July 12 (Bloomberg) -- A U.S. appeals court denied a request by Internet broadcasters to delay higher music royalty rates, a decision that may force some to shut down.

The new rates, approved earlier by a government-appointed board, will take effect July 15, the Digital Media Association said today in an e-mailed statement. The group had sought the delay as part of an appeal to block the higher fees.

Internet broadcasters, including large radio companies such as Clear Channel Communications Inc., technology companies such as Yahoo! Inc., and small online operators including Live365 Inc., say the new rates could more than double their costs. Music companies sought the increase to raise revenue for labels and artists at a time when overall sales are declining.

``Some will shut down and others will significantly reduce their audiences to cut their costs as much as possible to stay in business,'' Jonathan Potter, executive director of the Digital Media Association, said in an interview. The group challenged the Copyright Royalty Board's March rate-setting action in the U.S. Court of Appeals in Washington.

Compromise Sought

``Obviously we're pleased by the decision,'' said Richard Ades, a spokesman for Sound Exchange, the organization that collects royalties for labels and artists. He said the organization is trying to compromise with Webcasters.

``We are continuing to negotiate in good faith,'' Ades said. Sound Exchange offered to reduce the $500-per-channel advance fee imposed on Webcasters under the new royalty structure approved by the board.

Internet radio operators may offer thousands of channels, tailored to specific individuals or to genres of music. Sound Exchange offered to replace the per-channel fee with a $2,500 advance per Webcaster, regardless of how many channels they run.

The Digital Media Association countered that the offer only applied through the end of 2008, and after that Webcasters could owe ``billions of dollars'' in per-channel payments. A Webcaster such as Live365 sells services that let listeners create customized playlists and listen to the music online.

Webcasters and music industry executives are meeting with members of the U.S. House of Representatives today to brief them on the negotiations. House and Senate lawmakers are considering legislation that would roll back the rate increases and held a hearing on the issue last month.

The Copyright Board also approved royalty rates that range from 0.08 cent per song played this year to 0.19 cent by 2010. The rate has been 0.07 cent for each play of a song.

To contact the reporter on this story: Don Jeffrey in New York at djeffrey1@bloomberg.net.

Last Updated: July 12, 2007 13:53 EDT