Bertelsmann Beds Napster

By Richard Menta- 10/31/00

Napster, the song-swap software that is under legal siege from the big five record companies, has come to terms with one of them. The company announced it would form an alliance with Bertelsmann AG to develop a new secure file-sharing music service.

Under the terms of the deal, if Napster can successfully deploy a membership-based service that protects works under copyright, Bertelsmann would withdraw its suit.

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Bertelsmann also seeks an equity stake in Napster and will provide funding for the company through its eCommerce Group. Both companies said they would seek the support of the rest of the music industry and establish Napster as the industry's subscription service.

"We will work closely with Napster to establish a new membership-based service that achieves acceptance by other music providers" said Andreas Schmidt, president of Bertelsmann e-commerce group.

Schmidt continued: "For recording artists and songwriters, we hope to realise Napster's full potential as a promotional vehicle while protecting their interests. For the recording industry, we are looking to take a positive and forward-looking approach with a membership-based service that complements other forms of music distribution."

Napster was looking to settle its case out of court with the major labels, but the company's previous proposals were balked at. Not only does this deal bring in needed money to the company, but also the protection of one of the largest record companies in the world.

For Bertelsmann's part, they become part owner in the most successful software application to hit the Internet since Netscape. With already over 38 million users, Napster brings the entertainment giant a significant audience and a competitive advantage over the same major labels Bertelsmann allied with against Napster.

Napster chief executive Hank Barry said: "The Napster community, which is the fastest-growing in the history of the internet, will benefit enormously from Bertelsmann's historic commitment to innovation."

Bertelsmann chairman Thomas Middelhoff said: "Napster has pointed the way for a new direction for music distribution. "We believe it will form the basis of important and exciting new business models for the future of the music industry."

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