Feburary 10, 2005 February 10, 2005 - The Harry Fox Agency, Inc. (HFA), the premier U.S. mechanical licensing organization, announced today that its total 2004 royalty collections from all sources on behalf of its almost 28,000 affiliated publishers was $421 million, with over 2.3 million mechanical licenses processed in the year "HFA's overall 2004 financial results show an improvement of 6.2% over the agency's 2003 figures, which was actually better than we had budgeted, and tracks along with the industry's movement," said Gary L. Churgin, president and CEO. "We continue to make great strides in the areas of royalty compliance and mechanical licensing for digital uses, and we will continue to chart a conservative course as the industry recovers from the slump of the past several years. The success of our technology upgrades was a particular bright spot, and we can attribute our success in that area in large part to the great collaborative relationship with publishers and licensees on these system developments. Through this work, we are well-positioned to take advantage of new opportunities on behalf of our affiliated music publishers and their songwriters."    Financials The U.S. statutory mechanical rate rose to 8.5 ¢ for songs under five minutes and 1.65¢ per minute for songs over five minutes on January 1, 2004, increasing from the previous rate of 8¢ and 1.55¢, respectively. The next mechanical rate increase is to go into effect on January 1, 2006. HFA's commission on distributed royalties rose to 6.75% on April 1. HFA's results for 2004 show total mechanical collections, exclusive of Royalty Compliance Exams, exceeded $ 366 million. This represents a 2.5% increase over the prior year. HFA's collections period for mechanical royalties is 45 days after the close of the calendar quarter, which means its number for 2004 reflect the retail period of October 2003 through September 2004. The results from HFA's Royalty Compliance work continue to be outstanding. Royalty Compliance is the process by which HFA examines the books and records of licensees to review the accuracy of royalty statements reported and payments remitted by licensees, and enters into a settlement for monies owed if they have not. Collections in this area exceeded $ 53 million, due in large part to the completion of several exams that covered fairly lengthy exam periods.    Licensing HFA processed 2,309,484 license requests in 2004, bringing the total number of licenses HFA administers to almost 8 million. The number of licenses that HFA processes has been growing at a nearly exponential rate due to the company's implementation of a bulk electronic licensing process for online music services. This allows HFA to easily handle a licensing transaction that is the equivalent of the company's entire annual licensing volume for terrestrial licenses (e.g., CDs, cassettes, and other physical product). For 2004, the number of licensees for physical product processed by HFA was 215,651, and the number of licenses processed for digital product (ringtones, permanent downloads or "DPDs", on-demand streams, and tethered downloads) was 2,092,833. While the digital market is a big growth area for HFA, until a rate is established for on-demand streams and tethered downloads, there is no collections number attached to this activity. HFA signed up 185 new DPD licensees in 2004, including Orbison Records, Rykodisc, Sanctuary Records Group, and Sound Source Recording Studios, bringing the number of companies licensing through HFA to over 200. The company also offered its affiliated publishers a number of new licensing arrangements, with ringtone providers such as Dwango, Fore-Side.com, Improvista, Matrix M, Opera Telecom, and Sharp Robot; with the TruSonic background music service; and with the Rowe AMI digital jukebox service In December, HFA announced that it began offering mechanical licensing for "Express Live" CDs and permanent digital downloads (DPDs). This is a new type of licensing beyond the traditional mechanical which is targeted at companies that enable music fans to purchase recordings or downloads of concerts almost immediately after the last note is played, either at the venue or from a web site after the concert. A number of licensees are already taking advantage of this new offering, including Diamond Time.    Technology Transformation HFA completed the first phase of the transformation of its technology systems in 2004, which included successfully launching a new online licensing system, eMechanical; improvements to its publisher interface, POLI+; and online licensing reports and royalty statements, all accessed through a new version of www.harryfox.com that includes registered user access for HFA-affiliated publishers and licensee accounts. HFA is also working on implementation of Common Works Registration 2.1 (CWR), and a number of other projects to make its technology infrastructure both stronger and more flexible. Rollout of the new products continues, and the company is on a regular release schedule to continue to introduce new tools for its clients and customers.    Looking Forward While 2004 showed the beginning of financial growth for the music industry, 2005 already promises to be a challenging year, based upon recent marketplace trends. The fourth quarter 2004 retail market results showed a decrease in album sales compared to the same quarter in 2003. This will be what HFA's first quarter 2005 will reflect. In addition, HFA's Royalty Examination process are now generally conducted on a more current basis and covering relatively shorter periods. The opportunities on this year's horizon may include greater growth in the digital arena, and the possibility that rates may be established for on-demand streams and tethered downloads. The latter could mean the release of royalties from licensing from these services, which began in 2001. It is important to note that a portion of HFA's proceeds goes to support its parent company, The National Music Publishers' Association (NMPA). The NMPA is participating in a very important that will be heard by the U.S. Supreme Court in March on the illegal peer-to-peer file-sharing services Grokster and StreamCast. It is expected that the NMPA will also begin to participate in negotiations for future increases to the statutory mechanical rate, as the current table of increases ends with the next increase on January 1, 2006. These negotiations on behalf of the U.S. publishing industry will require significant financial resources to support. With these factors in mind, HFA will continue to budget cautiously and work aggressively to maximize opportunities for royalty income for its affiliated publishers. About The Harry Fox Agency Established in 1927 by the National Music Publishers Association, HFA represents over 27,000 U.S. music publishers for their mechanical licensing needs, issuing licenses and collecting and distributing royalties. HFA also provides collection and monitoring services to its U.S. publisher clients for music distributed and sold in over 75 territories around the world. For more information about HFA, or to become an affiliate publisher or a licensee, see www.harryfox.com.