X-SciTech

Indie Label Makes A Deal With Napster

By CBSNews.com staff CBSNews.com staff

January 2, 2001 / 1:53 PM EST / CBS

Napster Inc., the developer of the wildly popular and controversial computerized song-swap service, says it has formed an alliance with Edel Music AG, one of the world's largest independent music labels.

Sources say that under terms of the deal, Edel will allow master recordings and musical compositions it owns or controls to be used for file sharing under the new service Napster is developing.

Edel Music AG, founded 14 years ago in Hamburg, Germany, represents artists from all over the world, including, in the U.S., the duo Roxette and the band Pharcyde.

A spokeswoman for Napster said the alliance marks its second deal with a member of the world's recording industry. In October, Bertelsmann AG broke ranks with other global music giants who are suing Napster for copyright infringement, to make a deal.

Bertelsmann said in October that it plans to drop its lawsuit when Napster begins offering a secure, fee-charging service now under development. Bertelsmann at the same time suggested that other recording labels should follow suit in forming alliances with Napster.

Created by 19-year-old college dropout Sean Fanning, Napster lets fans swap songs for free online, sparking a revolution in the way music is being distributed and in the process turning the $40 billion recording industry on its head.

The company is still embroiled in landmark copyright infringement battles with the recording industry and major recording labels including Seagram Co Ltd.'s Universal Music, Sony Corp.'s Sony Music, Time Warner's Warner Music Group and EMI Group Plc's EMI Music.

But the recording industry was shocked in late October when entertainment giant Bertelsmann broke ranks with the others and formed an alliance with Napster, declaring it would drop its suit once Napster was transformed into a secure, fee-charging service.

Bertelsmann invited other labels to join in the venture but none have yet committed, presumably waiting for the outcome of the lawsuit.

Napster has yet to disclose details on its planned new service or business plan and many industry watchers have expressed skepticism that they even have one, given the legal and operational challenges.

"We have a model now that is pretty detailed but we haven't shared it with the public," said Napster CEO Hank Barry, in a recent interview. "I'm optimistic we'll be able to sort it out. There are a lot of constituencies involved in the Napster community."

Barry predicts that in the year to come, more and more people will be using file-sharing services and that many alternative services to the envisioned fee-charging Napster will emerge.

"I think by the end of 2001, we'll have alternatives to Napster. There are many different places like America Online Inc where people can access file-sharing services. It's clearly something that people will want to do and we'll see some sort of uniform approach towards this," he said.

Asked if he expects Napster ans to flee the service once it starts charging and faces more competition, he said. "I think in general we'll lose some of our fan base but we're looking forward to normal competition. Hopefully this will be a transitional phase and we'll see growth over the long-term."

Napster is currently searching for a new chief executive to replace Barry, who plans to stay intimately involved in the company's development.

Asked to speculate about Napster's fate if the appellate court rules in favor of the big music labels and issues an injunction against Napster, which could virtually shut it down, he said: "There are almost an infinite number of ways that the appellate court could rule and an infinite number of outcomes. We've always said we would respect the court decision and in a worst-case scenario we'd be looking at whether there's any way to continue the service without shutting it down."