In an effort to sidestep cumbersome licensing negotiations, U.S. record labels and music publishers reached an agreement Tuesday that will allow record companies to automatically license works for online music services without having to clear songs with individual publishers.
The deal reached by the Recording Industry Association of America Inc. (RIAA), the National Music Publishers' Association Inc. (NMPA) and the Harry Fox Agency Inc. (HFA) grants RIAA-represented labels and licensees "bulk licensing" to the musical works the HFA holds rights to, for on-demand streaming and limited download services.
HFA was established by the NMPA in 1927 and represents more than 27,000 U.S. publishers, staking claim to the lion's share of U.S. publishing rights.
The agreement removes a "major legal roadblock" for new online subscription services," RIAA President and Chief Executive Officer Hilary Rosen said in a statement. Subscription services can begin licensing thousands of musical works immediately, Rosen said.
The agreement could be key for label-backed online subscription services MusicNet and Pressplay, allowing them quick and easy licensing to a wealth of musical content. MusicNet was formed by AOL Time Warner Inc., Bertelsmann AG, EMI Group PLC and RealNetworks Inc., and Pressplay is backed by Vivendi Universal SA and Sony Music Entertainment Inc. Both services are scheduled to launch this year.
To offer online music, mechanical and publishing rights must be obtained. This two-layered licensing scheme has been a speed bump for music services thus far, resulting in lengthy negotiating processes with various publishers and labels over royalty rates and other matters.
Although royalty rates under the new deal have yet to be hammered out, the RIAA has agreed to pay the HFA a US$1 million advance toward the royalties to be determined. Once rates are established, they will be paid retroactively from commencement of the services. If a rate is not decided on in the next two years, the recording industry will pay monthly advances totaling $750,000 a year until the rate is set.
Publishers represented by the HFA can, however, opt out of the agreement if they choose, and individual labels or online music services may decide to negotiate directly with music publishers.
In addition, it is a nonexclusive deal, meaning that the publishers can license their content to any number of online music services.