“We invest billions of dollars every year worldwide to find people with talent, to bottle whatthey fight to protect their copyrights.

“It was a very costly mistake,” he said.

Earlier this month, MP3.com agreed to pay BMG and Warner Music Group to settle a copyright infringement lawsuit. The exact terms were not disclosed, but MP3.com will pay more than $20 million to each company, music industry sources said. Still pending are claims by othercompanies, including Universal and Sony.

Zelnick said his company would vigorously defend its copyrights even while pursuing ways to sell music digitally online, either by itself or in partnership with other companies. He likened the downloading of music from Napster, a program that allows the distribution of music files for free, to shoplifting.

“If you walk out of a store with my CD under your arm, we’re going to throw you in jail,” he said.

The recording industry is suing Napster and is trying to create a secure digital standard as an alternative to the unsecured MP3 format. Last year, BMG joined with Seagram, the parentcompany of Universal Music Group, to form an online music store, Getmusic.com, in an attemptto persuade fans to buy music legitimately.

Zelnick said the Web would never become a place where undiscovered bands or established artists regularly bypass record companies to reach consumers directly. He challenged MP3.com’s strategy of posting hundreds of digital music tracks from hundreds of unknown artists, “that no one wants to listen to,” he said.

He also said he does not believe more than a handful of major artists will drop their label affiliations and distribute their music on the Web.

“In most cases, superstars would rather take our money and mitigate the risk than take the risk themselves,” he said.