Napster Trial Delayed. Settlement May be in Works.

By Richard Menta - 01/24/02

One can't help but think that the record industry should have accepted former Napster CEO Hank Berry's offer last February of $1 billion over five years. This way they would earn some income from an online service, all of it profits as they didn't have to do anything more than give their blessing to earn it. Napster would do all the work.

Berry's plan was to keep Napster as it was, the conduit for 70 million users to trade and talk, but add a $4.00 monthly charge for the privilege. We can only speculate how many users would have actually subscribed.

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Still, the price was reasonable for unlimited downloads and the broad variety of music the service would continue to offer. As for the free services, Morpheus and KaZaa did not exist yet and the Gnutella network was still in a formative (and not yet all that user friendly) stage. That gave users reason to at-least consider paying for Napster.

If Napster were to convert only 7% of its audience into monthly paying clientele - a percentage very reasonably attainable - that would equal 4.9 million users. At $48 a year, that would bring in $235.2 million dollars annually to the company, enough to pay off the music industry and still keep a nice $35.2 million for themselves.

But the music industry wasn't satisfied with taking what would amount to 85% of revenues at these suggested figures. They wanted control of it all.

In the end they lost control. Instead of earning income they will SPEND billions over the next several years to fight the elusive spawn created when the industry successfully shuttered Napster last year.

It might be pointed out here that Bertelsmann had already purchased controlling interest of Napster the October prior to Berry's offer, meaning that technically all of Napster's revenues would be under the industry's umbrella. Of course, only Bertelsmann would enjoy Napster's direct profits, which is partially why the other four major labels rejected the offer. They will be damned if Bertelsmann, their compatriot/competitor, was going to earn income off of their music too.

Time to Deal?

Now it looks like they are all coming to some kind of agreement with Napster, which recently debuted its new service to a select group of beta testers. Federal Judge Marilyn Hall Patel agreed to a one-month delay last night to allow a settlement to be hammered out.

Recording Industry Association of America (RIAA) President Hilary Rosen made this statement: "As we have said from day one, our objective has been for Napster to become a legitimate music service. Since relaunching a few weeks ago, we understand they have limited their repertoire to licensed music. Resolving the lawsuit may now be feasible".

It's nice that resolving the lawsuit may be feasible, but turning Napster into a pay enterprise may no longer be. The Napster clones have long taken over the show, improving on Napster's interface while sucking up its audience. Furthermore, having been molded into an image acceptable to the music industry the service is now just a shell of its former self, only offering a smattering of the content it once distributed (see Review: The New Pay Napster).

This is not the same Napster Hank Berry hoped to entice users to buy into. Despite improved technology, this one has far less to offer than its free competitors and will charge considerably more than the $4.00 a month Berry proposed. Napster also must compete with the major label rental services PressPlay and MusicNet, which were released late last year to consumer indifference.

The music industry is painfully aware that its legal victories have done little to slow down the trading of music online. The early failure of PressPlay and MusicNet to draw a significant audience makes Napster more important to them alive than dead. Still, one has to seriously address the fact that it may be too late to do anything with Napster.

As the music industry already has control of Napster, the continuation of this trial is moot, possibly even a risk. Except for its name, Napster itself has become irrelevant. Why give the company any opportunity to possibly pull off a legal equivalent of the Hail Mary, opening up a precedent that can be used to favor the Napster clones as well as itself? Napster's accusations that the record labels have refused to negotiate in good faith have made a credible impact on Judge Patel, threatening to undo the music industry's lead in the case.

The major labels are probably now looking to shift the focus of their legal efforts away from Napster and towards their suit against Morpheus, Grokster, and KaZaa. Continuation of the Napster trial at this point only dilutes resources that could be funneled into these other efforts. The fight against these other services, who used the Napster trial as a guide to make their services less open to legal attack, won't be easy.

An example? KaZaa last week finally complied with a month-old Dutch court order to shut down by closing its offices in the Netherlands. The company still exists. It just sold itself off to an Australian concern that will continue to operate the service unabated out of New South Wales. The case in Amsterdam is closed as KaZaa the "Dutch" company no longer exists. If the world music industry wants to continue the fight they now have to start from scratch - in the Aussie courts.


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