By Derek Caney

NEW YORK, July 29 (Reuters) - Artemis Records, home to such artists as country-rock singer Steve Earle and heavy metal group Kittie, said on Monday it would waive fees charged to Internet radio stations that play music from the independent label's catalog for one year.

Artemis' decision, which Webcasters say is the first of its kind from a record label, comes against the backdrop of a struggle over royalty rates with the record industry that Internet radio stations say threatens their livelihood.

"We're a small company with a lot of music that doesn't get played on commercial radio," Artemis Chief Executive Officer Danny Goldberg said. "I appreciate the Webcaster. In terms of the future, the diversity they offer is valuable to a label like ours. I wanted to make a gesture of support."

Conventional radio stations have long been exempt from paying royalties to recording artists and anyone else who owns the rights to the "sound recording" of a song, but Congress said sound-recording owners should get paid for Internet transmissions when it updated copyright laws for the digital era.

The Library of Congress established a rate of 0.07 cents per listener per song in June, which means that Webcasters ranging from the small independents to giants like Clear Channel Communications Inc. that broadcast music over the Internet would be charged 70 cents for each song played to an audience of 1,000 listeners.

Internet radio stations have argued that royalty rate would require them to pay out far more in royalties than they could take in from advertising. The record industry argues that artists and labels should be compensated for their intellectual property.

"I don't pretend to have a crystal ball to see how the economics are going to play out in many years to come, but it seemed to me that there was an asymmetry between the record companies' need for exposure and the tone of the negotiations," said Goldberg, who ran three major record labels and managed a number of acts like Nirvana, Bonnie Raitt and Beastie Boys before starting Artemis.

Jonathan Potter, executive director of Digital Media Association, which represents Internet radio stations, lauded Artemis' move.

"Danny Goldberg is ahead of his time in every way," Potter said. "He recognizes that Internet radio listeners are more intense music fans and they buy more music than traditional music fans. I hope this is the first of many such announcements."

The Recording Industry Association of America, which represents the major labels, had no objection to Artemis' move. "From the beginning, we have always argued that the copyright holder should have control over how their music is used," a spokesman said. "That's what's happening here."