Napster's Billion-Dollar Peace Offering

SAN FRANCISCO (Reuters) — Napster, the wildly popular online song-swap service, today offered $1 billion in licensing fees over five years to settle its legal battle with the U.S. recording industry, which wants it shut down and a workable business model of its own to be established.

Napster officials told a news conference in San Francisco that the proposed license payments would consist of $150 million per year to the major record companies and $50 million per year to independent labels and artists.

Officials at Napster and Bertelsmann AG, the German media giant that joined forces with Napster in late October, said they had called the record labels suing Napster earlier today with the proposal.

"We updated on short notice everyone in the music industry," said Andreas Schmidt, president and chief executive of Bertelsman's e-commerce group.

This proposal, a sum based on the number of files traded on the Napster service, differs from the company's earlier proposal, which was based on a percentage of the record company's revenues.

Napster, which is battling the threat of a legal injunction that could shut it down, has been seeking to reach agreement with the recording industry but so far has scored little success. Its primary legal foe is the Recording Industry Association of America, which represents Vivendi Universal, AOL/Time Warner Inc., EMI Group Plc., and Sony Corp., among others.