Bookster? Napster Gets Down with Bertelsmann
Calvin Reid -- 11/6/00

In a surprising development, Napster, the online application that allows users to swap Mp3 files for free, announced an alliance with music and book publishing giant Bertelsmann to create a for-pay subscription service that will make Bertelsmann-owned recording artists available through the Napster site. Once the new, improved, copyright-compliant Napster service is ready, BMG, Bertelsmann's music division, will withdraw from the multiple lawsuits currently charging Napster with copyright infringement.

Napster is fighting for its business life as the defendant in a copyright infringement suit filed by the Recording Industry Association of America and several recording companies. A panel of federal judges is studying whether to shut the service down. Despite the new alliance, Napster may not be out of the woods. RIAA director Hillary Rosen welcomed the agreement, but noted that the alliance "d s not bring an end to the court case."

Thomas Middelhoff, CEO of Bertelsmann, 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." Middelhoff declared that Bertelsmann intended to challenge the industry's objections to file sharing, pointing out that Napster's "38 million users can't all be criminals."

The Napster/Bertelsmann embrace was brokered by BeCG, Bertelsmann's new e-commerce group. As part of the deal, Napster will receive a loan from BeCG to develop a new Napster subscription (a $4.95 monthly fee has been suggested) service and provide payments to rights holders, recording artists, songwriters and, of course, record companies and music publishers. BeCG will possibly take an equity stake in Napster Inc.

And while the decision is of primary interest to the recording industry, book publishers will likely pay close attention for several reasons. Bertelsmann is not only one of the biggest recording companies and music publishers in the world; the BMG record club has millions of members and Bertelsmann also owns Random House Inc., one of the largest book publishing companies in the world. The threat that Napster poses to the traditional recording industry--unlimited access to music in the Mp3 format without charge over the Internet --is clearly on the minds of book publishers as they grapple with the issues surrounding the distribution of e-books over the Web. Can Bookster be far behind?

Stuart Applebaum, a spokesperson for Random House Inc., said Random House had learned of the new alliance "with the rest of the world" and said the company "has had no real discussions" regarding a digitized book file sharing service. He described the alliance as being "in the great Bertelsmann tradition of bold, farsighted entrepreneurial initiatives." He noted that Random House has no mandate to work with Napster. But, he added, "we always look forward to exploring mutual interests with any company that can guarantee both the security and sanctity of the copyrights of our authors as well as their opportunity to receive fair compensation for their writing."