Napster Airs Compensation Service for Labels, Artists

Napster Wednesday came up with some figures to accompany its promise to
provide compensation for the record labels and artists who have decried

The file-sharing firm has apparently dangled the business plan in front of
the labels for the last six months, according to a statement issued by
Napster early Wednesday morning.

The proposal pledges to yield $1 billion to the major labels, songwriters
and independent labels and artists over the next five years: major labels
would receive $150 million per year for a non-exclusive license, predicated
on files transferred; $50 million per year will be set aside for independent
labels and artists to be paid on the same files-shared basis.

Napster’s Chief Executive Officer Hank Barry said definitive pricing has not
been set and that the model will have two tiers. Included are basic
membership plan that would cost in the range of $2.95 to $4.95 per month and
a premium offering tentatively in the range of $5.95 to $9.95. The latter
would involve a share-as-much-as-you-want scheme while the former is an
as-yet-undetermined limit.

Napster also said the new, diplomatic service is slated to launch this
summer and will be designed as a promotional service with fidelity
limitations of 128 kbps and lower to keep users honest. Users will be asked
to pay an additional fee in order to burn CDs and to transfer their music to
audio players or pocket PCs.

Shawn Fanning, who created the controversial sharing technology that ignited
a furor, said in a company statement that he has “so many cool things in

Bertelsmann AG, the Germany-based media giant and owner of BMG
Entertainment, reaffirmed its support for Napster, the firm it partnered
with last October to work out how to incur revenue streams for labels and

“Bertelsmann chose to build a partnership with Napster in October, 2000
because of the tremendous value it creates for promoting
artists and building community,” said Andreas Schmidt, president and CEO of
Bertelsmann eCommerce Group. “The revenue
potential of Napster for the entire recording industry is unprecedented and
it’s time to start thinking towards the future and figure out
a way to leverage this potential instead of trying to quell it.”

After the 9th Circuit Court of Appeals ruled that the outfit could indeed be in violation of certain
elements of copyright law, Napster is in need of positive buzz and providing
some preliminary figures could cement its status as a deliverer of good

Some experts say that won’t be enough.

Larry Iser, partner at Los Angeles-based Greenberg Glusker Fields Claman
Machtinger and Kinsella LLP and head of its music litigation and intellectual property practices, told he sees the proposed business model as publicity stunt designed to divert
attention from last week’s 9th Circuit ruling.

“I don’t think the remaining major record companies will see Napster’s offer as a serious, good faith offer
to compromise,” Iser said. “The record industry is nearly a $40 billion
industry; the harm to the record industry and to the copyrights
themselves from the massive infringement enabled by Napster
greatly exceeds Napster’s offer. The industry would be crazy to
allow Napster to operate for the relative pittance Napster is

Also missing from the offer, Iser said, are details as to how Napster intends to charge the users, and how
Napster intends to account to the record and publishing companies for the use of the sound recordings.

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