Napster offers $1 billion to settle digital copyright dispute

Napster Inc., facing an uphill struggle to keep its online music file-sharing service alive, yesterday offered to pay recording companies, songwriters and musicians a total of $1 billion over the next five years to license songs and settle a digital copyright infringement lawsuit filed by the recording industry.

Redwood City, Calif.-based Napster, which detailed the offer during a press conference yesterday and then issued a statement about the proposal today, also said it would start charging users of its service a fee by summer if the plan is accepted. However, Napster officials said they will continue to allow unlicensed songs to be traded via the company's Web site for the time being.

Furthermore, Napster CEO Hank Barry vowed to press on with a legal effort to overturn a preliminary injunction that could force the company to shut down its service. The plan to leave the service intact and continue the court battle drew immediate criticism from recording industry executives.

The settlement offer was made public just a week after the U.S. Court of Appeals in San Francisco upheld a lower court ruling that said Napster violated recording company copyrights and can no longer facilitate the unfettered sharing of recordings. The appeals court left the injunction issued against Napster last summer largely intact, although it did remand the case to a U.S. District Court judge to rework the wording of the ban (see story).

During yesterday's press conference, Barry said Napster would guarantee payments of $150 million per year to major recording labels and set aside another $50 million annually for smaller companies and independent musicians. The exact amounts going to each company would depend on the number of their songs traded over Napster's networks, he added.

Recording companies might also be eligible to receive equity in Napster if the settlement deal is accepted, according to Barry. An exact plan for charging Napster users hasn't been finalized, but Barry said a basic service that limits the number of file transfers would cost $2.95 to $4.95 per month. Unlimited access would be $5.95 to $9.95.

Napster currently allows users to freely download songs that reside on the computers of other subscribers. But that would change under the business model proposed yesterday. "Does [the new model] mean that the old one will go away? The answer is yes." Barry said, adding that he's prepared to implement the fee-based service by July.

The settlement offer is part of Napster's attempt to paint itself as a legitimate company that respects the intellectual property of labels and recording artists. "This is the time to settle this lawsuit and grant a license to Napster . . . so we can start this whole great new industry of file sharing," Barry said.

But despite sounding conciliatory at times, Barry said Napster is preparing a legal brief aimed at challenging last week's court decision in front of a larger appeals court panel. He also defended Napster's decision to continue allowing songs to be traded over its system without authorization while it continues to seek licenses from record companies.

Barry was flanked at the press conference by executives from recording-company owner Bertelsmann AG, which signed a deal to set up a membership-based service with Napster last fall (see story). "I believe it's time for the music industry and Napster to create a win-win strategy," said Bertelsmann CEO Thomas Middelhoff.

But Bertelsmann is the only company that has settled with Napster thus far, and one of the remaining four plaintiffs -- Universal Music Group -- yesterday issued a statement saying that it's still not convinced that Napster has a workable plan for compensating labels and musicians for songs downloaded via the file-sharing service. "Nothing we have heard in the past and nothing we have heard today suggests they have yet been able to accomplish that task," Universal said.

Hilary Rosen, president and CEO of the Recording Industry Association of America in Washington, said in a statement that musicians and recording companies shouldn't "have to continue to give away their songs on [Napster's] illegal system" while the company attempts to reach a settlement deal. She urged Napster executives to "stop the infringements [and] the delay tactics in court."

For complete coverage of this issue, head to our Focus on Napster page.

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