He runs one of the most popular Internet radio sites on the Web, with more than 6 million registered users, but Pandora founder Tim Westergren and his board held a meeting in recent days to discuss when to pull the plug.

And he's not alone.

Internet radio stations are scrambling in the aftermath of a landmark decision last week by the Copyright Royalty Board, a panel of three copyright judges, over the royalty rates Web broadcasters must pay the major record labels.

Under the new rates, which charge per song and per channel, royalty payments to the labels would skyrocket, regardless of how much advertising money is being generated by the broadcaster. Most Internet radio sites generate the bulk of their revenue from advertising sales.

The new rates would require Internet broadcasters to pay $.0011 per "performance," defining a performance as the streaming of one song to one listener; thus a station that has an average audience of 500 listeners racks up 500 "performances" for each song it plays.

The rate change would also be retroactive for 2006, forcing Internet radio sites to cough up $.0008 per performance.

All of that amounts to a dire situation for Internet radio sites, from recommendation engines like Pandora to online radio veterans like Live365.com and public radio stations like KUSF in San Francisco and KCRW in Los Angeles. Radio conglomerates like Clear Channel are thought to be largely immune to the rate changes, as online broadcasting still makes up a relatively small portion of their overall business.

"People should be under no illusion--if this stays as it is--it will be the end of Internet radio," Westergren told MP3.com today, noting that Web radio has long been a vital music discovery tool that benefits both fans and artists. "And this change wouldn't help anybody," he continued. "It won't help the 25,000 indie artists that are the beneficiaries of Internet radio, and I don't think it will benefit the Elton Johns of the world either. This will kill the golden goose."

The rate changes were lobbied for by SoundExchange, which collects royalty payments from digital-music broadcasters and distributes them to rights holders. In a statement, the organization called the ruling fair and said the fears of putting webcasters out of business were overblown.

"They've been saying this since 2002, that they were going to go out of business," SoundExchange spokesman Willem Dicke told the Associated Press. "Instead what's happened is the industry has grown tremendously."

Anil Dewan, director of new media at KCRW, told MP3.com that the rate change would send his station's royalty payments skyrocketing to $350,000--more than twice the station's current Webcasting budget.

"The question for us is, what will we do if this decision stands?" Dewan said. "Do we limit our streams just to people who are members of the station? That would be antithetical to who we are."

Internet radio sites are in the midst of deciding the next step. The rates can still be appealed, either to another hearing of the copyright board or to federal court. It's also possible that Congress could become involved. Several broadcasters have begun to drum up user support for the fight through sites like Save Our Internet Radio.

"It's hard for us to imagine that the public is going to let that happen," Westergren said. "I'm hopeful. But I'm also really terrified."