Napster makes $1 billion settlement offer to record labels

A US appeals court last week upheld an injunction against Napster for contributory copyright infringement, subject to amendment of its terms. When the amendments are made, which is likely to be in the next few weeks, Napster will be forced to shut down most of its services pending a full trial on the copyright issues later this year.

If it goes off-line, it could lose for good many of its users, which it claims total 51 million. Accordingly, there is a strong incentive for Napster to accelerate the settlement negotiations. Presiding appeals court judge Marilyn Hall Patel recently appointed Eugene Lynch, a retired federal judge, to help Napster reach a settlement with the record labels out of court.

The proposal would involve annual payments to the major labels, songwriters and independent labels and artists over the next five years. Major labels would receive $150 million per year for a non-exclusive license, divided according to files transferred.

An additional $50 million per year will be set aside for independent labels and artists to be paid out based on the volume of files transferred.

Offering payment according to the number of files transferred is a different approach from its previous settlement proposals.

Hank Barry, CEO of Napster said:

“We made public our business model and technology today in hopes that the recording industry will meet us at the table to come to a resolution that benefits artists and consumers alike.”

RIAA president Hilary Rosen criticised Napster last night for “trying to engage in business negotiations through the media.” The offer of $1 billion is thought to be only a fraction of what the record labels believe they are owed for copyright infringements to date on the Napster service.

Napster's bargaining power will be that if put out of business by legal damages, its users could migrate to alternative services like Gnutella and Freenet which will be almost impossible for the music industry to control.

Napster says it will move to a subscription model this Summer which will have two tiers. A “Basic Membership” plan will cost in the range of $2.95 to $4.95 per month with an as yet undermined limit on file transfers. A “Premium Membership” will cost between $5.95 and $9.95 and will offer unlimited file transfers.

The company will also introduce security technology for the first time to prevent, for example, burning of MP3 files to CD without payment of an additional fee.