Napster, Bertelsmann Will Work in Harmony

Once enemies, Bertelsmann and Napster are now working together. The two companies are forming an alliance to develop a peer-to-peer file sharing service, the German company announced Tuesday.

Bertelsmann's newly formed eCommerce Group, BeCG, and Napster have developed a membership-based service that will provide file sharing capabilities that "preserves the Napster experience while at the same time providing payments to the rights holders," according to a company statement. Napster and Bertelsmann will seek support from others in the music industry to accept Napster as a membership-based service, the companies say.

Once Napster implements the service, BMG will withdraw its lawsuit against Napster and make its music catalog available. Bertelsmann will provide Napster a loan to develop the new service. Details of the loan were not being disclosed, says Bertelsmann spokesperson Christiane Hach.

Details on how the actual membership-based file sharing arrangement would work also are thin.

"The details of how this will (work) haven't been disclosed," Hach says. "To really go into details on the business model...it would be too early."

In a statement, Napster Chief Executive Officer Hank Barry says the alliance is the "right step" for Napster, and the Napster community would benefit from the alliance with Bertelsmann.

The Recording Industry Association of America filed suit against Napster on behalf of the five major record labels, including BMG, earlier this year alleging copyright infringement and asked for damages and an immediate stoppage of the peer-to-peer file sharing service. (See "Napster's Fate Remains Undecided.")

This alliance and the possibility that BMG could drop out of the RIAA lawsuit will not deter the other music labels from going forward with their legal action against Napster, says Leonard Rubin, head of intellectual property at the Chicago law firm Gordon and Glickson. Rubin, who has represented record companies, musicians, and composers, says BMG's move is telling.

"One of the plaintiffs has begun to recognize that Napster has something to sell, with over 30 million (users)," Rubin says.

The next logical question is whether the other four recording labels will also seek to make friends with Napster. The RIAA did not return repeated calls Tuesday.