Napster offers $1 b. for its survival

In a desperate, but seemingly mute effort to survive, Napster this week

offered to pay five record companies $1 billion in royalties over the next five

years. The company also promised it would ensure that its 64 million members

would no longer be able to exchange copyrighted material.

Napster CEO Hank Barry said he and company founder Shawn Fanning hoped to

quickly reach an agreement with the record companies. "We're saying this is

something consumers really want. Let's do something to keep it going." But

Napster fans should not get their hopes up that a deal is in the works. The

record industry reacted cool to Napster’s offer. "We divide the world

into two kinds of people: those who respect the rights of creators and owners of

intellectual property to determine how and when their property is used, and

those who do not. Napster and its ilk are in the latter category,"

commented AOL-Time Warner co-chief operating officer Richard Parsons.

Edgar Bronfman Jr., vice chairman of Vivendi Universal added, "My view

is that all the labels will come together and make their music available online.

What we will not tolerate is rewarding Napster for 16 months of infringing our

copyrights."

Sony and EMI have not yet commented on Napster's latest offer, but few

analysts expect any of the top record labels to be interested in letting Napster

distribute the hundreds of thousands of copyrighted songs they own. Rather than

letting Napster control the online distribution of music, the record companies

are exploring their own avenues of catering to what has quickly become a

potentially lucrative new marketing channel.

The industry now has the legal mandate to force Napster to shut down its Web

site and that is expected to be ordered formally by a federal judge in the next

two weeks. Although Napster has offered to force members to pay a subscription

fee, "Napster is basically trying to purchase the copyrights and resell

them," said Susan Billheimer, an analyst with Zona Research. "The

record companies are more interested in distributing their music themselves over

the Internet."

Napster’s offer includes annual payments of $150 million to Sony, Warner,

BMG, EMI and Universal for five years. An additional $50 million would go to

independent labels in each of those five years.

In return, Napster wants the record industry to drop the copyright

infringement lawsuits they have filed. Napster’s plan calls for charging

members $3 to $10 a month for music downloading services. It figures that some 5

million of its 50 million members would sign up immediately, generating annual

revenues of around $295 million. With 17 million registered users by the fifth

year, Napster would generate more than $1 billion dollars annually.

But the plan has fallen largely on deaf ears. "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 a

spokesman for the 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."