Kazaa Owners Paying $100 Million to Settle Music-Industry Suit

LONDON – The music and movie industries have reached a legal settlement with their longtime antagonist Kazaa, one of the world's best known file-sharing networks and a once-popular source of illicit downloads.

Under the terms of the deal, Kazaa's owner Sharman Networks will pay the world's four major music companies — Universal Music, Sony BMG, EMI and Warner Music — more than $100 million and commit to going legitimate, according to the International Federation of the Phonographic Industry .

"There are very substantial damages being paid — in excess of $100 million — and Kazaa will go legal immediately. They've had time to prepare for this," said IFPI Chairman and Chief Executive John Kennedy.

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The Motion Picture Association of America said Sharman "will continue operations while employing new technologies to prevent unauthorised distribution of copyrighted works on its system."

Terms of the MPAA's settlement were not immediately available.

Two suits were settled as part of the agreement: one in Australia, where a judge had already ruled that the company breached copyright; and another in California, in which Kazaa creators Niklas Zennstrom and Janus Friis were named as co-defendants.

Zennstrom and Friis, who sold Kazaa to Sharman Networks in 2002, later went on to create the popular Internet telephony software Skype, which they sold to eBay (EBAY) last year for an initial $2.6 billion in cash and stock.

Zennstrom declined to comment when reached by Reuters on Thursday.

The music industry has pursued an aggressive legal strategy in its attempts to curb Internet piracy, filing lawsuits against file-sharing companies like Kazaa and Grokster , as well as individual users who uploaded copyrighted material.

Their efforts were bolstered last year when the U.S Supreme Court ruled that content companies can file lawsuits against technology firms that encourage copyright infringement.

Meanwhile, legitimate music services like Apple's (AAPL) iTunes have become wildly popular, offering legal alternatives to illicit file-sharing.

Ovum analyst Jonathan Arber said the settlement would have a mostly symbolic importance, as Kazaa was past its prime.

"It's nowhere near as popular as it used to be. Very few people are thought to be using it anymore because better services came out," he said. "It is a big legal victory, a good symbol for them to put out, but in terms of actually reducing piracy, people migrated to other file-sharing networks a long time ago."

The IFPI said in a report on Thursday that last year there were $4.5 billion in pirated CD sales, or more than one in three CDs sold worldwide, and that there were 20 billion illegal downloads — roughly three for every human being on Earth.