The NY Times reports today:

Under the deal, KaZaA's owner, Sharman Networks Ltd., will advertise high-speed Internet access provided by Tiscali, an Italian Internet provider, to its tens of millions of European users. In return Tiscali, which serves around seven million customers in 15 countries, will pay Sharman a "bounty" for each KaZaA user who signs up for its high-speed access service.

The deal, the first of its kind, appears to give KaZaA a new ally in the fierce legal and policy debate that has pitted the record companies against KaZaA and similar services, including their renowned — but now dead — predecessor, Napster. The record companies have accused the services of abetting the illegal free exchange of billions of music files, and, in turn, of causing a decline in record sales.

"Prior to this, you could characterize KaZaA as a beleaguered company on the outskirts," said Mark F. Radcliffe, an intellectual property laywer in Palo Alto, Calif. "This gives legitimacy to KaZaA."

The deal also underscores the potential common interests of high-speed Internet access providers and organizations that deliver complex digital media. Internet providers, including Tiscali, have said that one way to convince consumers to pay for more expensive high-speed access is to offer them content, like movies and music, that takes more time — an often excruciating amount of time — to download using slower dial-up connections.

Mario Mariani, senior vice president for access and media business of Tiscali, a public company based in Cagliari, Sardinia, that is listed on the Nuovo Mercato in Milan, said he hopes for "great success" in adding to Tiscali's modest base of 100,000 high-speed users. The rest of the company's customers access the Internet through dial-up phone lines.

....Record companies in the United States and Europe, facing wide criticism that they have fallen behind in technology, have said they cannot afford to emulate KaZaA and services like it, which allow users to exchange songs for free over the Internet through their home computers. The companies say they are trying to find a balance between meeting consumer demands and making a level of profit they deem acceptable.

Sharman Networks, which is based in Australia, boasts that 120 million people have downloaded its KaZaA software; the announcement of the deal with Tiscali is part of the latest release of KaZaA's software, called the KaZaA Media Desktop.

Whether a new legitimacy will result from the deal with Tiscali and whether it will be blessed with legality remain to be seen. The Recording Industry Association of America, which represents the major record companies, has sued KaZaA in federal court in Los Angeles, alleging copyright infringement. The association is hoping for an outcome similar to that in its case against Napster, which was forced to shut down after a judge found it guilty of assisting copyright infringement.