On March 1, 2007 the US Copyright Office stunned the Internet radio industry by releasing a ruling on performance royalty fees that are based exclusively on the number of people tuned into an Internet radio station, rather than on a portion of the station's revenue. They discarded all evidence presented by webcasters about the potentially crippling effect on the industry of such a rate structure, and rubber-stamped the rates requested by the RIAA (Recording Industry Association of America).
Under this royalty structure, an Internet radio station with an average listenership of 1000 people would owe $134,000 in royalties during 2007—plus $98,000 in back payments for 2006. In 2008 they would owe $171,000, and $220,000 in 2009.
There is no way for a station with 1000 listeners to make that kind of money. That's over $11 per listener per month in 2007. No Internet radio station currently operating comes even close to that kind of income. Also keep in mind that 1000 listeners is not a large number. Popular stations like Radio Paradise, SOMA, Digitally Imported, radioio, etc have many times that many listeners.
In other words, if they are allowed to stand these rates are a death sentence for independent Internet radio stations. The only stations that would survive would be those who can afford to operate at that kind of loss, such as AOL (who would owe over $20,000,000 in 2006, far in excess of their income from radio).
Note: AM and FM stations don't have to pay these fees at all. They do, like webcasters, pay fees to songwriters; those are calculated on a much more reasonable basis. This is a second levy, paid to the record companies. See past coverage here and here.