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"As soon as we were convinced there was a chance this might happen, we notified our partners."
——Richard Wolpert, RealNetworks

NAPSTER CAUSES FRICTION
INSIDE MUSICNET

Deal Brokered By RealNetworks Surprised Some Label Execs, Which Makes Us Feel A Little Better
Though only two days old, the Napster deal with MusicNet (hitsdailydouble.com, 6/5) has strained relations within MusicNet, reports The Wall Street Journal, and may lead to changes in how the new venture operates.

According to people familiar with the situation, RealNetworks—partners with EMI, AOLTW’s Warner Music and BMG in the joint venture—negotiated the deal directly with Napster over the past few weeks, and didn’t notify EMI or Warner Music of the pending deal until the end of last week, the Journal reports.

And news of the alliance—which was being denied even as it was being announced—left executives at EMI and WMG a bit dismayed with how the deal was put together. (Chances are, executives at BMG, whose parent company Bertelsmann is already allied with Napster, weren’t so shocked.) The result is a push for the appointment of a new chief executive to run the venture. RealNetworks CEO Rob Glaser has been serving as interim CEO of the venture since it was formed in April (hitsdailydouble.com, 4/6).

One label executive contacted by the Journal, and preferring not to be identified, said MusicNet wasn’t being operated "in a way that all parties expected it to be run." The executive said that MusicNet has had no official board meeting, proving that Glaser needs to consult more with his partners.

MusicNet’s first board meeting is scheduled for later this month.

Richard Wolpert, a strategic adviser to RealNetworks, said MusicNet continues to actively look for a CEO to replace Glaser. And despite the friction, all the parties are still committed to keeping MusicNet together. Wolpert also insisted that RealNetworks (which owns 40% of the venture) notified its label partners (which jointly own the other 60%) about the Napster deal at the appropriate time. "As soon as we were convinced there was a chance this might happen, we notified our partners," Wolpert said.

Because of its history as a pirate of copyrighted material, Napster is still such a hot topic among the labels, viewed still primarily as the enemy. The copyright infringement trial initiated by the RIAA against Napster remains unchanged by this agreement.

But before Napster can actually begin accessing MusicNet's music, the company still has to satisfy an array of security and legal conditions. While Napster CEO Hank Barry said he was confident that a new service planned to be launched by Napster later this year would satisfy security conditions, privately, music executives said they don't expect Napster can meet the conditions. EMI said in a statement Tuesday, the day the alliance was announced, that these conditions still hadn't been met.

Meanwhile, Napster executives attended a closed-door hearing in federal court in San Francisco Wednesday (6/6) to determine how well the service is complying with a court order to remove pirated songs from its service.

And just today, the swappery announced a strategic agreement with Loudeye that will help Napster move forward in its digital "fingerprinting" of copyrighted material (hitsdailydouble.com, 6/7)

While he acknowledged that Napster was an "emotional" issue that might have upset some MusicNet partners, Wolpert said the original agreement between the MusicNet partners called for the company to begin negotiations with Napster, the Journal reports. A spokesman for Bertelsmann said Wednesday that he didn't believe "there is any question" that the Napster deal was consistent with what MusicNet had always planned.

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