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LOS ANGELES -- Surveying the bed that he now shares with 19-year-old Napster founder Shawn Fanning, the head of Bertelsmann's eCommerce Group is inviting other music companies to crawl under the sheets.

Other recording labels should partner with the pair to create a new brand of digital subscription file-sharing that compensates artists and copyright holders, says Andreas Schmidt, chief executive of the Bertelsmann eCommerce Group (a division of Bertelsmann AG, which is also a parent of Bertelsmann Music Group, BMG). He addressed the Webnoize 2000 digital music conference here this week.

Schmidt, along with Fanning and interim Napster Chief Executive Officer Hank Barry, vows to turn the legally challenged Napster into an industry-sanctioned paid service. This would render irrelevant the recording industry's lawsuit against Napster. But when asked to describe exactly how they will implement such a plan, the three would only respond that they were "working on it."

Representatives of Bertelsmann, a party in the lawsuit against Napster along with four other music industry leaders, say the company will remain a plaintiff until Napster completes its conversion to a paid plan. Both parties are unclear how or when that will happen.

Labels Proceed With Lawsuit

The Recording Industry Association of America is spearheading the suit, representing Bertelsmann, EMI, Sony, Universal, and Warner Music.

The RIAA is watching closely to see what happens with Napster, but officials say that the suit will continue. "There's nothing we can really do now to stop the suit," says Hilary R. Rosen, RIAA president and CEO.

The implications of the Napster-Bertelsmann partnership for the industry are good, Rosen said, speaking on a Webnoize panel. She shared the stage with Jack Valenti, president of the Motion Picture Association of America, and 60 Minutes II journalist Charlie Rose.

"If Napster had been willing to do such a deal 12 months ago, we all would have had to work much less," Rosen said. But, she added, "If the lawsuit hadn't been filed, there wouldn't now be a deal between Napster and Bertelsmann." Napster "wanted to get into the music business in a legitimate way," Rosen maintains. "They wanted to make money. They could have taken it from venture capitalists--there were a lot of offers--but they held out because they wanted to get legitimate in the music business."

In fact, it appears one venture capitalist helped broker the deal, which was reportedly referred to privately as "Thunderball." Barry, Napster's interim CEO, is a partner in the venture capital firm Hummer Winblad, which also has dealings with Bertelsmann and CDNow.

This link led one conference attendee to remark that the technology industry is becoming more like the movie industry. In that field, agent/managers broker movie "packages" that employ only their own clients--screenwriter, director, stars, and producers. The cozy process keeps commissions in their own pocket.

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