RIAA Calls $1 Billion Napster Offer a Ploy

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The Recording Industry Association of America this week scoffed at free digital music sharing service Napster and its public offer for a $1 billion settlement to end the copyright infringement litigation that could put it out of business.


Association president and chief executive Hilary Rosen urged Napster to "stop the infringements, stop the delay tactics in court and redouble your efforts to build a legitimate system."


Big record label executives bashed the proposal, which Napster announced Tuesday at a press conference, and labeled it an indirect marketing ploy to grab attention and headlines.


"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," Rosen said.


Napster's proposal guaranteed $1 billion to major and independent labels and artists over five years. Major labels would receive $150 million per year for a non-exclusive license, divided according to files transferred. Another $50 million per year would be set aside for independent labels and artists to be paid out based on the volume of files transferred.


While $50 million per year might go a long way for some of the smaller labels, $150 million per year does little to appease the global recording industry, a $40 billion per year business.


Napster is still free to use. Until a subscription service is launched, the company has no revenue stream.


To shed some light on how a non-revenue producing company would be able to pay out $200 million per year, Napster CEO Hank Barry seized the opportunity to make his first public comments on Napster's business model, and for the first time confirmed rumors started by its partner, Bertelsmann Music Group, that the subscription service would launch this summer. BMG partnered with Napster last year and promised to drop its portion of the RIAA lawsuit once a subscription service goes live. BMG loaned Napster $60 million in exchange for equity in the company.


The new version, set to launch in July, would work something like a multitiered cable television subscription scale. Napster plans to charge monthly fees between $3 and $5 per month for limited downloads and between $6 and $10 per month for unlimited downloads. Users would pay additional fees to copy compact discs or transfer downloads to portable devices.


This proposal comes about one week after Napster launched a movement to get its 50 million users to lobby Congress with support for its business. Visitors to Napster.com are being urged to opt in to the company's e-mail newsletter.


Napster has also provided a service in which users enter their ZIP codes to access a listing of legislators to contact. The company has provided a form letter for its users to sign and send.


This push began a day after a three-judge 9th U.S. Circuit Court of Appeals panel unanimously ruled that a preliminary injunction against Napster's service was "not only warranted but required."


The RIAA filed copyright infringement charges against Napster last year. However, Napster's lawyers received a stay of Federal District Judge Mayilyn Patel's original injunction until the appeals court's decision earlier this month. The ruling means Napster could be shut down until the lawsuit itself comes to trial.


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