Napster in settlement talks with artists

Napster executives have been quietly meeting with record labels in recent days, said one participant from the industry's side of the talks, who described the meetings as informal and exploratory. The sessions are seen as part of the peace-making efforts by Hummer Winblad Venture Partners, a Silicon Valley venture-capital group that made a $13 million investment in the San Mateo, Calif., music Web site last month and which has tried to strike a conciliatory note with the record industry.

A Napster spokesman wouldn't comment on the talks, but said the company is committed to working with "all the communities" affected by its software. Hearing Set for July 28.

Napster is the Internet service that allows people to freely swap MP3s -- or digitized computer files containing music -- many of which are pirated versions of copyrighted music.

Facing a July court date, Napster is working to strike a deal with the Recording Industry Association of America The Recording Industry Association of America, a Washington, D.C., trade organization representing the big record labels, along with several musicians, has filed a series of legal actions against Napster that could lead to the site's closure. The federal judge presiding over the case, who thus far hasn't been sympathetic to Napster's legal arguments, has set the next hearing for July 26.

Napster officials have long said they wanted to compensate artists and others for music that is downloaded on the site and have talked about several ways to make that happen, from a per-song charge to a monthly subscription fee.

This month, MP3.com Inc., a San Diego Internet site, reached an out-of-court settlement with two big record labels over a separate copyright suit. MP3.com agreed to pay 1.5 cents each time a user stores a song using MP3.com's service, as well as a third of a cent each time the song is listened to from the company's Web site.

Those payments are fairly low, because MP3.com users already own the music they listen to. Any payments by Napster to record labels presumably would be higher, since users would be, in effect, buying the music at the same time they were downloading it.

Another important issue in the Napster talks is the record industry's insistence on monetary damages for what it maintains has been many months of rampant music piracy on Napster. "Someone has to pay the piper for what has happened," the participant in the Napster talks said. "But there are ways that can be done."

Among the possibilities, he said, is giving record labels a stake in Napster, thus allowing them to participate in any financial upside should the company ever find a way of going public or getting purchased.

That conceivably could happen soon after any settlement, since Napster-like software is all the rage with Silicon Valley investors right now. For example, a pair of programmers associated with Gnutella , a separate file-sharing system, are close to a deal with venture capitalists that would allow the programmers to create their own business around their software.

The participant in the negotiations said there was no guarantee the talks would bear fruit. Indeed, some people say the record industry's animus toward Napster is too great to allow for a settlement.

"One of the business risks with Napster is that record companies will need a poster boy for someone they will take on in court, like Napster, and that someone else on a white horse would ride in and get their business," said Robert Kagle, with Benchmark Capital, one of several venture-capital firms that considered investing in Napster but didn't.