The number of people listening to radio over the Internet is growing steadily, yet many local radio stations are pulling the plug on their Internet audio-streaming operations.

Why?

It involves a dispute over advertising.

The dispute is rooted in a deal struck last fall between advertising agencies and the American Federation of Television and Radio Artists (AFTRA). The contract, signed after an acrimonious six-month strike, called for actors to receive 300 percent of their normal “session” fee if radio stations also play their ads on the Internet.

The result: Advertisers whose ads are being streamed over the Internet are now getting hit with sizable, unexpected bills.

Initiative Media, which buys about $500 million in radio air time annually, has demanded that stations stop streaming its clients’ ads over the Internet, but only broadcast the ads over the air. An April 2 letter to stations on which Initiative buys time stated, “You may not stream any of our clients’ commercials on your Internet Web sites without prior written approval.”

“We took the stand because none of our clients have given us permission to stream their commercials,” said Kathy Crawford, executive vice president and director of local broadcast at Los Angeles-based Initiative. “If (radio stations) choose to stream our commercials, it’s against our wishes.”

Bowing to pressure from advertisers, radio giant Clear Channel Communications Inc., which owns more than 1,200 stations nationwide and eight in Los Angeles, has stopped its Internet radio cybercasts.

“We are in the process of having our technicians install the technology needed to block those ads,” said Roy Laughlin, market president of Clear Channel in Los Angeles. “It’s an advertising issue and a customer-service issue for the company.”

Besides Clear Channel, radio station owners from Walt Disney Co.’s ABC Radio Division (which owns 54 radio stations, including four in Los Angeles) to Buckley Broadcasting have also pulled the plug on streaming.

“We have pulled most of our FM stations and all of our AM stations,” said Michelle Bergman, a Disney spokeswoman. “We are evaluating all of the different issues and don’t have a timetable for when the stations will resume streaming their content over the Internet.”

Another financial blow to the incipient Internet radio market came when the U.S. Copyright Office ruled late last year that stations that stream music over the Internet have to pay double royalties for each song they play once for playing it on the radio, once for streaming it over the Internet. The radio industry is appealing.

Despite a plateau in the overall time spent that people spend on the Internet, The Arbitron Co. found that the percentage of Americans who have listened to radio stations online grew from 5.3 percent in January 2000 to 7.3 in January 2001. Streaming advertising is expected to be a $1.4 billion industry by 2005, according to Jupiter Media Metrix.

But Internet fans may not have to wait very long to hear their favorite stations again.

Both Microsoft Corp. and Real Networks Inc. have software that removes the broadcast ads from Internet feeds. The live-ad-insertion technology offers broadcasters the option to either stream their terrestrial broadcast advertisement or replace it with an Internet-only advertisement.