Sony BMG Music Entertainment proposed offering free music downloads to as many as 11 million customers to settle lawsuits over flawed copy-protection software on CDs, the company said Thursday.
The proposal, submitted in U.S. District Court in Manhattan, also would require the nation's second-largest music company to stop manufacturing compact discs containing anti-piracy software that leaves computers vulnerable to hackers and viruses.
"We hope this settlement will make a lot of content holders, especially record companies, think twice about going down a similar road," said Cindy Cohn, legal director of the Electronic Frontier Foundation. "Technology that is effective at stopping copying will always run the risk of exposing computers to hackers."
The proposed settlement, detailed in court papers filed Wednesday, would require Sony BMG to offer the 2 million to 3 million customers who purchased CDs containing XCP software a replacement disc not containing anti-piracy software and a choice between two compensation options.
The first option would give customers $7.50 and a code to download an album from a list of about 200 titles. Customers who forgo the $7.50 could download three albums from the list. Court papers said Apple Computer Inc.'s iTunes Music Store might be one of the download services fulfilling the settlement.
An additional 8 million customers who bought Sony BMG CDs containing MediaMax anti-piracy software would be eligible to download unprotected replacement tracks and, in some cases, an album from the list of 200 titles.
A Sony BMG representative Thursday declined to comment on the settlement's cost.
Sony BMG released a statement saying the company was pleased to have reached an agreement and looked forward to the court approval process.
Left unanswered is the settlement's effect on the music industry's hopes for widespread copy-protection devices. Music executives say illegal copying is a major cause of recent declines in music sales. Other record companies continue to pursue copy-protection solutions: EMI, the nation's fourth-largest music seller, has manufactured more than 175 million CDs that limit copying but has received complaints from less than 1% of customers, a company spokeswoman said.
Sony BMG had planned to impose copy protection on all its albums by the end of this year but is rethinking that strategy.
The company's troubles began in November, when a computer security expert publicized his discovery of anti-piracy software that installed a hidden program that hackers could use to infiltrate computers. Within days, a virus appeared that exploited the software's vulnerabilities, but it did not appear to spread widely.
By then, the issue had blossomed into a public relations nightmare. Sony BMG disclosed that MediaMax software had been installed on discs since August 2003 and XCP software since February this year. New albums by Neil Diamond and Celine Dion were pulled from shelves because they contained the software. A patch offered by the company, intended to repair the vulnerability, was found to create new weaknesses.
Lawsuits were filed in California, New York and elsewhere. A judge is expected to offer a preliminary ruling on the settlement next month.
The settlement would not end a lawsuit filed in November by the Texas attorney general.