(U-WIRE) BOSTON — Music lovers who have grown accustomed to music streaming from Internet radio stations on their computers at work, at school and in their dorm rooms may soon find that the law behind the music is much less smooth.

Popular webcasters like Pandora.com, a Web site that lets users choose a song or artist they like and then presents them with a series of similar tunes based on their demonstrated musical tastes, have been involved in a legal struggle with music industry regulators and special interests for several months, and only began negotiations with them weeks ago. Though artists’ representative SoundExchange trumpeted a recent compromise with the webcasters, many are still under financial strain.

In March, the webcasters learned that the regulatory Copyright Royalties Board was dramatically increasing the per-song performance fee they must pay to broadcast artists’ music, effectively tripling that fee — which they pay along with a publishing fee, and fund with a small amount of advertising revenue — from .0761 cents per song to .19 cents per song.

That increase, which took effect July 15, might sound inconsequential at first. But with about 8 million users logging onto Pandora daily and streaming music for an average of three hours, it adds up quickly.

“We were seriously contemplating shutting down,” said Pandora founder Tim Westergren, a self-proclaimed “music guy” who played in an acoustic rock band in the 1990s and now runs the company of about 110 people. “It was a very real possibility.”

To Westergren, the beauty of free and easily accessible Internet radio lies in helping listeners discover new music and also in getting newer, lesser-exposed artists the airplay they covet. “It’s a great time to be in a new band,” he said.

Pandora plays the music of more than 40,000 artists, two-thirds of whom cannot be heard on any radio stations, said Westergren, who said many of those artists have thanked him for playing their music.

But Richard Ades, a spokesman for SoundExchange, which represents about 30,000 artists, said musicians need more than promotion and should be paid for their work. He was quick to note, though, that having to provide fair compensation should not be a deterrent to companies like Pandora wanting to play their music.

“I don’t think it’s an either/or proposition,” he said. “I think everyone agrees on this. The question we’re dealing with is the rates.”

At the previous rates, Pandora’s staff thought they might see profits a year or two down the road, but at the new rates with dramatically increased performance fees, there was almost no prospect of ever building a profit. Westergren remains optimistic, though.

“Yes, [the higher rates are] in effect, but we have something of a gentlemen’s agreement [with industry representatives] that we will work it out,” he said.

“We’re continuing to build and keep going — if we hit the wall, we’re going to hit it going 100 miles an hour.”

The latest development in that “gentlemen’s agreement” came Aug. 23, when SoundExchange — which is responsible for collecting royalties for the public performance of sound recordings on Internet radio, satellite and cable radio — announced it had forged an agreement with Digital Media, the group of webcasters of which Pandora is a part.

The agreement, which lasts until 2010, is a compromise with the webcasters that caps another fee the Copyright Royalties Board instituted this summer — a $500 minimum per-station or channel fee that the webcasters feared would spiral into millions if every computer were counted as a “channel” — at $50,000.

In return, SoundExchange asked signatories to the agreement to report every track they play within six months, and also form a committee to investigate means of thwarting stream-ripping technology, which industry representatives fear is being used to steal the music as it streams from the websites.

The agreement has not yet been approved by the Copyright Royalty Board. Meanwhile, the webcasters, some of whom are unsatisfied with the compromise, continue to lobby for passage of the Internet Radio Equality Act, legislation in the works that would overturn several of the Copyright Royalty Board’s new rates and systems of calculating fees in a manner more favorable to the webcasters.

As the webcasters work for still-lower rates, SoundExchange is not stopping, either. Ades said the organization is now on a similar mission to increase the compensation paid to artists from satellite radio companies as well as AM/FM stations that have been around for decades.