Warner Music Group said on Thursday it has dropped a copyright infringement lawsuit against imeem, a social networking site with file sharing capabilities, and instead has come to a content agreement deal with the start-up in exchange for an undisclosed slice of the ad revenue.

In May, Warner filed a lawsuit against imeem, claiming that the startup's online service allowed millions of computer users to openly share copyrighted material without having first acquired permission. Imeem, which first launched in October 2004 offering instant messaging and file-sharing software, has grown to become a large media-sharing site, where users can share their music or video playlists, as well as photos, similar to that of Flickr and YouTube.

Since Warner's suit, imeem has started using audio filtering software from copyright management provider Snocap and is working on adding similar technology to filter online video. Users can still upload most of their music, but the service will only play 30-second clips rather than the whole song. Under the agreement, imeem can carry music and videos from all of the record company's artists, available to imeem users in North America for free on-demand streaming that will be supported by advertising.

The recent deals with imeem and other industry newcomers shows the shift the record industry has undergone in recent years, with major record companies increasingly looking to find a balance between curbing online piracy and forming partnerships with online music service providers.