Music to their ears

Napster to share royalties with publishers, labels

Napster has inked a legal settlement and licensing pact with the National Music Publishers Assn., ending a significant piece of its protracted court feud with the music biz and clearing a major hurdle for the embattled netco’s forthcoming digital music service.

Under the terms of the pact, Napster will make royalty payments based on a “one third/two thirds” model: One third of a set pool of royalty funds goes to the music publishers, which control compositions, and two thirds to the record labels, which own the sound recordings. Napster also agreed to pay publishers a $10 million advance against anticipated royalties.

The expected size of the royalty pool was not disclosed, but early this year former Napster chief exec Hank Barry indicated the company might consider paying between 50% and 60% of revenues to compensate all copyright holders.

It is not yet clear what the actual dollar amount of publishers’ compensation will be, since Napster has not finalized its pricing structure for the subscription service, set to bow by the end of the year. Recent reports put the price to consumers at about $5 a month.

Infringement payout

To compensate publishers for past infringements on their copyrights by the original, free Napster service, the company also will pay a flat settlement fee of $26 million.

The entire deal is subject to clearance from District Court Judge Marilyn Hall Patel, who was presiding over the suit, and from the membership of the NMPA. Ed Murphy, the association’s topper, said the parties hoped to get both approvals within 60 to 90 days.

Overall, the pact goes a long way toward smoothing out Napster’s path to rolling out its new service, but it could come at a potentially prohibitive cost, says Matt Bailey, an analyst with media research firm Webnoize.

“The amounts being talked about here are really quite large,” Bailey said. “We’ve seen in the past that small technology companies can negotiate licenses with publishers, but they tend to get really bad deals, because the power is in the hands of the content owners.”

Napster was further burdened by the threat of massive damages if the litigation was carried through to its conclusion, he added.

But newly installed Napster chief exec Konrad Hilbers maintained the deal with publishers was not something any of the parties rushed into just to get out of the courtroom.

“We are not risking this business,” he said. “There’s nobody here that’s willing to lose money over the long term.”

RIAA talks ongoing

Pact does not directly affect Napster’s ongoing legal imbroglio with the five major record labels, as represented by the Recording Industry Assn. of America, but Hilbers said he is still in discussions to settle with the diskeries. The RIAA declined to comment on Napster’s pact with publishers or its own conversations with the netco.

Napster did strike a licensing deal with a consortium of independent labels in the U.K. and Europe this past summer.

Earlier this week, the publishers were said to be close to a licensing deal with the two major label-backed music subscription services, MusicNet and Pressplay. But the royalty advances are said to be in the $1 million-per-year range — far lower than the $10 million being offered by Napster.

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