The bill follows a June decision from the Librarian of Congress ordering Internet radio stations, or Webcasters, to pay about .07 cent per song, per listener for the rights to play music online. Record labels criticized the sum as too low, but small Webcasters said the fees would quickly add up to thousands of dollars, driving many out of business.

RAIN: Radio and Internet Newsletter publisher and Webcasting advocate Kurt Hanson said the bill offers a fair compromise in the heated dispute.

"All parties involved have said they didn't like the Librarian's decision," he said. "The amount of money at stake that would be going to artists is minimal--it's not like this would cause massive hardship in the artists community--and it would delay and potentially prevent the shutdown of dozens of small Webcasters."

Already hundreds of stations have stopped streaming or have radically changed their programming, according to Hanson, and many more are expected to follow suit as the deadline for initial royalty payments approaches.

The bill apparently caught the record industry unawares. "This is a surprising development considering how productive our discussions with the Webcasters have been," said a representative for the Recording Industry Association of America.

The controversy stems from landmark digital copyright legislation passed in 1998, in which Congress said Webcasters would be required to pay labels and artists a fee to play their music online. This created a new type of royalty, as ordinary radio stations have long paid songwriters a small royalty but have never paid labels or artists themselves.

But Congress neglected to say exactly how much the online companies should pay per song. For years, record labels and the biggest companies attempted to negotiate an appropriate rate, but they could not find a compromise between wildly different proposals.

A few companies, with Yahoo as one of the only recognizable names, cut their own separate financial peace with the labels. Most companies waited, taking advantage of a legal provision that allowed them to balk at paying royalties until the Copyright Office set an official rate.

That panel recommended a rate of 0.14 cent per song, per listener, but it was set aside by the Librarian of Congress, who set the 0.07 cent rate now in dispute. Both sides appealed the new rate in August in the United States Circuit Court of Appeals for the District of Columbia.

The bill is the second aimed at giving small Webcasters a break in the face of the pending royalty scheme. In July, Rep. Jay Inslee, D-Wash., and two other lawmakers introduced the "The Internet Radio Fairness Act," which would exempt businesses with revenues of less than $6 million a year from the new fees.

News.com's John Borland contributed to this report.