Here It Comes To Save...Napster!

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In a deal that could rescue Napster from legal limbo, Bertelsmann said Tuesday it was teaming with the Internet music-swapping service to develop a new membership-based distribution system that would guarantee payments to artists.

In exchange, the German media giant will drop its lawsuit against Napster, make its music catalog available and gain the right to buy a stake in Napster. Bertelsmann will in the meantime loan Napster money to help develop the subscription service.

The move marks a sharp break with other members of the music industry, which along with Bertelsmann, sued Napster for copyright infringement, trying to shut down the free service on which millions trade bootleg recordings.

Through labels such as Arista, RCA and Ariola, Bertelsmann sells records by performers such as Britney Spears, Whitney Houston, Kenny G and Carlos Santana.

The recording industry has struggled to find a formula for music distribution that protects royalties, and no workable pay-for-play scheme has yet emerged.

In a joint statement, Bertelsmann and Napster said they would "seek support from others in the music industry to establish Napster as a widely accepted membership based service and invite them to participate actively in this process."

Bertelsmann owns BMG. The other major music companies are Sony, Universal, Warner and EMI. It was not immediately known whether any of the others would follow suit.

Bertelsmann chairman Thomas Middelhoff said 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."

Bertelsmann, which also owns book and magazine publishers as well as a major broadcasting network in Europe, has been ramping up its push into the online world. It owns a major stake in Barnes &, all of CDNow, and numerous other Web sites.

Napster chief executive Hank Barry called the deal the "right next step" for the company. Barry had said recently that the company was thinking about charging monthly membership fees to users.

Napster has taken off since being founded last year by then-college freshman Shawn Fanning, snarling college computer networks and sparking public debate over whether intellectual property can be protected in the dawning Digital Age. The company is awaiting a federal appeals court ruling on whether it can continue operating pending trial in a suit filed by the recording industry.

Several other online music sites, led by, have embraced such subscription models. But none of them use the wildly popular peer-to-peer file-swapping method employed by Napster. was also sued by recording companies for copyright infringement, but has settled with all but Universal.

Whether fee-based Internet music delivery services will be viable remains to be seen, however. A number of software programs freely distributed on the Internet, uch as Gnutella and Freenet, allow users to swap bootleg music without the need for a central server clearinghouse of the type Napster provides.

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