BMG's Owner, Napster in Surprise Online Deal
One of the world's top media conglomerates stunned the music industry Tuesday by joining forces with Napster Inc., the free online file-swapping service that record companies have been trying desperately to kill.
Bertelsmann--parent of one of the top five music companies, BMG Entertainment--said Tuesday it will help finance Napster's transformation into a paid service that compensates artists, labels and songwriters for their works. The companies also pledged to bring the rest of the recording industry into the system.
If the alliance works, it could defuse the music industry's attacks on Napster as a rogue pirate. Instead, Napster, which has already captivated the attention of millions of music fans, would become the standard for the legal distribution of music online.
Although the alliance appears to be a major victory for Napster, it doesn't solve many of the upstart company's problems. Most important, it does not stop industry lawsuits that are threatening to shutter the service. Industry observers also say there's no technology available to fulfill the promises made by Napster and Bertelsmann. Even if Napster develops the technology, such a service won't succeed without the support of the rest of the industry.
Beyond that, Napster will have to persuade its legion of users to pay for a service they have enjoyed for free. Napster Chief Executive Hank Barry said the fee must still be determined, adding that $4.95 a month is possible. He has previously estimated that up to 90% of Napster's users would disappear if they had to pay for the service.
For now, BMG isn't dropping out of the industry's lawsuit against Napster. That fight will go on until the proposed system is running and compensating all copyright holders, said BMG chief Strauss Zelnick.
A federal judge issued a preliminary injunction against Napster in July for violating music labels' and music publishers' copyrights, but the injunction has been on hold while the U.S. 9th Circuit Court of Appeals reviews the case.
Bertelsmann's competitors were baffled by the timing of the announcement, given the fast-approaching ruling from the appeals panel. On the surface, it appears to be a brilliant ploy by Napster to keep the company up and running--with a sizable cash infusion.
Legal experts think Bertelsmann's plan to join forces with Napster probably will undermine the industry's allegation that Napster has caused it irreparable harm. It also throws dirt on the allegation that there is no legitimate use for Napster.
