Online music services have received a much needed boost to their business model after the UK royalty collection agency cut the charges they must pay artists for playing a track.

PRS for Music on Tuesday announced it was lowering the prices for streaming music online by almost two-thirds – a move that will benefit sites such as Last.fm, We7 and Spotify, which have found it hard to get enough advertising revenue to cover their streaming costs.

Each time a song is played online (rather than downloaded to a personal computer or iPod), the PRS will receive 0.085p, down from 0.22p. In return PRS is increasing its share of advertising or other revenues from the services, from 8 per cent to 10.5 per cent.

Andrew Shaw, managing director of broadcast and online at PRS, said he hoped the new rates would stimulate growth in the market as well as combat rampant piracy. “We felt the trade-off we have been able to make by reducing per stream minimums in exchange for the increasing headline rates was acceptable and allows businesses to establish themselves, while protecting our members and allowing us to share in the upside,” he told the Financial Times.

Royalties for online services have come under close scrutiny in recent months after YouTube, Google’s online video site, blocked access to music videos in the UK and Germany, citing “prohibitive” licensing rates.

New music services have complained that the costs of streaming songs made it tough to turn a profit from advertising alone. Publishers’ royalties are one of their biggest outgoings, alongside bandwidth costs and payments to record labels.

The leading record labels declined to comment on whether the new royalty regime had renewed pressure on the industry to cut its own streaming fees. But a spokesman from one label said: “We know we need to be creative with our licensing process and terms to encourage legitimate music consumption.”

Steve Purdham, chief executive of We7, said the PRS had made a “massive reduction” in royalty rates, which demonstrated “the acceptance by the PRS – and hence the music industry as a whole – that things need to change quite radically for new digital models to emerge”.

Martin Stiksel, co-founder of Last.fm, which is owned by US broadcaster CBS, said the reduced streaming costs raised hopes of a flat-fee, revenue-share model for digital services in the longer term. “It goes to show that regardless of the economic situation, they have been listening to the feedback from the industry and it shows that [PRS] are taking a lead in Europe.”

But Mr Stiksel said the revenue share rise was “quite a harsh increase”, especially compared with much lower rates for terrestrial radio stations.

However, YouTube – which did not contribute financial data to the PRS’s consultation – damped hopes that the new rates would bring a rapprochement with the royalty agency.

“We welcome any efforts to make licensing costs more realistic, but as we are still in discussions with the PRS to agree licence terms for YouTube we are unable to comment further,” YouTube said.

Mr Shaw said PRS had a “religious difference” with YouTube over the video site’s continuing efforts to push for a flat-fee model.