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Napster has signed a licensing deal with MusicNet, an online distributor of music that counts three of the major music labels among its backers.

The deal, announced Tuesday, will let Napster offer MusicNet's content as part of a subscription service that Napster plans to launch later this year, the companies say in a joint statement. MusicNet is a joint venture operated by AOL Time Warner, Bertelsmann AG, EMI Recorded Music, and RealNetworks.

The deal marks a big step forward for Napster, which is being sued by the recording industry for allegedly helping its customers violate copyrights on a large scale. However, it isn't immediately clear if the record labels are ready to welcome Napster with open arms.

In their statement, Napster and MusicNet note the labels have agreed to let Napster distribute their music "at such time as Napster is operating in a legal, non-infringing manner and has successfully deployed a technology that accurately tracks the identity of files on the service."

Napster customers will get legal access to music from the major labels only through MusicNet. Customers will be able to share MusicNet content with other MusicNet subscribers who are also Napster members, the company says.

Lawyers for Napster and the recording industry are due to appear before a San Francisco district court judge Wednesday in the latest round of hearings in the ongoing lawsuit.

Changing Its Tune Too Late?

With this deal, Napster claims to be the third distribution partner to team with MusicNet. RealNetworks and America Online both announced licenses for the MusicNet service in April.

MusicNet was formed by RealNetworks and Warner Music Group early last year. The company was announced as a joint venture of RealNetworks, AOL Time Warner, Bertelsmann, and EMI last April.

Lean times have been gaining on Napster. The average number of files being shared in its MP3-swapping service has fallen 90 percent in the three months since court-mandated filters were installed to block the trading of copyrighted music, according to a study.

Digital entertainment research firm Webnoize says that while the average Napster user offered 220 files in February 2001, Napster customers averaged only 21 shareable files on their PCs in May. Also, the total number of files downloaded declined precipitously, Webnoize says.

In May, only 360 million files were downloaded, down from 2.79 billion in February, an 87 percent decrease. This continued a 37 percent slide reported in April.

Webnoize also finds users may not be hot to become Napster subscribers. Almost 3000 users surveyed say they will use illicit means to obtain copyrighted MP3s in the future, and only 21 percent say they will opt for licensed means.

(Sam Costello of the IDG News Service contributed to this report.)

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