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Summary of the Agreement Between RIAA, NMPA and HFA

On October 5, 2001, the Recording Industry Association of America, Inc. ("RIAA"), the National Music Publishers' Association, Inc. ("NMPA") and The Harry Fox Agency, Inc. ("HFA") reached an historic agreement to settle their differences concerning the licensing of digital music services. This document provides a summary of the Agreement.

1. Who Is Covered? Under the agreement, a "mechanical" license is available to all RIAA member companies and to any service that is majority owned by one or more RIAA members. The rights extend to any service operated or licensed by an RIAA member company holding such a mechanical license (which means that the agreement can cover the coming online music subscription services).

2. What Type of Services Are Covered? The agreement applies to subscription digital music services that include among their offerings "On-Demand Streams" and/or "Limited Downloads" (collectively, "Covered Services"). An "On-Demand Stream" is an on-demand, real-time transmission made using streaming technology, such as Real Audio or Windows Media Audio. A "Limited Download" is a download made using technology designed to cause the downloaded file to be available for listening only, either during a limited time or for a limited number of times. A mechanical license includes all reproduction and distribution rights for On-Demand Streams and Limited Downloads. The agreement confirms that a mechanical license for these services includes the right to make server copies, buffer copies and other related copies used in the operation of Covered Services. The agreement also includes a royalty-free cross license for On-Demand Streams of promotional excerpts of sound recordings and musical works.

A license does not include performance rights, which are licensable separately through performing rights organizations such as ASCAP, BMI and SESAC.

3. What Exactly Will Be the Licensing Process? The agreement specifies detailed procedures for requesting and issuing licenses. Bulk Licensing: An electronic "bulk" licensing process should allow record companies very quickly to obtain licenses covering the vast majority of the recordings in their catalogues. To facilitate the expeditious launch of services, licenses can be requested at once and will be retroactive to the date of request. Works will be licensed in their entirety. That means that if multiple publishers co-own the copyright in a particular song, HFA will license use of the song if it represents any one of them, with no need to obtain mechanical licenses for the same song from the other co-owners. As always, the authority of HFA to license any particular song on behalf of a music publisher is subject to the approval of the publisher. HFA also will attempt to arrange licenses of songs where it does not represent any of the copyright owners. The agreement is nonexclusive, so record companies and services may obtain compulsory licenses other than through HFA, and HFA and music publishers are free to grant licenses directly to digital music services.

4. Does the Agreement Establish a Royalty Rate? No. The royalty rate payable under the agreement is not set. It will be determined through negotiation and/or an arbitration proceeding under the auspices of the Copyright Office. The parties expect to negotiate a royalty rate, and if an agreement is reached, jointly petition the Copyright Office for its adoption as the "statutory" rate.

5. In Lieu of an Established Royalty, How Is the RIAA Compensating Publishers? RIAA will pay HFA a nonrefundable advance payment of $1 million. If the royalty rate is not set within two years, RIAA will pay HFA further advances of $62,500 per month (subject to adjustment in certain circumstances and to the right of RIAA or particular members to opt out of the agreement). The advances are recoupable and may be applied to any amounts owed by any participating licensee under mechanical licenses issued by HFA for Covered Services.

6. What Are the Accounting and Payment Procedures Established Under the Agreement? Licensees will account to HFA on a quarterly basis beginning with the issuance of a license. Upon the final determination of the applicable statutory royalty rates, licensees will pay for their past activities (to the extent not covered by the advance) and thereafter account and pay quarterly. Quarterly reports will include certain specified usage information and certain other information that may be requested by HFA.

7. What Are the Legal Issues Resolved by the Agreement? The parties agreed to certain legal principles that provide the underpinnings for the licensing process contemplated by the agreement. It is agreed that: the process of making On-Demand Streams and Limited Downloads through Covered Services (from the making of server copies to the transmission and local storage of the stream or download), viewed in its entirety, involves the making and distribution of a "digital phonorecord delivery" or "DPD" (a particular royalty rate category under section 115 of the Copyright Act); a compulsory license is available under Section 115 of the Copyright Act for these Covered Services; and conventional Internet webcasting does not involve the making or distribution of a DPD, and thus does not require a mechanical license. Because the parties believed that record companies, music publishers and services should not be able to benefit from this agreement while challenging it in an adversarial proceeding, the parties agreed not to advocate inconsistent positions in certain contexts.

Other Matters. The agreement addresses various other related issues, including notification of the agreement to the Copyright Office and Congress; agreement to discuss certain other procedural issues relating to the licensing of digital music services; development of aggregate economic information concerning subscription service business models; and notification of certain security issues.

HFA-RIAA Subscription Services License Agreement

HFA and RIAA Electronic License Request & Output File Layout

HFA RIAA Electronic License Request Output File Layout Field Definitions

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The Recording Industry Association of America (RIAA) is the trade organization that supports and promotes the creative and financial vitality of the major music companies. Its members are the music labels that comprise the most vibrant record industry in the world. RIAA® members create, manufacture and/or distribute approximately 85% of all legitimate recorded music produced and sold in the United States.

In support of this mission, the RIAA works to protect the intellectual property and First Amendment rights of artists and music labels; conduct consumer, industry and technical research; and monitor and review state and federal laws, regulations and policies. The RIAA® also certifies Gold®, Platinum®, Multi- Platinum™ and Diamond sales awards as well as Los Premios De Oro y Platino™, an award celebrating Latin music sales.

Contact:
Jonathan Lamy
Cara Duckworth
Liz Kennedy
202/775-0101