Napster today made public a business model that it has been
presenting to major labels for the last six months in its effort to
settle its legal battle. The company, which does not presently
charge users of its service, has offered to pay $1 billion over the
next five years if the record labels drop their legal actions.
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.
