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Wednesday 4th September 2002 |
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"Ded kitty" - that's what you'll find at www.napster.com | |
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The blockage of Napster's sale will have virtually no effect on the ongoing wars over music distribution online. File-swapping services remain as popular as they ever were in Napster's day, with leader Kazaa still attracting more than 2.5 million downloads of its software in a week, according to Download.com, a software aggregation site operated by CNET Networks, owner of silicon.com. The record industry has had other victories since the closure of Napster's service in July 2001, including recent successes in persuading the Napster-like Audiogalaxy to block swapping of copyrighted material and forcing the closure of China-based music download site Listen4ever.com. Napster's unsuccessful bankruptcy fight may well be the music industry's last successful action against the company. The Recording Industry Association of America (RIAA) and the National Music Publishers Association (NMPA) sought to block Bertelsmann's purchase on several grounds. In arguments reminiscent of the copyright holders' original piracy claims in court, internal Napster emails between Napster CEO Hilbers and Bertelsmann were used against the company to argue that the proposed sale didn't meet legal guidelines. However, if Napster's doors do remain shut forever, it will be a blow to those in the net community who have argued that file-swapping technology could become a basic part of legitimate online distribution. Other companies such as Centerspan, Kontiki and Red Swoosh are already pursuing that notion, building businesses on the idea of distributing content using customers' PCs as storage and delivery hubs. But for a few months early this year, it appeared that Napster and Bertelsmann together would test peer-to-peer delivery as a tool of the mainstream internet. Former Bertelsmann CEO Thomas Middelhoff repeatedly said that he was convinced Napster's file-swapping model, combined with digital copy protection and permission from copyright holders, would ultimately be a core part of the German company's online strategy. While no explicit plans had been made, executives had also discussed the technology as a possibility for products beyond music. With Middelhoff's departure, and a more bottom line-focused management now in charge, any Bertelsmann ambitions in that direction appear dead. "We have set ourselves the goal of resolutely leading the division as a whole to profitability in its core markets and businesses, based on proven business models," Ewald Walgenbach, CEO of Bertelsmann's consumer commerce division, said in a statement describing the company's financial retrenchment Tuesday. Analysts said that the business and technology model, as pursued by companies like Centerspan, would likely stay around for some time to come. Few if any of these copyright-friendly file-swapping companies would ever be likely to reach Napster's public profile, however. Napster's "model has proven difficult but some of the fundamental underlying technology may yet have value," said P J McNealy, research director with GartnerG2, a division of the Gartner research firm. John Borland writes for CNET News.com. For related news, see: |
Officials at Internet song-swapping bad boy Napster Thursday asked a Delaware court to please let them live to see another day. The company is hoping to sell their assets to Bertelsmann AG.
The German-based media company has machinations on reviving Napster as a legitimate pay-to-download music provider like MusicNet or pressplay.
For all intentional purposes, Napster has been dead for more than a year considering the service has been dark for at least that long. The court will decide either today or tomorrow if Bertelsmann's $100 million bid to buy the Redwood City-based company is on the up and up.
Napster filed for Chapter 11 protection in June. Bertelsmann said it would waive Napster's debts as part of the deal.
If Bertelsmann's bid is approved, Napster clears not only its financial but legal debt - meaning no more lawsuit by the recording industry. If Bertelsmann does not get the court's blessing, sources at Napster say the company has no other suitors and would have to fold altogether.
Napster's recent auction did not attract any takers to outbid Bertelsmann's $14 million offer. But, a new controversy has erupted over the way the court has interpreted Bertelsmann's bid, which totaled in excess of $85 million.
The stumbling block centers on misgivings by the Music Publishers Association and the Recording Industry Association of America (RIAA). Both trade organizations have been fighting Napster's clandestine business practices in court for years.
RIAA's beef is that they want the court to rule that Bertelsmann's $85 million investment should be treated as equity, and not a loan.
The German media giant had bankrolled Napster through much of its legal trouble with the music industry and, when the site decided to file for Bankruptcy protection, Bertelsmann inked a deal to pay $8 million for the assets.
If the judge rules that the Bertelsmann investment is not a loan, the bid would be in the vicinity of $9 million and could reopen the bidding process.
Which begs the question: Why Bertelsmann is shelling out so much for Napster?
Part of that lies in who is controlling online music these days.
The big five players include, AOL Time Warner Inc.'s (Quote, Company Info) Warner Music, Sony Corp. Sony Music Entertainment (Quote, Company Info), EMI Group PLC's EMI Record Music, Vivendi Universal SA's Universal Music Group (Quote, Company Info) and Bertelsmann AG's BMG Entertainment.
Everyone has a hand in Listen.com's Rhapsody service.
MusicNet is backed by RealNetworks (Quote, Company Info) AOL's Warner Music, EMI Group, Bertelsmann's BMG, and independent recording giant Zomba Records.
Pressplay is supported by Sony and Vivendi Universal as well as Yahoo! (Quote, Company Info) and MSN (Quote, Company Info).
If Bertelsmann comes out in control of Napster as a legitimate service, the company will corner the market with one of the best-known names in music file sharing history.
Whether Napster will be successful as a legitimate service remains to be seen.
The Man Who Killed Napster Speaks Out
Meantime, Russ Frackman the lawyer who represented the RIAA talked to internetnews.com and is adding his two cents about Napster as an institution and the DMCA as a whole.
The copyright law specialist insists the recording Industry's litigation was never about anti-technology or against peer-to-peer.
"We focused more on Napster's business plan, which (Napster defense lawyer David) Boies, failed to capture. In particular, I felt we were vindicated when Napster was shut down," said Frackman.
As for a Napster's plans to go legit along with other music file sharing services, Frackman sees no problem as long as they go through the proper channels.
"I don't think there will be the problem they and others have the ability to operate if they want to that they could do what other permission to use it first," Frackman said. "There are all sorts of potential systems that use protected and authorized methods to operate. This is not any different than a restaurant that wants to play music."
Frackman also refutes critics that say he added gasoline to the fire by bringing the Napster lawsuit out in the open. He says the 1996 Digital Millennium Copyright Act helped pave the way for Napster's demise.
The DMCA generally has the right idea. What's missing is that content owners and service providers need to cooperate in their relationship." Frackman said. "The problem is in trying to legislate is that current laws did not intended to cover this situation. The technology moves faster than the law can be written."
In the Napster case, Frackman said attempts to negotiate had failed and there was a perception by the recording industry that this new phenomenon could not be left alone. "While traditional copyright law worked - we were working on a blank slate," said Frackman.
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Napster assets auctioned; Bertelsmann to bid high
Napster's creditors are asking for $25 million for the defunct service in an auction due to be held Aug. 27. The bid deadline is Aug. 21.
The auction is being conducted by Costa Mesa, Calif.-based Trenwith Securities LLC, a wholly owned subsidiary of BDO Seidman LLP. Napster's creditors hired Trenwith on Aug. 1 to drum up interest in the auction, which is being held as part of Napster's Chapter 11 bankruptcy filing.
Napster filed for bankruptcy protection in June, two weeks after its major creditor, German media group Bertelsmann AG, agreed to purchase the beleaguered service for $8 million, after sinking close to $100 million worth of loans and other financing into the company (see story).
Bertelsmann is expected to be the highest bidder in the auction, as it guns to use Napster to launch an online music subscription service. The German conglomerate has already said it will bid $9 million over the asking price. What's more, Bertelsmann is offering to waive some $90 million in loans, plus an additional $5.1 million in debtor-in-possession credit it extended to keep Napster afloat, making its final bid worth more than $100 million, according to Rick Chance, managing director of investment banking at Trenwith.
Despite Bertelsmann's hefty bid, Trenwith is casting a wide net for the Redwood City, Calif., company's assets, internationally and to a variety of industries, Chance said.
"What makes this engagement challenging is that it has a very wide distribution," he said. Adding to the challenge is that the securities firm has only eight business days to generate interest in the auction.
"It's a very accelerated, very intense process," Chance said.
To woo potential investors, the firm is advertising the large growth opportunities predicted for online music subscription services, as well as Napster's leading brand name and strong management team.
