e.Digital Corporation (fka EDIG)

[Tinroad]

Napster Deal with MusicNet Would Combine Two Universes, Requiring Two Subscriptions
June 05, 2001 by Mark Lewis


As major labels work double-time to neutralize previous leaks, song-swap service Napster is on the cusp of announcing a licensing deal with three major labels that would bring their content into a commercial Napster service, but would require users to pay two separate subscriptions and use two separate software players.

A source familiar with Napster's plans says it is close to announcing that a paid version of its song-swap service -- which may launch late this summer -- will incorporate a subscription service offering downloads from AOL Time Warner's Warner Music Group, Bertelsmann's BMG Entertainment and EMI Recorded Music. The major labels' service, called MusicNet and developed by software company RealNetworks, would be blended into Napster, but would require a separate monthly payment on top of Napster's still-to-be-determined monthly fee.

The basic Napster service would allow users to trade unlimited files from independent artists and Napster partners TVT Records and Edel Music, but it has not been settled whether the that trading area would include tracks owned by Bertelsmann -- which loaned Napster $60 million last fall to develop a service that pays royalties to rights holders. Bertelsmann is in a tight position because it has committed to MusicNet as the vehicle through which its music will be licensed for Internet distribution.

The first version of the Napster/MusicNet service would include two searching windows within the Napster client -- one for Napster's song-swap material and another for MusicNet tracks. Both types of files will be protected by rights management technology that will prevent users from copying them to CDs. Users are expected to be able to create a single playlist with both Napster and MusicNet tracks, but Napster tracks automatically play on Napster's internal software player, while the MusicNet tracks will play on a RealNetworks application. While that may generate some confusion for users, it is considered a compromise measure that had to be taken to get access to MusicNet's content.

Napster users will be able to swap MusicNet tracks with each other, as long as other users also have subscriptions to MusicNet. But because those MusicNet tracks will be available through Napster's MusicNet gateway, users will likely obtain them from MusicNet's central servers, not from another user. MusicNet will manage subscribers' access; it would only allow access to a limited number of downloads per month and ensure that tracks expire when users stop paying a monthly subscription.

Later this year, Napster is expected to introduce an integrated version of the two services, combining the search function on one screen. MusicNet tracks will be identified, and users will be prompted to pay for a subscription if they wish to download them.

Earlier today, some major label sources denied they were licensing their content to Napster, or released cautious statements that Napster would have to demonstrate an anti-piracy system protecting their content before any deal would be cut.

Napster's delivery of the MusicNet service also requires that MusicNet obtains licenses from publishers, and could require that complex litigation and Copyright Office proceedings over royalties for subscription services are resolved.

Financial terms of the Napster deal are not expected to be disclosed. The deal is a coup for the revenue-hungry service, which has seen a drastic decline in users since a federal judge in March required the service to prevent users from trading copyrighted music owned by BMG, EMI, Warner and two other major labels, Sony Corp.'s Sony Music Entertainment and Vivendi Universal's Universal Music Group.

Sony and Universal are partners in a separate subscription venture called Duet, and the terms of the Napster deal are believed to implicate them. As first reported by the New York Times, Napster's deal with MusicNet will preclude Napster from obtaining a license to distribute the Duet service for a limited time. The Times reported that MusicNet was attempting to pressure Duet into joining their effort, but combination of all five majors into one service will likely draw scrutiny from antitrust regulators.

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