Napster, the darling of the internet underground, plans to begin charging users for its service under a subscription-based model in partnership with German entertainment giant Bertelsmann.

In a move that may deter some of Napster's 38 million users, who have until now been swapping millions of audio and video files free of charge, the music download company said it would begin imposing a charge of about $4.95 per month for access to legal MP3 files.

Bertelsmann's record label BMG, which was one of the major US record companies that sued Napster for alleged copyright infringement, has agreed to withdraw its lawsuit once the subscription service is up and running. BMG will also make its catalogue available to download via the new Napster, although no pricing has been set.

Napster chief executive Hank Barry said in a conference call that artists and record companies needed to see some revenue from file sharing. "Members told us that they are anxious to move to a system that compensates artists," he said, adding that the service would provide free "promotional" files.

Executives from Bertelsmann and Napster repeatedly avoided questions about whether users would still be able to rip CDs and share them via the service - the key issue that put Napster in court in the first place.

"There are some technical hurdles. We have come to understand that the process [of people] taking files and putting them on PCs is going to continue. The question is how do we do it?" said Barry.

Napster founder Shawn Fanning said his views about the company's future are consistent with those of Bertelsmann, something that will no doubt dismay his fans in the internet underground.

Fanning said his reasons for wanting to change the service are to improve reliability and the way it promotes new artists, and to make it easier for people with similar music tastes to meet and communicate.

Bertelsmann, which struck a file download deal with Lycos earlier this month, said the move is part of a need for record companies to embrace file sharing.

"There is no question that file sharing will exist in the future as part of the media and entertainment industry," said Bertelsmann chief executive Thomas Middelhoff.

Andreas Schmidt, president of Bertelsmann's Ecommerce Group, added: "It is unfortunate, or should I say fortunate, that until today the industry has not embraced the usage of file sharing. We, with Napster, are going to change that."

Bertelsmann and Napster will get revenue from membership fees and from referring CD buyers to online music retailer CDNow. The companies also plan to make high-quality files available on the system for an extra charge.

More Napster coverage:
Record labels won't drop Napster lawsuit
Napster veterans buy fewer CDs