'Lacking' money

Frederik Neij, Gottfrid Svartholm Warg, Carl Lundstrom and Peter Sunde, have said they plan to appeal against the sentence.

A Swedish court found that the four had helped millions of people download copyright-protected material such as movies, music and computer games.

Pandeya stressed that The Pirate Bay is among the top 100 most visited internet sites in the world.

"However, in order to live on, The Pirate Bay requires a new business model that satisfies the requirements of all parties," he said.

Sunde said that his team had been wanting to improve the site for sometime.

"We feel that we can't take The Pirate Bay further. We're in a little bit of a locked position where there's not a lot going on, lacking both people and money to drive things forward," he said.

Advertising revenue

GGF expects to raise money for copyright holders through advertising and by charging internet service providers for making data traffic in their networks more efficient.

Pandeya told a news conference that his firm would make file-sharing more local, allowing users in the same city to be interconnected as opposed to swapping data across multiple borders.

He said this would make data traffic more efficient and cut costs for internet service providers by up to 50 per cent.

Andre Rickardsson, a computer expert and former investigator for the Swedish security police, said he doubted the new technology would end illegal filesharing.

He said: "I think it will be difficult to strike deals with the copyright holders because they want to get paid so much."

John Kennedy, head of the International Federation of the Phonographic Industry, said it was too early to say how the new technology would work.

"We would be delighted if this resulted in The Pirate Bay turning into a legitimate licensed service," he said.

The Pirate Bay will be handed over to GGF in August.