Napster Offers Record Industry $1bn Through Subscription Model

Napster, Inc. offered $1 billion to major and independent record labels in hopes of resolving its copyright infringement lawsuit, and published the details of a business model to cover the cost.

Under the proposal, $150 million would be paid annually for the first five years to Sony, Warner, BMG, EMI and Universal. An additional $50 million would be paid each year to independent labels.

To make the payments, Napster (www.napster.com) would adopt a membership model. Basic membership — with an as-yet-undetermined limit on file transfers — would cost in the range of $2.95 to $4.95 per month. Premium membership with no file transfer limit would cost between $5.95 and $9.95.

The company also announced other features of the "new Napster," slated to launch this summer if the company survives its current legal crisis. Users will pay an additional fee to burn CDs and to transfer music to portable devices. The service will offer secure and accurate file transfer, a new player with a personal jukebox, and enhanced search and community features.

"We all ought to sit down and settle this case as fast as we can," said Napster CEO Harry Bank. "We're saying this is something consumers really want. Let's do something to keep it going."

The billion dollar offer was announced a week after the San Francisco Appellate Court ordered Napster to remove copyright-infringing content from its site. If upheld, the decision will almost certainly drive Napster out of business.

Record industry executives were unimpressed with the offer, saying that a billion dollars is not enough to compensate them for the sales revenue they will lose if Napster continues to operate. "It is Napster's responsibility to come to the creative community with a legitimate business model and a system that protects our artists and copyrights," said Vivendi Universal's Universal Music Group. "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. Official at Sony and AOL/Time Warner said they were waiting to hear more details of Napster's secure subscription model.

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.

But Phil Leigh, vice president of Raymond James & Associates, says that the offer is legitimate. The billion dollars would translate directly to the record labels' bottom line because they would not need to pay manufacturing or distribution costs associated with physical CDs, says Leigh. If Napster shuts down, Leigh predicts that users will scatter to other file-sharing sites such as Bearshare.com or other Napster clones in offshore locations outside U.S. jurisdiction, or form a political movement demanding mandatory licensing. "This offer gives the record labels a narrow window of opportunity to control Napster users," he said.