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Napster Offers $1 Billion Settlement Deal

Napster, the wildly popular online song-swap service, Tuesday offered to pay $1 billion over five years to the recording industry to end a bitter lawsuit that threatens its survival.

Napster officials, outlining a strategy they hope will keep their company alive in the face of a threatened legal injunction, said they were willing to pay $150 million per year in licensing fees to major record companies and $50 million per year in fees to independent labels and artists.

“We updated on short notice everyone in the music industry,” Andreas Schmidt, president and chief executive of the e-commerce group at German media giant Bertelsmann AG , said at a press conference Tuesday.

Bertelsmann in October joined forces with Napster in an effort to resolve the company’s legal problems.

Napster’s new proposal follows earlier failed settlement efforts with its recording industry foes who have sued it for copyright infringement.

Unlike previous offers, however, it is now offering music companies a fee based on the number of files traded over its service rather than a percentage of record company revenues.

“We’re saying this community should be allowed to stay together,” said Napster chief executive officer Hank Barry.

Napster’s service has amassed over 50 million users who swap songs for free by trading MP3 files, a compression format that turns music on compact discs into small computer files.

“I believe it is time for the music industry and Napster to create a win-win strategy for users, artists and the labels,” Bertelsmann’s chief executive officer Thomas Middelhoff said on Tuesday

But many recording industry observers quickly scoffed at the latest proposal, privately noting that $1 billion over five years does not even come close to the money the labels figured they are due for copyright infringements on Napster which facilitates the downloading of billions of songs each month.

Recording Industry Association of America President and chief executive Hilary Rosen on Tuesday accused Napster of waging a public relations campaign through the media while engaging in “delay tactics” in court.

“We understand Napster’s desire to not have to cease its operations in order to comply with an injunction order from the court,” Rosen said earlier in a statement. “It is unfortunate that Napster still has not developed a legitimate system that protects the interests of both consumers and creators.”

At the press briefing, Napster’s Barry confirmed earlier promises by Bertelsmann’s Middelhoff that the companies would roll out its new, secure business model by July.

Under the basic plan, members may be charged anywhere from $2.95 a month to $4.95 a month, while the premium plan would cost $5.95 a month to $9.95 a month for unlimited transfers.

Napster said Digital World Services, a unit of Bertelsmann is working on the business model with technology that enables music files to be transferred from user to user but with new restrictions like requiring additional payments for users to copy files onto a CD.

He likened Napster’s latest settlement to the model used by record clubs in the past in which labels were paid an estimated $15 million to $20 million per year for their licenses.

“Our offer of $30 million is more than a fair statement,” Barry said.

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