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NAPSTER-BERTIE ALLIANCE:
FACING SOME OPPOSITION

The Day After, Companies Suddenly Feel
Self-Conscious, Eat Together In Silence
With the smoke from yesterday's bombshell announcement beginning to clear, the "strategic alliance" between user-rich online music-sharing company Napster and German media conglom Bertelsmann's BeCG (eCommerce Group) now faces an onslaught of scrutiny behind company doors, across Internet bulletin boards and even under the cluttered desks of sleazy music-news Web sites.

Some insiders say that not everyone at Bertelsmann-owned BMG is thrilled with the deal. In addition to jumping into bed with an entity largely seen as a bete noir by much of the biz—and against which the company remains in noisy litigation—the label group faces possible isolation in its forward-looking pact.

Other majors, notably Sony, seized the occasion to reinforce their opposition to Napster. UMG, with nearly a third of the total music market, has been a notorious holdout, even when competitors cut deals for digital distribution (it remains the only major group not to settle with MP3.com), partly to focus on its own efforts—including a Farmclub.com streaming subscription service, which will reportedly feature music from other label groups. AOL and Warner will apparently be developing their own sub service, too, if they can muster enough good will for their merger. And most of the majors have agreed to a streaming subscription venture with MusicBank.

Inside sources at UMG, WMG and Sony—who say they saw the plan accepted by BeCG but didn't find it financially appetizing—have been uniformly insisting that they won't follow the Napster path. And with a possible court decision against the netco in the near future, the litigants, who took more than a pound of flesh in damages from MP3.com, are likely to demand astronomical penalties from the file-swapping supersite.

Napster chief Hank Barry and BeCG CEO Andreas Schmidt were steadfastly upbeat in Tuesday's press teleconference about the prospect of getting the other majors in line. But their refusal to publicly consider the possibility of BMG being the only label group cutting such a deal doesn't dismiss that possibility. Would consumers pay for a single-group service, with so many unlimited free file-sharing applications floating around the Net?

What's more, BMG doesn't have the Internet rights to Jive Records (and its 7% marketshare), which boasts hugely lucrative artists like Britney Spears, NSYNC, Backstreet Boys and Mystikal. Without these megastars, BMG's content offerings, though still impressive, will be substantially reduced.

More shadowy, but still worth considering, is the possibility of bad blood resulting from what some in the record "cartel" regard as a near-treasonous liaison. Could Bertelsmann's relationship with Napster trigger greater hostility from the other majors?

Meanwhile, despite the beaming assurance of its proponents, the contours of the ostensible paid, "secure," membership-based service are themselves blurry, to say the least. Among the elements still to be decided, or at least freely discussed: When the service will be rolled out, whether Napster's executive structure will be altered, how downloading will be monitored to determine rights-holder compensation and what—if any—security measures will be employed.

To be fair, though, Napster and BeCG admit they have much work and negotiation ahead, and companies taking a hard-nosed stance have been known to come around. The fact remains that the majors—having been forced to overcome their total distrust of the digital space and their own occasionally hare-brained initial forays into it—all want a piece of Napster's (reportedly) 38 million-strong user base. If even a chunk of those users stuck around for a paid service, then sharing in the equity would seem a real enticement.

And despite the cries of "sellout" from the more puerile of Napster's users, the majority of online-music specialists appear to see the alliance as a positive development. "It's great," enthuses Gnutella's Gene Kan. "The Internet is going to bring music into the 21st century, and I'm glad to see that at least one [major] record label [group] wants to participate in that."

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