SAN FRANCISCO -- Trying to stave off extinction without driving off all its users, online music powerhouse Napster Inc. announced an offer Tuesday to pay record companies $1 billion over five years for the right to include copyrighted music in a new, fee-based version of its music-swapping network.
Company executives and Thomas Middlehoff, chief of media conglomerate Bertelsmann, implored the labels to suspend their legal assault while all the parties worked out a deal.
The offer, which both fans and critics see as a desperate gamble, comes as the company and its users nervously await a preliminary injunction from U.S. District Judge Marilyn Hall Patel in San Francisco. That injunction could force Napster to block access to the most popular songs, eviscerating the current version of the service.
The major labels reacted coolly to Tuesday's offer, although they didn't rule out a deal with Napster if their concerns about unauthorized copying were met.
"We would not support a proposal that allows Napster to continue to operate in the current unlawful form while developing a business model," said Dick Parsons, chief operating officer of AOL Time Warner Inc. "They need to shut down, then we can talk."
Bob Bernstein, a spokesman for Vivendi Universal's Universal Music Group, said: "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. ... Nothing we have heard in the past and nothing we have heard today suggests they have yet been able to accomplish that task."
A spokeswoman for the record labels' trade association dismissed Napster's offer as a public-relations gimmick. "This is a strategy to put public pressure on the (record) companies, rather than have face-to-face meetings with the companies they're trying to deal with," said Amy Weiss of the Recording Industry Association of America.
Industry and legal experts questioned how Napster could raise the promised $200 million a year, given that few of its current members are expected to sign up for the new version. Napster's model assumes that more than 98 percent of the 64 million registered users will abandon the service in the face of the new fees, which are tentatively set at $3 to $10 per month.
If Napster loses 98 percent of its current users, it will only have about a million people paying for the service, said Phil Leigh, an analyst at the Raymond James Associates Inc. investment bank in St. Petersburg, Fla.
"At $10 a person, that's only $120 million a year," said Leigh, assuming the monthly charge would be at the high end of $10.
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