Napster Buys Some Respect

Napster is shelling out $36 million to music publishers and songwriters, hoping to buy more respect from the industry as it prepares to launch its Internet music subscription service later this year.

The music sharing startup — which had vigorously fought the recording industry — reached an agreement last week with associations representing U.S. music publishers and songwriters. Napster will pay $26 million in damages for past "unauthorized uses of music," and an advance of $10 million for future licensing royalties.

The deal will settle the class action lawsuit filed against Napster by the National Music Publishers Association, if it is approved by the U.S. District Court judge overseeing the Napster case. But Napster, which was forced by a court order to suspend its free file swapping service in July, still faces copyright infringement lawsuits filed by the major music labels. Napster CEO Konrad Hilbers said the company is actively trying to settle those lawsuits.

Napster, whose major financial backer is media company Bertelsmann, already has agreements to license content from smaller independent labels and MusicNet, a joint venture of AOL Time Warner, Bertelsmann, EMI Group and RealNetworks.

Originally, Napster planned to launch its subscription service by the end of summer. Hilbers said the service will be up by the end of the year, and hes convinced it will be a huge draw. "I envision that we will have a service that is going to have a million, 2 million members fast," he said in a conference call last week. "I would put that at 1 year to 18 months perspective."

But analysts said that may be an overly ambitious target. EMusic. com, so far the most successful subscription-based online music service, has signed up only 25,000 paying customers more than a year after its launch.

"Its going to take a while for these services to become compelling consumer services," said Matt Bailey, an analyst of digital entertainment at research firm Webnoize.