (CRB) which reviewed an earlier decision to increase royalty fees collected from web broadcasters.
A broad coalition of internet broadcaster, headed by the US broadcaster National Public Radio (NPR) and including Yahoo and AOL, objected to the increases.
Online radio stations offer hundreds of music choices
But the copyright judges on the board said that they had not shown any new evidence which would influence their original decision.
The CRB wrote: "Most of the parties' arguments in support of a rehearing or reconsideration merely restate arguments that were made or evidence that was presented during the proceeding."
The new fees, which will apply until 2010, will charge a flat fee per-song, per-user in addition to a $500 fee for every channel owned by a station. Fees will increase every year until 2010.
Radio stations with multiple channels, such as NPR, would be charged thousands of dollars, which they claim will cripple them.
Previously, stations paid an annual fee plus 12% of their profits.
The fees will start on 15 May 2007 and will be collected retrospectively for 2006. Webcasters will be allowed to calculate retrospective payments by averaging listening hours.
Kim Roberts Hedgpeth of the American Federation of Television and Radio Artists (AFTRA) said the new payments rewarded the "creativity, talent and hard work" of musicians.
"Internet radio is growing and successful because fans want to listen to the music created by artists. The CRB's decision recognises that, as these businesses grow, both featured and non-featured artists should be compensated at fair market rates for their contributions to the growth of these companies."
But many web broadcasters attacked the decision saying that the new fees would force them into bankruptcy.
AccuRadio.com said that in 2005 they paid 5% of their revenues to songwriters and the 12% required by SoundExchange.
UK web broadcasters have also attacked the decision
"On $400,000 (£200,000) in revenues, we paid Sound Exchange about $48,000 (£24,000)," wrote Mr Hanson. "Under the judges' decision, we owe $600,000 (£300,000) for 2006 - which is about 150% of our total revenues. That would absolutely bankrupt us and will force us to shut down."
He said the wider implications of the decision were "possibly fatal for internet radio".
The decision has also been attacked by UK web broadcasters.
Felix Miller, co-founder of Last.fm, said: "It's ludicrous that America, a country that portrays itself as an internet innovator, may be the first to shut down its web radio."
"Pricing internet radio off the air in the US is clearly a retrograde step and very bad news for anyone who cares about the way music is listened to now. We'd like to think that the UK would take a less short-sighted view."
A campaign called SaveNetRadio.org has now been set up to put pressure on Congress to resolve the problem and "create an environment where Internet radio, and the millions of artists it features, can continue to grow for generations to come."