Negotiations between music copyright holders and online music services have broken down over the issue of how much to pay copyright holders for subscription-based services.

Talks between the Digital Media Association (DMA), who is negotiating on behalf of companies that offer subscription services such as Napster and RealNetworks, and the National Music Publishers' Association (NMPA) together with the American Society of Composers, Authors and Publishers (ASCAP) broke off Wednesday, sources close to the negotiations told The Mac Observer.

David Israelite, NMPA's president and chief executive, sent a letter Thursday to the DMA accusing it of "bad faith" in its negotiations. DMA executive director Jonathan Potter fired back that it was the NMPA that wasn't negotiating in a fair manner and said the associations representatives walked out of its last meeting.

At issue is a fair revenue for music artists from streamed online music sales, but sources said neither side is yet willing to budge from their offers. DMA is offering 6.9% of revenue for subscription services, while NMPA and ASCAP are looking for 14%.

"The next step is to find a compromise," an executive very familiar with the negotiations told TMO. "But this week neither side was willing to be first and offer a middle ground. Both sides continue to explain why they deserve their original offers."

The source, who asked not to be identified, said the DMA believes any more than a 6.9% revenue will cut deep into the already small revenue stream of online music services and will see a rise in pricing for consumers.

The NMPA and ASCAP have reportedly told the DMA that prices for online music downloads and subscription services are too low and that they deserve a bigger piece of revenue. "If pricing has to go up for them to make more money, they appear to be saying, 'so be it'," the source said.

The negotiations are focused exclusively on subscription music services that offer unlimited listening for a flat monthly fee. A royalty agreement for paid downloads of individual cuts -- like those from the iTunes Music Store (iTMS) -- have already been worked out. But experts agree that if copyright holders can squeeze out more than 8% revenue from subscription services, it will be tough for companies like Apple to stop revenue rates from going up on individual music downloads when it's time to negotiate again.

"Single downloads and subscription services are going to have very much the same revenue numbers," the source said. "If one goes up, the other will when it's time to re-negotiate."

When asked if higher rates will probably mean an increase in the price consumers pay for both services like Napster and iTMS, the source said, "If artists and copyright holders have their way, prices will go up. They feel the market will not suffer and consumers can afford it."

At present, most services, including iTMS sell individual music tracks at US$0.99 each.