When the Copyright Royalty Board issued new rates last spring, Webcasters big and small claimed the increase would put them out of business. The online radio biz has since clamored for a reduction in rates, resulting in SoundExchange offering a somewhat different rate than what it charges companies like Yahoo and AOL.

Previously, copyright fees for online broadcastesrs were based on station revenue, but the increase, which is retroactive to last year, charges online stations .08 of a cent for each song played during 2006, .11 of a cent for this year, and tops out at .19 of a cent in 2010.

Because the new rates not only apply to the number of times a song is played but also to the number of those listening to each song, smaller Webcasters claimed the new fees represented a 300 percent increase and said such an increase would bankrupt them.

So, after much haggling, not to mention media spin, SoundExchange offered smaller Webcasters a rate based on income rather than the number of times a song is played. However, smaller companies are objecting to how the organization defines “small.”

SoundExchange offered stations with specific audience sizes earning $1.25 million or less in annual gross revenue a rate based on 10 or 12 percent annual revenue.

But Webcasters say the organization’s offer is unrealistic and impedes business growth.

For example, Rusty Hodge, operator of SomaFM in San Francisco, says SoundExchange’s revenue and audience criteria for small stations would be a “huge step backward” for his industry and that the organization should go along with the U.S. Small Business Administration’s definition of a small broadcasting company as those that make $6 million or less in revenue.

Another unhappy Webcaster – Bill Goldsmith, who operates RadioParadise.com – says SoundExchange’s latest offer is an attempt to “divide and conquer” the industry by thinning out the ranks.

Meanwhile, SoundExchange Executive Director John Simson said the proposal “takes the uncertainty out of the air as to most of their programming and lets them continue streaming.”

The smaller stations have until September 14th to accept the offer.