Viacom boss Sumner Redstone: His company is involved in row
On one side in the talks - opened at the US copyright office in Washington on Monday - is the Recording Industry Association of America (RIAA).
It wants webcasters to pay 15 cents an hour for streaming music over the internet.
It is backed by the American Federation of Television and Radio Artists.
On the other side are industry heavyweights Clear Channel Communications, AOL Time Warner and Viacom - both of which own music websites.
They say the royalty rate is too high and would put them out of the business of streaming music altogether.
An RIAA spokesman said: "Our industry should not have to subsidise the likes of AOL Time Warner, Viacom and Clear Channel."
Revenue
The webcasters broadcast songs over the internet in a similar format to traditional radio stations.
They are proposing royalty rates 27 times less than the record companies want.
The musicians' unions are keen to see the rates passed as it would mean a substantial source of revenue for them - and especially for poorly paid back-up performers.
Both sides first submitted royalty rates to the American copyright office in April.
But the office had to appoint arbitration judges last week after the two sides were unable to settle the row alone.
The webcasters include MTVi Group - the interactive arm of the MTV music television stations - plus Launch Media and MusicMatch.
There are currently over 4,000 webcasters according to the Digital Media Association (DiMA), most of whom currently provide streamed music for free.
But only 15 are directly involved in this arbitration process.
Some webcasters, including Yahoo!, have already signed deals with the RIAA, while others are waiting to see the outcome of the arbitration.
Traditional radio broadcasters in America pay royalties to artists and composers rather than record companies. But 1998 legislation said online broadcasters must pay the record companies.
The RIAA recently won a battle with online song-swapping service Napster, which had let users access copyrighted songs for free.
But Napster was told by a judge to block access to all copyrighted songs, paving the way for new, legitimate services run by the record companies themselves.