Bertelsmann Wants All of Napster

As Napster continues to grapple with how to make the switchover from being a famously illegal music-swapping service to a more legitimate, subscription-based model, longtime financial supporter Bertelsmann, parent of worldwide music division BMG, is reportedly on the verge of making Napster an offer it can’t refuse.

According to German newspaper Die Welt on Friday of last week, Bertelsmann Chief Executive Officer Thomas Middelhoff confirmed his company’s intentions of buying out Napster investors John Fanning, uncle of Napster founder Shawn Fanning, and venture capitalist Hummer Winblad Venture Partners.

Middelhoff was quoted by Die Welt as saying: “Our solution is to take over Napster completely. We want to buy out the original shareholders. We have made them an offer, because we believe that our strategy is the right one for the future of the company.”

The connection between the Redwood City, Calif.-based Napster and German media giant Bertelsmann dates back to October, 2000, when Bertelsmann swooped in to Napster’s rescue at the onset of its legal troubles with the Recording Industry Association of America (RIAA), of which Bertelsmann’s BMG is a member.

To date, Bertelsmann has spent an estimated 85 million in long-term loans to the flailing music service with no relief in sight as Napster continues to weather legal blows set forth by members of the RIAA for its misuse of copyrighted material in its now-defunct file-swapping service.

The key element to Bertelsmann’s buyout of Napster is that it will give the file-swapping service two things it needs most in order to survive the past two years of litigation: money and licensed content from a major record label with which to fortify its new subscription-based music model and begin to recover its losses.

However, as Napster should already have learned at the online school of hard knocks, there are no free lunches, especially from one of the five largest music-recording entities in the world.

Bertelsmann executives are reportedly willing to pay an additional 30 million to take over the company, mirroring the same strategic maneuver the other four major players in the RIAA have been undertaking this past year in an effort to get a stronghold on legalized, subscription-based music services and put content owners, or in this case content conglomerates, back in the drivers seat.

To date, the control of the RIAA over the three major subscription services has been far-reaching. Popular fee-based music service Pressplay is a joint venture between Sony Music Entertainment and Universal Music Group (a division of Vivendi Universal). Pressplay also holds licensing deals with BMI and TVT Records, among many other independent record labels.

MusicNet, backed by RealNetworks, has licensing alliances with EMI Records, BMG, Warner Music Group, and a roster of independent record labels.

San Francisco-based holds licensing alliances with Warner Music Group, Sony, EMI Records, BMG, and a long list of independents. The company is funded by all five major record labels, which include BMG, EMI Records, Sony, Warner Music Group, and Universal.

According to Bertelsmann’s CEO, buyout negotiations have been recently stalled by Napster shareholders while they consider the proposal and squabble over who gets the biggest piece of the pay-off pie.

Representatives for Napster and Bertelsmann were not available for comment.

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