SAN FRANCISCO — Grokster, the file-sharing site made famous by its nasty three-year legal battle with the recording industry, yesterday shut down and agreed to pay $50 million in penalties.

"There are legal services for downloading music and movies. This service is not one of them," Grokster's Web site said yesterday afternoon. File-sharing allows Internet users to swap legal and illegal music and other files.

Under an agreement with the recording industry, Grokster will become a legal download site, possibly in partnership with Mashboxx or another company already in that market. Grokster will also pay $50 million to two groups of music industry plaintiffs. It's unclear whether Grokster has that much money.

The company gave up under tremendous pressure. Grokster had argued that it merely provided file-swapping software and wasn't responsible if customers used it to pirate music. The Supreme Court rejected that argument this year, making Grokster vulnerable to lawsuits.

"Their potential liability probably exceeded the gross national product of Japan," says tech analyst Phil Leigh at Inside Digital Media.

Facing that, Grokster capitulated. "This is a chapter that ends on a high note for the recording industry," Mitch Bainwol, CEO of the Recording Industry Association of America, said in a statement.

But tech experts say the defeat won't stop the still-growing tide of music piracy.

File-swappers are "a migrant community," says Eric Garland, CEO of digital music measurement firm BigChampagne. When the original file-swapping site, Napster, shut down, users hopped to Kazaa and others, he says. The same will happen here — possibly to music services incorporated in countries outside the reach of U.S. law, he says.

Besides, Grokster was a minor player, Garland says. The service always had a much smaller audience than Kazaa, a rival based on the same technology, he says. Grokster usage has dropped so much since the Supreme Court case that it's "almost a fringe community," he says.

That community won't disappear right away. Grokster isn't distributing its software anymore, but the thousands of copies already downloaded still work.

That's why the record companies want Grokster to go legit instead of closing, Leigh says. A legal Grokster could offer users software "upgrades" that would turn off unrestricted swapping.

Grokster's capitulation may also increase the uncertainty surrounding file-sharing, driving some users to legal sites, says In-Stat music analyst Stephanie Guza.

But Leigh says record companies should dedicate resources to improving legal music services instead of chasing illegal ones.