BMG parent's Napster deal angers users

THE BALTIMORE SUN

It's becoming as clear as CD-quality sound: Napster, the rogue Internet company that defied the record industry and put hundreds of millions of pirated songs on computers throughout the world, is out to get rich.

In the process, it may become part of the corporate music world that so many of its freebooting users hate. The question is whether those millions of loyal fans will stick around.

"It's not what I thought Napster was about," said Jon Baker, a 26-year-old civil engineer in Denver and a Napster user. "I thought the Internet was supposed to be a medium for free trade. I'm not going to pay to use Napster, I'll just go somewhere else and find the music."

Baker reacted to a deal announced last week between Napster and Bertelsmann AG, the music industry's second-largest publisher, to turn Napster's free file-sharing network into a paid subscription service.

The alliance is likely to shape how digital music is distributed. Bertelsmann - owner of BMG - and four other major record labels are embroiled in a lawsuit with Napster over copyright infringement, but the deal calls for Bertelsmann to withdraw from the suit once Napster redesigns itself.

What that redesign will be isn't clear because neither side is providing specifics. But Napster CEO Hank Barry said the company's 38 million users can probably expect to pay $4.95 a month if they want unlimited access to songs.

Another question is what kind of copy protection will be placed on the music files that users download from the new Napster. Analysts say it's likely that any music files downloaded will have "watermark" coding that could help authorities pinpoint pirates or anyone else who distributes songs without permission.

The deal will take some of the legal heat off Napster, whose file-sharing program became one of the most widely adopted pieces of software in computer history a year after it first appeared.

The California company was founded by a 19-year-old college student who designed a simple program that would allow him to distribute his homemade music. It attracts about a million users a day to its servers.

While Napster does not transmit music, it acts as a giant catalog for users who are willing to share their digital music files with others - transactions that are usually violations of copyright laws.

The record industry screamed foul and dragged Napster to court this year, calling the service a giant online pirate's bazaar.

Now some legal analysts predict that the challenges will give way to alliances between Napster and other major music labels.

"At $5 a head, just do the math. There's an awful lot of money at stake here," said Whitney Broussard, an entertainment lawyer with Selverne, Mandlebaum & Mintz in New York. "The record labels are seeing that they'll be able to clear millions in pure profit from a service that hasn't even adversely impacted CD sales."

Bruce Fries, the Silver Spring-based author of "The MP3 and Internet Audio Handbook," travels the country, lecturing about the MP3 compression technology that makes it possible to exchange music online. He said the court challenges to Napster make little sense for mainstream music executives.

"Maybe through the courts they'd be able to shut Napster down, but in the meantime it'll cost them a tremendous opportunity," Fries said. "The answer to unauthorized downloading is not to sue, but to find a way to make the music affordable. Any label that ignores this kind of opportunity has got to be crazy."

Fries, who jokingly calls himself an "MP3 missionary," says Napster's easy-to-use program has made it popular everywhere he goes. When he talks to senior citizen groups, he always asks the same question.

"I say, 'How many people here use Napster?'" he said. "And three or four hands always go up. It's a misconception to think this is just being used by college students. Senior citizens are out there with time on their hands and they're downloading Frank Sinatra."

Throughout much of the past week, Napster's message board at www.napster.com has been deluged with comments about the Bertelsmann alliance, many of them hostile. While some supported Napster's decision as a practical solution to legal pressures, others accused the company of selling out to its new corporate bedfellow.

However, in its official statements, Napster has never wavered with respect to the record labels. As far back as a year ago, Napster approached the industry about forming a partnership, but was rejected out of hand.

The labels, as evidenced by last week's deal, now seem to be singing a different tune.

"It's not surprising they're making some overtures to Napster," said Peter Alhadeff, an associate professor in the music business department of Berklee College of Music in Boston. "The data they can get from Napster's customer base alone is worth a great deal to them. That's 38 million people's music interests that they can analyze and study."

Under the terms of the deal, Napster's new service would include a section where users could still trade files for free. But selection would be limited to songs that the recording companies selected as promotional only. Both the free and subscription sections would have links to CDNow, an online music retailer owned by Bertelsmann.

In return, Bertelsmann will loan Napster money for the retooling and will be allowed to purchase stock in the company later.

What remains to be seen is whether Napster's users will find its new incarnation acceptable. Part of the Napster's appeal is that it isn't complicated. If the new format is too complicated or onerous, Napster could lose subscribers to something it didn't have when it started - competition.

"There are so many comparable programs out there now that will do what Napster does, which is provide music in a file-sharing environment," said Harvey Dunn, an intellectual property rights lawyer in the Dallas office of Vinson & Elkins. Among those programs are Scour, Gnutella, FreeNet and Audio Galaxy.

"To some degree, technology has already passed Napster by and the genie's already out of the bottle for people who want to get free music," Dunn said. "You've got a whole generation of people out there who are used to getting things through the computer for free. It'll be very easy for them to just switch to a different program."

Copyright protection is another sticking point. Although company officials declined to discuss how it will be done, Napster CEO Hank Barry said he is a supporter of the Secure Digital Music Initiative (SDMI), an organization that has been working to develop a standardized framework for protecting digital music.

The group is testing six security technologies. Four of them involve watermarking, a method in which computer files are "stamped" with a digital imprint that would allow someone to determine whose computer they came from.

Leonardo Chiariglione, SDMI's executive director, said this week that he hasn't been contacted by Napster. But he said he thought some form of copyright protection being developed by SDMI would be a logical choice for the company.

"Napster is the greatest distributor of digital content that's ever been invented," Chiariglione said. "If this great distribution system could be combined with protection, it would be a marriage made in heaven."

He added, however, that the right technology has to be put in place, or Napster's colossal popularity will crumble. Changing the smoothness of Napster's program could be unsettling to many of its users.

"If you convince people that by taking what you propose gives them something they want, you've got something," Chiariglione said. "If you don't, you're dead."

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