Sources on both sides of the talks say the pact was conceived by Middelhoff and Andreas Schmidt, chief of Bertelsmann's ECommerce group, in September. Middelhoff and Schmidt entered into secret discussions with Napster chief Barry, trying to come to an out-of-court settlement to resolve their lawsuit against the online file-sharing service.
Middelhoff informed Zelnick that he intended to settle the suit just days before the industry squared off in court against Napster for oral arguments Oct. 2. The settlement proposal caved in after Zelnick objected and convinced Middelhoff to withdraw the offer at the eleventh hour.
The discussions, however, resumed within days following the hearing. This time around, Middelhoff included Zelnick and BMG digital head Kevin Conroy in the negotiations. The proposal, which was finalized late Monday night, hinges on Napster developing a legitimate business model, under which artists and songwriters and labels would be paid royalties. BMG has promised to withdraw its lawsuit against Napster when it can implement such a plan and convince at least two other major conglomerates to sign on.
On Tuesday, representatives for Bertelsmann's competitors said they were supportive of initiatives that allow legal file-sharing that respects the rights of artists, record companies and other rights owners. But it's unlikely that any of those conglomerates will join Bertelsmann any time soon.
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A special Times report with articles about the growth of music sharing on the Internet is at http://www.latimes.com/musicweb
