Napster Names New CEO

By Richard Menta- 7/24/01

It's not surprising that Hank Barry's tenure at the helm of Napster is coming to a close, his official title does include the word "interim" in it. It looks like that moment is at hand as Napster has announced his replacement.

Napster on its web site identified Konrad Hilbers, a former executive from Napster's parent company Bertelsmann, as the man who will step into Barry's shoes. Neither Barry nor Hilbers could be reached for comment late Monday.

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Napster has been searching for a full time CEO since the beginning of the year. Under the heat of a brutal copyright infringement trial that has all but shut Napster down, the job did not draw a lot of apt takers. Hilbers appointment signifies Bertelsmann's intention to take full control of the operation as it converts to a subscription service.

Barry took the Napster reins over a year ago to replace the previous interim CEO Eileen Richardson. Richardson had few connections with the traditional record industry that had launched a crippling lawsuit against the company, and little idea of how to best generate revenues from a quickly growing audience.

A $15 million investment from venture capitalist firm Hummer Winblad brought Barry on board. A former entertainment lawyer, Barry delved into his business connections and navigated Napster into a deal with the second largest record label in the world Bertelsmann AG. He leveraged Napster's huge audience for a cash infusion of $75 million from the German company, a move that brought desperately needed money to the company. To many fans he also sold the company's soul.

Even though the deal made Napster a member of the very record industry that was suing them, it seemed to only turn up the intensity in court. The goal here for the labels was never copyright protection but control. Despite the appearance of a unified front in their suit against Napster, the major labels are actually aggressive competitors who frequently lock horns against each other. The remaining four major labels were irate that Bertelsmann had trumped them and gained sole control of Napster's 70 million users base. Killing Napster would keep Bertelsmann from getting it all, putting pressure on Bertelsmann to cut them in too.

And that is what's slowly happening. Barry most recently guided Napster into the MusicNet fold, a record industry product formed by the alliance of AOL Time Warner, EMI, and Bertelsmann. This took some of the pressure off Napster, but not all as Universal and Sony decided to form a competing product called PressPlay. The members of PressPlay have no incentive as of now to come to terms with Napster in the courtroom. Chances are they will continue to use the courts to pressure even more favorable negotiation terms.

Unfortunately, in shutting down Napster the labels may have also succeeded in shooting themselves in the foot.

Napster users have all but abandoned the product, running to Napster clones who in just the last week alone have signed millions of users. These clones now dominate CNet's Top 10 download list and have taken over the trading arena Napster once had for itself. As we wrote in our article "Napster Clones Crush Napster" the company's actions include a tactical blunder that was forced onto Barry by the courts and the music industry.

Napster no longer has an audience of 70 million to try to draw a paying clientele from. Napster lost those people - even before they shut down - when they disabled all but the latest version of their software (Napster 2.0 beta 10.3), thereby barring everyone from the service who don't upgrade. That means they can no longer claim an audience of 70 million just because that is how many people have some form of the software on their hard drive...As of this writing, beta 10.3 has only been out a few weeks and seems to have met with minimal interest by users

The legal actions have served to feed Napster's audience to these alternate services turning one battle front into dozens. Worse yet for the record industry, many these clones have intentionally set themselves up overseas and redesigned their technical structures to avoid US legal exposure. Napster and the major labels have an uphill battle to fight when Napster returns as a pay service.

Napster is due to return soon and it will be a new CEO who will have to guide it through. That means somehow compelling Napster's lost audience to not only return to the service, but to pay for the privilege when there are several free entities out there that are just as good if not better. That is not an enviable position to be in.

Konrad Hilbers will need to be good, real good.


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