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Napster Offers Deal

With $1 billion proposal Napster seeks to go legit

February 21, 2001 12:00 AM ET

Napster presented a $1 billion proposal to the five major record labels yesterday, with an eye on launching the new system this summer. Under the terms of the plan, the music file-swapping service is offering to pay the five labels $150 million per year over five years for non-exclusive licenses to their catalogs. The annual amount will be distributed among the labels according to the number of files transferred from each label. An additional $50 million will be set aside in a fund to pay out independents, also based upon the volume of file transfers.

The announcement came shortly after a challenge from Hilary Rosen, president and CEO of the Recording Industry Association of America, challenging Napster to halt it's court-based delay tactics and make good on it's promise to create a legitimate business model. "You claim you want to be legitimate, and negotiate licenses based on real business models," Rosen said in a statement. "I urge you to act accordingly. Redouble your efforts to build a legitimate system. Our member company plaintiffs have always said that they stand ready and willing to meet individually with you to discuss future licenses. This path would be more productive than trying to engage in business negotiations through the media."

Napster's revenue will be derived from a two-tiered membership system. The company plans to offer a "Basic Membership" for between $2.95 and $4.95, which would have a monthly file transfer limitation and a "Premium Membership," which would run between $5.95 and $9.95 for unlimited transfers. "Our research strongly suggests that a high percentage of Napster users are willing to pay," read a Napster statement. "We will not be certain until we actually begin charging, but we do know that Napster has become an important part of daily life for a lot of people. We have been conservative in our membership packages."

The plan comes a week after the Ninth Circuit Court of Appeals in California upheld an injunction against the company that ordered Napster to remove all unlicensed content from its directory. "Now that the industry has the legal precedent they were seeking, it is time to reach an agreement," a statement from Napster read. "The RIAA has been saying the consumer comes first, the consumer comes second, and the consumer comes third. If the industry has the consumer, and their own bottom line in mind, there is an agreement to be had here."

The RIAA seemed to hold the proposal at arm's length. In a six-point critique of Napster, the organization questioned Napster's decision to hold a news conference yesterday to unveil the proposal, rather than dealing with the major labels directly. The RIAA also asked that should the company create a legal system for file-sharing, would they then support the enforcement of copyright laws against other file-sharing sites. The statement also noted that the RIAA's year-end numbers suggested that record sales have flattened at a time when other entertainment sales are increasing. "Don't you think there has been a negative impact?" the statement asks.

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