Under the proposed settlement, $150 million would be paid each year for the first five years to the major record labels – Sony, Warner, BMG, EMI and Universal – with an additional $50 million alloted annually for independent labels.

Napster CEO Hank Barry, flanked by company founder Shawn Fanning, described the urgency of reaching an agreement with the record companies that are suing Napster for copyright infringement.

“We all ought to sit down and settle this case as fast as we can,” Barry said. “We’re saying this is something consumers really want. Let’s do something to keep it going.”

The offer was announced a week after a federal appeals court signaled the end is near for Napster’s free service, saying the music industry almost certainly will win its suit against the pioneering digital entertainment company.

Under last week’s ruling from a three-judge panel of the San Francisco-based 9th U.S. Circuit Court of Appeals, the company was ordered to stop the millions of people who use it as a clearinghouse to swap copyrighted music without charge and without restriction.

Napster, whose lawyers have said such action would be virtually impossible, has vowed to appeal to the full appeals court.

Napster has argued it is not to blame for how subscribers use copyrighted material, citing a 1984 case in which the Supreme Court refused to hold VCR manufacturers and videotape retailers liable for people copying movies.

But the appeals court said no such protection extends to Napster because the company knew users were swapping copyrighted songs. The panel also said there was evidence of “massive, unauthorized downloading and uploading of plaintiffs’ copyrighted works – as many as 10,000 files per second by defendant’s own admission.”

Napster’s popularity exploded in 1999 after Fanning released software that made it easy for personal computer users to locate and trade songs stored as computer files in the MP3 format, which compresses digital recordings without sacrificing quality.

The five largest record labels sued as soon as Napster took off, saying it could rob them of billions of dollars in profits.

Napster has scrambled to make agreements with former foes like Bertelsmann Inc., the parent company of the BMG music unit. The German media giant has promised much-needed capital if Napster switches to a subscription-based service that pays artists’ royalties.

Bertelsmann executives were at the news conference Tuesday at which the Napster offer was revealed.