The agreement is designed to settle how the industry calculates royalty rates for limited downloads and music that is streamed online, including when it is provided by subscription and advertising-supported services.

Fans using on-demand music streaming can select the songs they want to hear but do not keep a permanent copy.

Under the proposal, providers of such services will pay a mechanical royalty of 10.5 percent of revenue after other royalties are calculated.

The agreement does not cover merchandise or permanent downloads and a ruling on the proposal by Copyright Royalty Judges is expected by Oct 2, the groups said.

The Digital Media Association (DiMA) described the agreement in a statement on its Web site as a breakthrough that would facilitate new ways to offer music to consumers online.

The other groups involved include the National Music Publishers' Association, which represents American publishers, the Recording Industry Association of America, the Nashville Songwriters Association International and the Songwriters Guild of America.

"This agreement provides a flexible structure to support innovative business models in the digital music marketplace that will benefit music fans, creators and online services," said Mitch Bainwol, Chairman and CEO of the RIAA

(Reporting by Savio D'Souza in Bangalore; Editing by Kate Holton and David Cowell)