Napster Offers Labels $1 Billion To Settle

Napster today offered the recording industry $1
billion to drop legal action aimed at shutting down the song-swapping service and put forth a two-tiered pricing plan for users. Napster said it would pay $150 million per year for five years
to the major recording companies for non-exclusive licensing, and $50 million annually for independent labels. And that money - not chump change by a long shot - has to come from somewhere.

Starting this summer, users will pay a monthly fee ranging from
$2.95 to $4.95 for a limited number of songs, or $5.95 to $9.95
for unlimited downloads, the company said on its Web site tonight.

"Our research strongly suggests that a high percentage of Napster
users are willing to pay," Napster said. "We will not be certain until we
actually begin charging, but we do know that Napster has become an
important part of daily life for a lot of people."

Some estimates put Napster membership at more than 60 million,
but the billions of file downloads cost those users nothing.

The money to the major labels - Sony, EMI, BMG, Universal
and Time Warner - will be divvied up according to files transferred.
"For example if the transfers were evenly divided among five major
labels, each would receive $30 million," Napster said. Payments to
independent labels and artists will be paid out based on the volume
of transfers.

Germany's Bertelsmann AG, parent of the BMG label,
has invested more than $50 million in Napster to develop
a subscription model. Last year the recording industry sued
Napster, claiming that its music-swapping software permits
wholesale copyright infringement.

On Feb. 12 the 9th US Circuit Court of Appeals ruled that
Napster must stop allowing free downloads. A preliminary
injunction granted by US District Judge Marilyn Hall Patel
last October was remanded for modification, but the appeals
court concurred with what it said.

"Now that the industry has the legal precedent they were
seeking, it is time to reach an agreement," Napster said.

The Recording Industry Association of America (RIAA), which
has represented some of the major labels in the industry's lawsuit,
had no immediate comment on the offer, RIAA spokesman Doug Curry
told Newsbytes tonight.

Hours earlier the RIAA issued a news release calling on Napster to
devise a way to offer songs that not only benefit consumers but
compensate artists and the industry.

"You claim you want to be legitimate, and negotiate licenses based
on real business models," RIAA President Hilary Rosen said in a statement.
"I urge you to act accordingly. Stop the infringements, stop the delay
in court, and redouble your efforts to build a legitimate system."

The RIAA called on Napster to disclose whether it has technology
capable of blocking copyright-protected music files from being shared,
and, if so, when it will be put to use. The group also asked
whether Napster would support enforcement of
copyright laws against other free download sites.

Bertelsmann AG and Napster last Friday said technology under
development now will preserve the peer-to-peer structure of Napster,
but will allow restrictions to be placed on transferred files. A
layer" will be added as MP3 files are transferred from one user to another.

Napster interim CEO Hank Barry said in a statement
that he hopes Napster becomes a fee-based service
as soon as possible. But he also said, "the real questions
about Napster's future are economic, not technical or legal."

Napster appears to have addressed a key element of
economic questions about the service's future in the offer
unveiled today.

Meantime, the recording industry took the bully pulpit
at a Beverly Hills meeting of entertainment lawyers today.
AOL Time Warner Co-Chief Operating Officer Richard
Parsons said "Napster and its ilk" have no respect for
the rights of artists and producers.

"Strip away all the rhetoric about free choice and third-party
neutrality," Parsons said in a speech to the Recording
Academy Entertainment Law Initiative, "and what Napster has been
found guilty of is old-fashioned copyright infringement or, in layman's
terms, ripping off what doesn't belong to it."

But Parsons also acknowledged that more than 55 million
Napster users are devoted to music downloads, and called
on the music, computer and consumer electronics industries
to work toward adoption of interoperable standards.

And, he said, it must be an uncomplicated system. "Ease of use
is what drove radio and broadcast TV and the Victrola and
the video cassette and the CD," he said.

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