According to a Napster-issued press release, the preliminary agreement will settle a class-action lawsuit currently pending in a California federal court. Under the agreement, songwriters and music publishers will license their music to Napster's new membership-based service, which is set to launch later this year.
In the settlement, Napster agreed to pay $26 million to music creators and copyright owners for past unauthorized uses of music. The song-swapping service will also have to shell out $10 million in advance for future royalties.
Under the agreement, a portion of the revenue Napster collects for each song going forward will be used for royalty payments. One third of that amount would be paid to publishers and songwriters, which is a significant increase from what is being paid now. The remaining two thirds will go to copyright owners of sound recordings.
Napster's new membership-based service will offer recordings from hundreds of independent record labels and will separately offer music from BMG, EMI and AOL/Time Warner labels through MusicNet.
Martin Bandier, Chairman and Chief Executive of EMI Music Publishing Company, is happy about the settlement.
"Today I am extremely pleased to celebrate the beginning of a new Napster," he said. "A Napster that, quite unlike its predecessor, will respect the rights of those who create that music. In partnership, we will be able to tap the immense potential that the Internet offers in bringing music, legitimately, to a new and expanding audience."
The deal is now subject to the approval of U.S. District Judge Marilyn Hall Patel, the plaintiffs in the suit and the National Music Publishers' Association.
The settlement does not include the resolution of lawsuits filed by major record labels that own performance rights.
Both performance and publishing copyright issues need to be resolved before a song can be distributed on Napster.
Napster, which was created in May 1999, became the most frequently downloaded software application in the history of the Internet. In October of last year, Napster partnered with Bertelsmann AG to develop a membership-based service.
In June Napster partnered with MusicNet, signing a landmark distribution deal with the Association of Independent Music (AIM) and the Independent Music Companies Association (IMPALA).