Another deal draws Napster closer to truce

Lawsuit: Some believe the company's alliance with Edel Music AG shows that its feud with record labels could soon end.

January 08, 2001|By Michael James | Michael James,SUN STAFF

Driving itself one step closer to legitimacy, Napster, the music-swapping company that has delivered millions of pirated songs to hard drives around the globe, has formed another critical alliance with a music industry giant.

The deal, signed last week with Edel Music AG, is yet another indication that the millions of fans who have used Napster software to acquire music for free over the Internet will soon face a demand that they pay for the privilege.

The Edel agreement is similar to one Napster struck in November with Bertelsmann AG, the music industry's second-largest publisher. The agreements allow Napster to use recordings by Edel and Bertelsmann for its wildly popular MP3 file-sharing service, which in less than two years has attracted nearly 50 million users.

The alliances are likely to have a profound impact on the future of digital music, as well as on the outcome of a landmark copyright infringement lawsuit that the music industry filed against Napster last year, charging that the program aids mass piracy.

With Napster officials making deals with their chief adversaries in the music world, analysts say it's growing less likely that the lawsuit will move ahead.

"The court case is going to have to go away. It's fast becoming a moot issue," said Moses Avalon, who produced five platinum records for Warner Bros. and BMG Entertainment and wrote a book titled "Confessions of a Record Producer."

"Record producers are turning the ship quickly now because they see the iceberg on the horizon. They know they have to make these deals with Napster."

Napster CEO Hank Barry remained mum last week about the changes he plans for Napster, but he's hinted in the past that it will move from a free service to one that charges a flat fee of $5 to $10 a month.

Edel, based in Hamburg, Germany, and one of the world's largest independent music labels, said the alliance with Napster was inevitable.

"This is a very logical step for a company like ours," said Michael Haentjes, Edel's CEO. "We welcome Napster's commitment to protect the interests of artists, songwriters and other rights holders through their new business model, and we will support any activity that provides for fair compensation for everyone involved."

Barry and other Napster executives refused to discuss specifics of the agreement with Edel, whose stable includes artists such as Jennifer Paige, Roxette and Phunky Data. But in recent months the record company has reported declining revenues and cut its 2000 earnings forecast.

In a prepared statement, Napster officials said Edel will advise Napster "as part of the company's ongoing effort to address the concerns" of artists, songwriters and record companies.

Napster, a relatively simple file-sharing program created by a 19-year-old college student, has become one of the most controversial forces in the $40 billion recording industry.

It allows anyone with a computer and an Internet connection to download compressed MP3 music files from any of the millions of other users online at the time. Since neither the music producer nor artist is paid for these transfers, most of them are illegal. Although the actual transfers occur between individual computers, the industry has sued Napster for making the mass piracy possible.

Many users on Napster's own bulletin boards are accusing the company of "selling out" to the record labels. Several recording artists, meanwhile, are accusing the record labels of selling out to Napster.

"The problem of piracy has not gone away, nor has it been addressed," said Ron Stone, president of Gold Mountain Entertainment, which represents recording artists such as Bonnie Raitt and Ziggy Marley.

"These deals by BMG and Edel aren't helping the artists, whose music is still going to be downloaded for free," Stone said. "The record companies are just trying to stop the bleeding by maintaining the status quo in cyberspace. It's an incredibly frustrating situation."

One of the main problems that has yet to be addressed, Stone says, is perception. Many Napster users are so accustomed to downloading free music that they believe it's their right to do so. Others, he says, have the attitude that the music industry is getting what it deserves after having supposedly overcharged for CDs and records for decades.

"There's all these people saying that the music industry has to change its business model," Stone said. "Well, I just keep saying that our business model is the same as it was in the 16th century: We play the music, and if you like it, you pay us. Nowadays, that's not what's happening."

When Stone spoke recently on a Berkeley, Calif., radio show, a college student called in to say that he used Napster because he couldn't afford to pay $15 and up for CDs - a line of reasoning popular among Napster fans. Stone retorted, "You're downloading these songs on your $1,700 computer and your $300 CD burner. Don't tell me you don't have the means to buy a few CDs."

But it remains unclear what effect a "legitimate" Napster, backed by record companies, will have on the music industry. Some intellectual property experts argue that CD sales - which thus far have been strong even with the advent of Napster - won't suffer any losses.

Part of the reason is that MP3 music files don't offer quite the audio fidelity of CDs. Since the recordings are compressed to roughly one-tenth of the size of a CD-audio recording, a song will never sound quite as good in MP3 format.

"This can be a win-win situation for everybody," says Edward Andrew Norwood, a leading intellectual property lawyer in Nashville, Tenn. "There's still going to be room for lots of formats of music. It's very short-sighted to think that Napster will cause Target, Camelot and Sam Goody to go the way of the Edsel. People will still buy the music."

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