Internet music subscription services have cleared a major legal hurdle with an agreement between the National Music Publishers' Association (NMPA), The Harry Fox Agency, Inc. (HFA) and the Recording Industry Association of America (RIAA).

Under the accord, the RIAA -- and all its member labels and their licensees, including the new on-line subscription services -- will immediately have access to every musical work authorized to be licensed by the HFA, the largest agency in the industry for licensing reproductions and distributions of musical works. HFA will issue licenses for subscription services offering on-demand streaming and limited downloads (i.e. downloads that can be played only for a limited period of time or number of times).

Once rates are determined, royalties will be payable on a retroactive basis from the commencement of services. Pending that determination, the RIAA will pay HFA an advance of $1 million toward the royalties to be determined. If the two sides do not settle on a rate during the next two years, the recording industry will pay monthly advances totaling $750,000 per year until a rate is set.

"This agreement removes a major legal roadblock for the new on-line subscription services," said RIAA President and CEO Hilary Rosen. "The coming subscription services may now begin licensing thousands of musical works immediately. For consumers, this will essentially mean they will have access to more and better on-line music options, sooner."

Under the agreement, the licensing process will be expedited, allowing for "bulk licensing" of musical works. The agreement also confirms the parties' mutual understanding of the relevant copyright law, namely that a mechanical license is required for these types of subscription services, that the compulsory licensing provisions apply to such services, and that the license covers the server copy as well as transient and buffer copies.

"This landmark agreement confirms that the streaming of music on demand requires a mechanical license under the U.S. Copyright Act," said Edward P. Murphy, President & CEO, NMPA. "We are pleased to have reached a consensus with the record industry on this key issue, enabling us to move forward on the matter of determining what the royalty rate for such streaming will be."

Publishers represented by HFA will have the opportunity to opt out of the licensing agreement if they so elect. Likewise, any subscription service or record company may deal directly with HFA or individual music publishers, if they prefer.

The RIAA represents the interests of the over 600 record companies, including Universal, Warner, Sony, BMG and EMI. RIAA members create, manufacture and/or distribute approximately 90 percent of all legitimate sound recordings produced and sold in the United States.

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"I am thrilled with the agreement. The HFA stands ready to fulfill the licensing, collection and all operational aspects of this Agreement," said Gary L. Churgin, president and CEO of the Harry Fox Agency. "This breakthrough in the licensing of music on the Internet demonstrates the ability of the songwriting and music publishing community and the record industry to achieve the right balance that benefits consumers as well as the entire music industry."

Added RIAA General Counsel and Senior Executive Vice President Cary Sherman, "This agreement will do wonders for music lovers and the on-line music marketplace. It confirms that the existing compulsory licensing system is available for new subscription service business models; that the mechanical license covers everything from the server copy through to the user's PC; and that the licensing process can be quick, simple and efficient."