The consumer electronics industry is getting dragged into the ongoing battle over whether U.S. radio stations should pay a performance rights royalty to labels and artists.

The National Association of Broadcasters is circulating among its members a proposal under which terrestrial radio stations would agree to pay performance royalties equal to about 1% of a station's annual net revenue if Congress passes legislation requiring that all portable electronic devices, including mobile phones, be sold with a chip enabling them to receive FM radio broadcasts.

Until now, the NAB has vehemently opposed paying any kind of performance royalty. But last fall, the judiciary committees of the U.S. House of Representatives and the Senate passed the Performance Rights Act, a bill requiring that terrestrial radio broadcasters pay labels and artists performance royalties for use of their sound recordings.

Since then, the legislation hasn't come up for a full vote before either the House or Senate. In the meantime, the NAB and musicFirst, the music industry lobbying group created to support terrestrial radio performance royalties, have been holding negotiations to reach a possible settlement of the issue.

Sources on both sides confirm that a proposal to back legislation requiring an FM tuner chip in portable electronic devices has become key element in their talks.

The Consumer Electronics Association and the wireless industry trade group CTIA are vehemently opposed to this provision. In a statement released Monday, CEA president/CEO Gary Shapiro blasted what he called a "backroom scheme" as "the height of absurdity."

"Forced inclusion of an additional antenna, processor and radio receiver will compromise features that consumers truly desire, such as long battery life and light weight," he said in a statement. "Reducing product performance, mandating inclusion of features consumers don't want, and replacing product innovation by companies like Amazon, Apple, Motorola and HP-Palm with government design mandates are not in our national interest."

CTIA VP of government affairs Jot Carpenter echoed this view. "We agree with the objections raised by CEA," he said. "A chip mandate is unnecessary, inappropriate and objectionable."

Many portable devices already have an FM chip installed. Companies like Broadcom combine WiFi, Bluetooth and FM on a single chip, which in fact is part of the iPhone 3GS (although the FM access is not activated at this time). Nokia has sold more than 700 million phones with built-in FM radio receivers worldwide.

But these chips do affect things like battery life and other performance issues that will give the CEA plenty of ammo to fight this. It's a much different situation than the V-Chip -- which Congress mandated be included in all TVs build after January 1, 2000 -- because the V-Chip was a CEA-supported initiative that was created out of a concern for child safety. Congressionally mandating that FM receivers be added to mobile phones just so radio stations can better compete with Internet radio outlets seems a far less compelling argument.