It looks like two of the Internet’s biggest Web radio services may be shutting down after being hit with a 38 percent increase in royalties to air the music they play.

Bloomberg reports that Yahoo! and AOL have stopped directing users to their radio sites after Sound Exchange, the Washington, D.C.-based group representing artists and record labels, began collecting higher fees in July. As a result, the number of people using Yahoo! Launchcast fell 11 percent to 5.1 million in October, and AOL users declined 10 percent to 2.7 million from 3 million, according to ComScore.

“We’re not going to stay in the business if cost is more than we can make long term,” Ian Rogers, general manager of Yahoo!’s music unit, told Bloomberg.

Said Lisa Namerow, managing director of AOL Radio, “The current math doesn’t add up. If the rates remain as they are, it would be very challenging to sustain a business that is profitable.”

As Wired notes, the news comes nearly eight months after the U.S. Copyright Royalty Board hiked rates for Webcasts effective (retroactively) from 2006 through 2010. Webcasters pay $.0011 to stream one song to one listener; that rate will rise to $.0014 in 2008 and $.0018 in 2009.

Webcasters are scheduled to appeal in February.

It’s believed that the significantly higher royalties will stifle, if not snuff out, much of Internet radio.

Previous last100 posts: “Listeners help Internet radio fight fee battle” and “Internet Radio saved — for now”