Napster Preps For Takeover

Officials at Internet song-swapping bad boy Napster Thursday asked a Delaware court to please let them live to see another day. The company is hoping to sell their assets to Bertelsmann AG.

The German-based media company has machinations on reviving Napster as a legitimate pay-to-download music provider like MusicNet or pressplay.

For all intentional purposes, Napster has been dead for more than a year considering the service has been dark for at least that long. The court will decide either today or tomorrow if Bertelsmann’s $100 million bid to buy the Redwood City-based company is on the up and up.

Napster filed for Chapter 11 protection in June. Bertelsmann said it would waive Napster’s debts as part of the deal.

If Bertelsmann’s bid is approved, Napster clears not only its financial but legal debt – meaning no more lawsuit by the recording industry. If Bertelsmann does not get the court’s blessing, sources at Napster say the company has no other suitors and would have to fold altogether.

Napster’s recent auction did not attract any takers to outbid Bertelsmann’s $14 million offer. But, a new controversy has erupted over the way the court has interpreted Bertelsmann’s bid, which totaled in excess of $85 million.

The stumbling block centers on misgivings by the Music Publishers Association and the Recording Industry Association of America (RIAA). Both trade organizations have been fighting Napster’s clandestine business practices in court for years.

RIAA’s beef is that they want the court to rule that Bertelsmann’s $85 million investment should be treated as equity, and not a loan.

The German media giant had bankrolled Napster through much of its legal trouble with the music industry and, when the site decided to file for Bankruptcy protection, Bertelsmann inked a deal to pay $8 million for the assets.

If the judge rules that the Bertelsmann investment is not a loan, the bid would be in the vicinity of $9 million and could reopen the bidding process.

Which begs the question: Why Bertelsmann is shelling out so much for Napster?

Part of that lies in who is controlling online music these days.

The big five players include, AOL Time Warner Inc.’s Warner Music, Sony Corp. Sony Music Entertainment , EMI Group PLC’s EMI Record Music, Vivendi Universal SA’s Universal Music Group and Bertelsmann AG’s BMG Entertainment.

Everyone has a hand in’s Rhapsody service.

MusicNet is backed by RealNetworks AOL’s Warner Music, EMI Group, Bertelsmann’s BMG, and independent recording giant Zomba Records.

Pressplay is supported by Sony and Vivendi Universal as well as Yahoo! and MSN .

If Bertelsmann comes out in control of Napster as a legitimate service, the company will corner the market with one of the best-known names in music file sharing history.

Whether Napster will be successful as a legitimate service remains to be seen.

The Man Who Killed Napster Speaks Out

Meantime, Russ Frackman the lawyer who represented the RIAA talked to and is adding his two cents about Napster as an institution and the DMCA as a whole.

The copyright law specialist insists the recording Industry’s litigation was never about anti-technology or against peer-to-peer.

“We focused more on Napster’s business plan, which (Napster defense lawyer David) Boies, failed to capture. In particular, I felt we were vindicated when Napster was shut down,” said Frackman.

As for a Napster’s plans to go legit along with other music file sharing services, Frackman sees no problem as long as they go through the proper channels.

“I don’t think there will be the problem they and others have the ability to operate if they want to that they could do what other permission to use it first,” Frackman said. “There are all sorts of potential systems that use protected and authorized methods to operate. This is not any different than a restaurant that wants to play music.”

Frackman also refutes critics that say he added gasoline to the fire by bringing the Napster lawsuit out in the open. He says the 1996 Digital Millennium Copyright Act helped pave the way for Napster’s demise.

The DMCA generally has the right idea. What’s missing is that content owners and service providers need to cooperate in their relationship.” Frackman said. “The problem is in trying to legislate is that current laws did not intended to cover this situation. The technology moves faster than the law can be written.”

In the Napster case, Frackman said attempts to negotiate had failed and there was a perception by the recording industry that this new phenomenon could not be left alone.

“While traditional copyright law worked – we were working on a blank slate,” said Frackman.

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