Napster Acquires Gigabeat for Cash, Building Its Technology Tool Chest
by Mark Lewis
Song-swap service Napster has acquired filter technology company Gigabeat for an undisclosed amount of cash, said a source close the negotiations. The deal gives Napster advanced search and filtering technology and components for file identification that the service will apply to its current attempt to block copyrighted music, and its future subscription service.
Napster will acquire Gigabeat's technology and its staff of 18 engineers, including Gigabeat co-founders Narayanan "Shiva" Shivakumar and Wilburt Labio, two Stanford Ph.D.s with experience in content-based copyright infringement detection and data warehousing [see 03.26.01 Napster Eyes Gigabeat as "Missing Link" in its Commercial Service]. Gigabeat engineers have already been working on contract with Napster for the last several weeks, helping Napster comply with a federal court injunction that requires Napster to block access to hundreds of thousands of copyrighted recordings.
A federal judge in San Francisco will hold a hearing today on Napster's compliance, evaluating the Recording Industry Association of America's claims that Napster is willfully and flagrantly violating the court's order.
Napster's money for the deal likely comes from German media conglomerate Bertelsmann, which gave a credit line of $60 million to the Redwood City, Calif.-based firm last October. Napster, not Bertelsmann, is the entity acquiring Gigabeat, though Bertelsmann holds warrants for more than half of Napster's equity. The source declined to say if Gigabeat's investors would receive equity stakes in Napster along with cash payments. Investors include venture firm Kleiner Perkins Caufield & Byers, Sun Microsystems co-founder Andreas Bechtolsheim, Hotmail co-founder Sabeer Bhatia and several Stanford University computer science professors.
Napster executives were unavailable at press time to comment on the Gigabeat transaction. Gigabeat executives declined to comment.
Although Gigabeat's public face has been comprised of music recommendation technology, and a search engine that can locate Internet radio broadcasts, the company has a larger suite of applications for a full-scale music service. For example, Gigabeat's core technology is able to combine multiple databases of audio fingerprints, text information and user behavior information to identify files for different purposes. Those purposes could include filtering copyrighted music and identifying files in a closed system in which file transfers must be tracked to pay royalties to copyright holders. Additionally, Gigabeat's technology can work in conjunction with portable playback devices, which would be useful to Napster if it cuts deals with device makers that would allow users to export secured Napster tracks.
Still, as Napster assembles the team and technologies it needs, other deals are expected.
"You get not only the technology but you get a really great team of engineers that are really into this online music space," a music technology source said of the Gigabeat acquisition. Engineers only make up one-third of Napster's staff, and the company is trying to hire more engineers for its product development team, which is trying to build a commercial service for a July launch.
The building directory at Gigabeat's Palo Alto, Calif., offices lists Napster as occupying two suites in the building. This most likely means that Napster engineers working on the new system will join the Gigabeat team there. That would give them some needed distance from Napster's Redwood City-based "compliance team," which is trying to improve Napster's text-based filtering technology and add variant file-names to a database of material that must be blocked.
For Gigabeat, the acquisition comes after a year of carnage in the online music field. Few music technology firms have been able to secure new rounds of venture capital, and small online distribution companies have been unable to obtain major label licenses that would let them run their own subscription services. Simultaneously, major media company-backed commercial download systems remain limited and unprofitable, with the industry edging away from downloads toward streaming services that label groups will license to distributors.
Yet even in that climate, Gigabeat wasn't without other suitors. It was pursued by a company that intends to launch a subscription service that will stream music to consumers after they register corresponding CDs with the service, but that deal fell through early this year. A major label's investment arm also made Gigabeat an offer, but the company chose Napster instead. While the amount of Napster's offer was probably paramount, Gigabeat may have favored Napster because the two companies both have the business culture of a start-up, an outlook a major-label venture probably would have lacked.
AI
