Napster, the Internet MP3-swapping service, outlined a proposal on Tuesday to end the ongoing litigation brought against it by the Recording Industry Association of America (RIAA) on behalf of BMG Entertainment, Universal Music Group, Warner Brothers, EMI and Sony Music Entertainment.

Napster has offered to pay the record labels a total of $1 billion over five years to settle the lawsuit, the company said. In return, Napster will charge a membership fee to users trading copyrighted music over its service.

A Napster spokesman said: "This is Napster's proposal for a new membership-based plan that they are hoping the record labels will agree to. This is something they've discussed with the labels each time they've met them."

Digital divide The $1 billion would be broken down as follows: Napster would pay the major labels $150 million per year for a non-exclusive licence to their music, which would be divided according to the music files transferred. For example, if the transfers were evenly divided among the five labels, each label would receive $30 million.

A further $50 million would be set aside each year for independent labels and artists, and it would be paid out based on the number of songs traded.

Napster users would be asked to subscribe to the service under a model that includes basic and premier membership plans. Exact pricing hasn't been set, but the company expects to charge between $2.95 to $4.95 per month for the basic plan, which includes a limit to the number of files that can be traded. The premium plan, priced between $5.95 and $9.95 per month, would give users access to unlimited files.

BMG deal BMG, one of the five major record labels originally suing Napster, signed a surprise settlement with Napster in October 2000 and invested a reported $50 million in the service. The two have since been working on establishing a secure, copyright-friendly version of Napster:

Rolf Schmidt-Holtz, president and chief executive officer of BMG Entertainment, said: "We believe the new Napster proposal announced today is a positive step that will encourage the music industry to work with Napster.

"BMG embraces a secure peer-to-peer file sharing service that respects copyrights and compensates our artists. We are optimistic that this new service will meet those goals."

Napster's proposal drew fire from Hilary Rosen, president and chief executive officer of the RIAA.

She said: "Stop the infringements, stop the delay tactics in court, and redouble your efforts to build a legitimate system. 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.

"If you really want business deals with the record companies, why hold a news conference instead of talking with the companies directly?"