Sharman Networks, which produced and distributed the software, will compensate record labels including Universal Music, Warner Music, EMI and Sony BMG for income lost because listeners were downloading music illegally rather than buying it.
The company also agreed to “use all reasonable means” to discourage online piracy, including building into its software a “robust and secure” way to prevent computer users from finding and downloading copyrighted music and movies.
Industry representatives said that the settlement marked a turning point in the fight against illegal downloading.
“Kazaa was an international engine of copyright theft which damaged the whole music sector and hampered our industry’s efforts to grow a legitimate digital business,” John Kennedy, chairman of the International Federation of the Phonographic Industry, said.
“Kazaa will now be making a transition to a legal model and converting a powerful distribution technology to legitimate use,” he added. “We hope that other sites will see that the writing is now on the wall, that there are consequences.”