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"Napster will be at the forefront of finding business models that respect copyright, reward artists, and deliver entertainment value to consumers."
——Joel Klein, Bertelsmann Inc.

BERTELSMANN-NAPSTER ACCORD: THE KITTY’S NINTH LIFE?

Hilbers, Fanning Take Back "I Quit" Stuff; Bertie Buys Assets, Forks Over $8 Mil to Creditors
Well, after splashy news of executive departures and predictions of bankruptcy over the past few days, Napster has been rescued—at least in name—by Bertelsmann, which will acquire the company’s assets, put up $8 million toward its debts and retain CEO Konrad Hilbers and Chief Technology Officer Shawn Fanning.

This dramatic turnaround follows an affirmation of the Napster board’s authority in a Delaware Chancery court. John Fanning, Shawn’s uncle, challenged the authority of the board to head off the Bertie deal and remove board members Hank Barry and John Hummer of Napster VC angels Hummer Winblad, who will presumably regain some of their previous cash infusions before non-investors see any dough from the Bertie pact. With a quick ruling defeating this effort on 5/16, John Fanning resigned.

Following this development, Barry, General Counsel Jonathan Schwartz and several others rejoin the company, despite having resigned behind Hilbers and Shawn Fanning earlier this week. VP of Corporate and Policy Development and political insider Manus Cooney will remain with the firm.

The board had been unable to reach a deal with Bertelsmann, which has been pursuing a buyout of the once-infamous netco for some time.

"We are very pleased to have reached an agreement with Napster’s board of directors," proclaimed Bertelsmann Inc. (U.S.) Chairman/CEO Joel Klein, who added, "We’re happy to see Napster move forward with Konrad Hilbers at the helm."

While not going into detail about the contours of the planned new service, Klein affirmed the two companies’ commitment to legitimacy. "Creating new ways of doing business is never easy," he pointed out, "but Napster will be at the forefront of finding business models that respect copyright, reward artists, and deliver entertainment value to consumers. Peer-to-peer is a transforming technology, and we’re proud to have Shawn Fanning continue to work on its development."

"Bertelsmann understood our vision when they first invested in us. They still believe in that vision," declared Shawn Fanning. "Except for the free, unlimited file-sharing part—but that’s a minor issue."

Indeed, Napster and Bertelsmann have been talking up their proposed "secure" service since talk of a buyout began.

The question remains whether the Napster brand has lasting value. At its peak, the P2P pioneer claimed some 60 million users, which some former operatives at the company insist may have been a conservative estimate. But once stymied by litigation, the service went dormant and saw a diaspora of online music fans to decentralized successors like Gnutella, Morpheus, LimeWire and KaZaA.

Another looming issue is the status of RIAA-led litigation against Napster for contributory copyright infringement. The case has yet to go to trial, though the shutdown order from Judge Marilyn Hall Patel and a later decision that plaintiffs would have to provide documentation of their ownership of claimed copyrights.

Stay tuned for updates.

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