Bertelsmann Chairman Threatens to Close Napster in 15 weeks.

By Robert Menta- 3/15/01

Interesting twist if true. Rumor has it the chairman of Bertelsmann media group says if a new, legal Napster can't be launched by July 1st, the whole service should be shut down. The working word here we might point out is should, not will, so this might be less of an active deadline and more just a showy ultimatum.

True, Bertelsmann has watched Napster lose pretty significantly in court and we haven't even gone to the actual trial yet, but the company still has possession of an entity with the largest Internet audience ever, 60+ million at last count.

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But big conglomerates like to hedge their bets and with the Bertelsmann's Snoopster software due out soon, such thinly veiled threats allow BMG to play both sides of the fence. After all, Snoopster looks to be nothing more than an abridged Napster without all the legal baggage. By taking the technology from the old service and wrapping it in a new name, they can close the old and isolate financial damages. It is apparent that the courts are not Napster sympathetic and the trial may see damages in the billions. Granted, Big Music will never collect on that unless it can pierce into Bertelsmann itself and the company's lawyers are taking all the precautions to prevent that.

That includes Bertelsmann playing the injured party just like the rest of the industry giants as it continues to sue the very company it just purchased. It is playing the victim to a service that now gives Bertelsmann subsidiary CDNow a free button link to its 60 million users.

Bertelsmann bought controlling interest in Napster last fall in hopes of converting the service into a pay entity and keeping its large audience all to itself. This made Napster an official part of the very record industry that is trying to close it, but that is not sitting well with the other four major labels who see themselves left out in the cold. The issue here is control and the rest of Big Music hates the fact that Bertelsmann alone has it.

If Bertelsmann can somehow steer Napster through the courts they can avoid scuttling the company and become the big winners. Napster's user base could drop to just 20% of what it is now and still be in the top 10 of Net audience share, that is how much power it has audience-wise. Because the service is relatively inexpensive to run, it CAN profit on Net advertising alone. Think about how many people are needed to run Yahoo and realize that Yahoo's audience is smaller than Napster's by about 10 million users. Power is not something you just fritter away to the wind, that is why these threats to close Napster seem more like posturing to limit Bertelsmann's legal exposure.

Realize also Napster's reach still makes it the most efficient promotion vehicle for the music industry since radio. As Eric Boehlert wrote in his telling article Pay for Play a songs exposure on radio is actually paid for by the record companies:

Does radio seem bad these days? Do all the hits sound the same, all the stars seem like cookie cutouts of one another? It's because they do, and they are. Why? Listeners may not realize it, but radio today is largely bought by the record companies. Most rock and Top 40 stations get paid to play the songs they spin by the companies that manufacture the records.

Yes, radio stations do pay copyright fees for the right to broadcast music over the airwaves, but the music industry kicks it all back and much more to promote the CDs they sell through record stores. The industry of course leaves this information conveniently out when they scream how Napster is ripping them off. One of their big fears is that they might soon have to extend the same payola courtesy to Napster (i.e. Bertelsmann) as they do the radio networks. Are you beginning to see another reason why Bertelsmann wants to keep Napster alive?

Napster may indeed be forced to close, but it will be through court order. As optimistic as Bertelsmann may feel in terms of converting Napster users to Snoopster, there is a lot of competition that will soon be fighting for Napster's 60 million and such a transfer will not go unchallenged. Excess profits breed ruinous competition, and more Napster clones are inevitable.

Still, the original Napster service has the brand name, a significant competitive advantage that other services including Snoopster will be hard pressed to duplicate. There is too much value there and if Bertelsmann can save Napster and a healthy part of its user base, the 15 week deadline should come and go. This doesn't mean Bertelsmann won't significantly alter the service, it just means if they don't make it by summer, they will probably just extend the deadline date.

That is providing a big fat monetary judgement doesn't go against Napster early this summer. Then the bean counters take over.

Copyright 2001 MP3 Newswire

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