A giant step towards respectability for Napster, the deal will dramatically transform the controversial file-sharing company, eventually creating a membership-based service that will allow the company to compensate artists for downloads.
The early indications are however, that the agreement will have little if any immediate impact on the status of the trial between the recording industry and Napster.
By Wednesday morning the Los Angeles Times was reporting that Berlesmann will receive up to sixty percent of Napster in exchange for the deal. As could be expected, the news provoked an angry response from many past Napster supporters.
Under the terms of the deal, Bertlesmann will make the entire BMG catalog available to Napster users - a development that only a few days ago would have been unthinkable given the longstanding hostility between the company and the recording industry.
part of the agreement, BMG, one of the five major record labels involved
in recording industry's legal action against Napster, promised to withdraw
its lawsuit once the new service launches. Napster will also receive a
sizable loan from Bertelsmann to help fund the transition.
new Napster will also have plenty of links to online music retailer
CDNow, providing the company with a potentially lucrative revenue
stream, a development that may satisfy critics who have picked apart the
business model of another dot com with plenty of customers but no source
"I think that now is no question that file-sharing will exist in the future as part of the media and entertainment industries." said Thomas Middlehoff, CEO of Bertelsmann "There's no way to deal with this fact (other) than to develop a business model for file-sharing."
Napster CEO Hank Barry, who has been trying to sell the recording industry on the idea of a subscription or membership based service for months, was equally optimistic.
"This strategic alliance with Bertelsmann is the right next step for Napster." he said.
Founder Shawn Fanning was his usual chipper self. "My message to Napster users: If you think Napster is great now, just wait," "We're just getting started."
Although the news is clearly a positive development for Napster, exactly what it all means is far from clear.
For one thing, neither side was willing to officially disclose how big a piece of Napster Bertelsmann will be getting in the deal or how much cash Napster will receive in return, a fact that is bound to lead to speculation in some circles that Napster may have sacrificed too much in its eagerness to come to terms.
Details about what a new, law-abiding Napster might look like were also sketchy. Few specifics were provided on how the new membership based service will function or how it can possibly survive in the face of competition from free alternatives like Gnutella and open-source Napster hybrid OpenNap.
were left to guess how much Napster will charge for such a service and
what people will be getting in return for their money. In the past Barry
has argued that a five dollar a month subscription model would enable
the company to both become profitable and compensate copyright holders
for the millions of MP3s music fans download every day using the service.
Critics have countered that such a model is not viable.
One possibility: Napster may switch to a model which allows both free downloads and paid usage. The New York Times reported that the two companies are considering a plan which will allow nonpaying customers to "preview" songs for a limited time, after which files will time-out and no longer function. Paying customers would be allowed to keep songs for as long as they wanted.
Exactly what will prevent members from turning around and redistributing files using other file sharing services was not revealed.
Another provision certain to arouse skepticism among jaded observers of the digital music scene: news that the new service will include security measures to prevent unauthorized distribution.
With the recent failures of the SDMI initiative fresh in people's memories, the idea that Napster, of all companies, has come full circle and joined the secure distribution camp will be very hard for many people to swallow.
The notion that it might be possible to somehow duct-tape together a system which allows Napster to control a network which was built on the theory that such control is no longer possible in the digital age, is puzzling to say the least.
The conventional wisdom among many observers in the tech sector is that such control is neither possible or desirable.
Speculation already suggests the security provisions may be an olive branch towards the other labels involved in the suit against Napster, intended to at least soften the blow if not win over new converts to the new Napster.
Secure downloads have always been the stated objective of the major players and one of the major issues separating established labels from the emerging digital music sector.