Having bands play original music is not an issue. They own the rights to perform the music. No one's going to hound you over the odd cover either. As far as playing music over the rest of your open hours, how close are you to ascap and bmi offices? They don't really have the resources like they used to a few years ago to track down every business and see if they've paid their dues. The only occasion I've heard of this actually being a problem is where a customer got mean and called ascap and said they were playing music without a license.
Also, I have hours of coffee shop friendly music that I personally own the performance rights to. I'm sure there are other "indie" artists and producers who do as well. And I'm sure you could find people who would just be happy that someone was listening to their music as much as I would. This kind of music doesn't require a license. ASCAP/BMI/SESAC are performing rights organizations who's sole purpose it is to collect moneys owed to artists for the performance of their works. If an artist doesn't use any of these and you get permission from them in writing to use their music, there is not problem. Search myspace, there are all kinds of amazing artists who don't use a performing rights organization. The problem with paying these people is that there is no way for them to track which artists, which songs and how many plays they get in an ipod/cd format. So, the artist never really sees the money from the plays. They have to be able to report what has been played, and how many times it's been played for them to actually see the money. Typically you'll get paid out on commercials, movies purchased, seats filled at movie theaters, radio commercials, radio plays, website usage, etc... They do pay dues to artists which pay out on these blanket licenses, but I've never gotten a check.
It can all get very complicated and having been on both sides of the fence, if you wanna be legit, pay them. if not, just look on craigslist for an ascap/bmi sticker and put it on your door.
It was an issue with my store I had local artist their own music was told I would have to prove I was not playing any one of their artist music.They hounded and threatend with a lawsuit and fines. I consulted a lawyer and was told it would be to costly for me to fight it just pay or stop all music.
Maybe pump an internet radio stream through the shop's speakers? Perhaps an international station like Triple J so as to circumvent whatever laws there are here in the US concerning internet radio??