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My, Have Times Changed! BMG and Napster in a Partnership?
By Margee Fagelson
(more articles from this author)
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Bertelsmann/BMG Entertainment announced yesterday that they were taking a step earlier unthinkable by a major label: a partnership with Napster. Napster, Inc. and its self-titled Windows filesharing application have turned the music industry on its ear. Napster has become nearly synonymous with free MP3s and most of the traditional music industry has shown nothing but fear, anger and an appetite for Napster's destruction, as evidenced by the RIAA and its clients' lawsuit.

Bertelsmann is an RIAA member and remains party to the agency's lawsuit against Napster. However, Bertelsmann claims the lawsuit will be dropped once the combined service is successfully implemented. Meanwhile, Bertelsmann is ponying up a loan to start the process as well as purchasing warrants to acquire financial interest in Napster, the company. Should Napster IPO successfully - unlike so many other web/music startups - Bertelsmann could reap some hefty financial benefits.

Thomas Middlehoff, Chairman and CEO of Bertelsmann stated, "Person-to-person file sharing has captured the imagination of millions of people worldwide with its ease of use, global selection of content, and community features. Napster has pointed the way for a new direction for music distribution, and we believe it will form the basis of important and exciting new business models for the future of the music industry. We invite other record and publishing companies, artists and other industry members to participate in the development of a secure and membership-based service."

Bertelsmann is the first (hopefully of many) of the majors to acknowledge the virtue of Napster as a promotional tool. But they are not the first music industry presence to form a strategic partnership. All Indie, an artist development company in New York city, made Napster a strategic partner earlier this year. They offer the service to all their artists as yet another promotional avenue.

Hank Barry, Napster CEO said, "This strategic alliance with Bertelsmann is the right next step for Napster. The Napster community -- which is the fastest-growing in the history of the Internet -- will benefit enormously from Bertelsmann's historic commitment to innovation and its experience in offering a seamless and convenient user experience."

Although Napster is not the only file-sharing software or company on the net, it does seem to be the market favorite. This is primarily due to ease-of-use which can not be said for some of the other software out there, Gnutella, Freenet... It's primary competitor - the Michael Ovitz-backed Scour - is already in intensive care if not getting last rights. Scour filed for Chapter 11 bankruptcy protection last month.

Universal Music Group launched their own version of an unlimited download system, offering an all-you-can-eat subscription service for artists who are part of their FarmClub label. The general consensus is that a subscription-based service from a label will not work. The common refrain, 'Labels are not brands.'

The Bertelsmann/Napster agreement is not a subscription model, as Napster's Barry stated in a C/Net press conference. "We're going to evolve the service into a membership-based model. What does that mean? It doesn't mean a subscription. In a subscription, you pay money; you get something. In a membership model, you get involved and you belong to a community. You participate in that community."

Hilary Rosen of the RIAA made this statement, "Today's announcement of a strategic alliance between Napster and Bertelsmann AG makes clear that Napster has come to the same conclusion we have been urging from the start: that it is better to work with the creative community than against it. This is a welcome development. We welcome anyone's decision to become a legitimate player in the online music industry, building a business based on licensed uses of copyrighted works."

The RIAA has never been famous for their support of artist rights and has always been reviled as the Armed Guard of the major labels. Rosen insisted that despite Bertelsmann's potential withdrawal, "Today's announcement does not bring an end to the court case. There are multiple plaintiffs in addition to BMG; and BMG itself has said that it won't withdraw its complaint against Napster until they actually implement a legitimate business model."

When asked whether or not the other major labels would follow BMG's lead and partner with Napster, Philip Corwin, an attorney at Butera & Andrews, as well as an oft-quoted resource on this subject had this to say to C/Net, "If the other labels can't take a similar equity position [with Napster], they're essentially helping a competitor who has a competitive leg up by owning a piece of the file-sharing website. If they all take equity stakes, I think they're gonna have a major anti-trust question. It's going to have to [be] review[ed] by the Justice Department and the FTC."

And from the artists' camp... "It is a very encouraging sign that Napster is actively pursuing a business model that will seek to provide payment to rights holders," commented Artists Against Piracy Executive Director Noah Stone. "However, Artists Against Piracy will actively continue its efforts to work directly with the record labels and digital media companies to ensure fair and appropriate compensation for artists and songwriters."

Noah Osnos of Tommy Boy Records had this to say, "I believe this is a move on BMG's part to a) hedge their bets as to whether Napster will survive and b) open up the potential for an all-you-can-eat type service, using Napster as the portal. I think it's quite workable, especially if Napster can guarantee quality of connection."

The common arguments against Napster, being the death of music retail, are that the MP3 sound quality does not equal that of a CD. There are those that insist that Napster is only a promotional tool or a sampling tool and people will still go out and buy hard goods. There is the theory that a new generation of music fans won't put up with the exorbitant price margins of CDs and - although they want people to be paid for their work - are under the impression that all the people complaining (Metallica, Madonna, Dr.Dre, Elton John) are already rich and famous.

Could this be the beginning of the New World order? Brad King of Wired Magazine thinks it's the beginnings of an industry-wide conspiracy. Perhaps everyone will join the fray and partner up with Napster and the RIAA will purchase the business and the technology. None of us know for sure and we can only surmise. One thing is certain. Napster and its ilk are not going away anytime soon.


Artists Against Piracy -
All Indie -
Bertelsmann -
C/Net -
FarmClub -
Freenet -
Gnutella -
Napster -
Scour -
Tommy Boy -
Universal -
Wired -

Related MusicDish e-Journal Articles:
» The Digital Economy: How Digital Goods are Reshaping the Rules of Commerce - Emergence of Peer-to-Peer (2000-11-01)
»'s Peer-to-Peer Solution Automates Notification of Copyright Violations According to DMCA (2000-09-29)
» Where Goes The (Napster) War From Here? (2000-09-17)
» A&M Records Enlists the Aid of U.S. Copyright Office and U.S. Patent And Trademark Office in Lawsuit Filed Against Napster (2000-09-11)
» Story of a Revolution: Napster & the Music Industry (2000-09-06)
» Get Your MP3s With Newtella - The New Napster? (2000-09-03)
» - Their Technology Could End the Napster War (2000-08-08)

Related News from Mi2N:
» Artists Against Piracy Issues Statement In Response To Announcement Of Bertelsmann AG/Napster Alliance
» Announces Napster, Gnutella And Ohaha Compatible Music Search Software
» Statement By Hilary B. Rosen President & Ceo, RIAA On Bertelsmann AG & Napster Alliance Announcement
» Napster, Inc. To Macintosh Users: Welcome To The Napster Internet Music Community
» The Legal Alternative To Napster

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