Yahoo! and Time Warner AOL may shut down their web radio services after being hit with a 38 percent increase in royalties to air music.

‘We’re not going to stay in the business if cost is more than we make long term,’ Ian Rogers, general manager at Yahoo’s music unit.

SoundExchange who represents artists and record labels began collecting higher fees and Yahoo and AOL stopped directing users to their radio sites. The spike in royalties may stifle the growth of internet radio, which increased listeners 39 percent in the past year.

The Copyright Royalty Board ordered that royalties be raised to 0.11 cent for each song listened to from 0.08 cent last year. The rate is scheduled to reach 0.19 cent in 2010. According to AOL it would be near impossible to sustain a business that is profitable because radio sites generate revenue by selling advertising. (Meg Tirell, Bloomberg)

The bottom line: One side claims the royalty rate was to low and needed to be raised. Also, many sites have made millions like YouTube and Myspace that have built up value by using a content for a relatively cheap price. Artists and labels build up value for these sites and don’t participate in the BIG PAY DAY, so soundexchange who reps artists and labels want a royalty rate that reflects reality. This is a simple case of ‘we don’t benefit when you benefit’. I do not believe that AOL and Yahoo! will shut down internet radio.