Bertelsmann, one of the top five music publishing businesses in the world, yesterday broke ranks with its rivals and agreed to drop its copyright lawsuit against Napster, the rogue online music distributor.
The agreement appeared to be a tacit acknowledgement by Bertelsmann that the landslide change being wrought on music sales by the internet cannot be stopped. It also marks a significant stage in the development of online music distribution toward a more controlled environment endorsed by the recording industry.
Bertelsmann said it had formed a strategic alliance with Napster to develop the website into a secure, membership-based service and invited the other big four to participate. The lawsuit will be dropped once the membership-based service is put in place.
The music business has so far struggled to find a method of protecting royalty payments online.
The two companies said they had already put together a business model and that Bertelsmann would provide funds to further develop the service. In return for the funding Germany-based Bertelsmann will take a stake in Napster.
Napster is the brainchild of 19-year-old college dropout Shawn Fanning and enables fans to swap songs for free by trading MP3 files, a compression technology which turns music on compact disc into computer files.
One by one, the large record labels have reached licencing agreements with MP3.com - a similar smaller website. But Napster which has attracted 38m users has until now been cast as the enemy of the music business. Mr Fanning said he was excited that Bertelsmann "appreciates and values the uniqueness of the community Napsters' users have built".
Napster is awaiting an appeals court decision on whether the online service can continue operating pending a final decision on the lawsuit. The suit was also being brought by Universal Music - currently being taken over by Vivendi - Sony Music, Warner Music and EMI.
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."
Time Warner, which owns Warner Music, gave an initial welcome to the decision by Bertelsmann. It said: "The Napster-BMG announcement seems to be a positive step for the industry. It demonstrates a couple of things very clearly. One, that the industry is rapidly moving towards adoption of a subscription model and two, in the online world, artists and intellectual property rights will be protected. It is clear consumers want access to music in a way that is safe, secure and easy to use."
In July, a US judge ordered Napster to shut down its services pending a full trial but the court of appeals allowed Napster to stay in business.
Useful links:
Napster home page
Napster press release on Bertelsmann deal
Bertelsmann
Bertelsmann press release
Transcript of injunction against Napster
Fairtunes
Artists against piracy
Stop Napster.com
Napstermania.com
