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VC pumps $15m into Napster

Takes seat on board, provides new CEO

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Controversial software developer Napster is being taken over - indirectly - by US venture capital firm Hummer Winblad, it seems.

HW is pumping $15 million into the legally-challenged developer, and has installed co-founder John Hummer on Napster's board and declared a partner, one Hank Barry, as interim CEO to replace departing encumbant Eileen Richardson.

It's not clear why Richardson is off - perhaps she's had it up to here with lawsuits - but we note how interim CEOs tend to become either full-time CEOs (as per Apple) or the company goes down the pan (as per Iridium). Barry is probably at Napster for the duration, then.

The source for all this information is Napster business development manager Chris Penner, interviewed on Friday by Bloomberg. The news agency also notes the unwillingness of other venture capitalists to put money into Napster until its legal position becomes rather less murky. Having failed to have Recording Industry Association of America's copyright violation case against it thrown out of court, Napster faces a tough time persuading a US District Judge that it's not guilty of the music piracy actions of its users.

But HW is probably right to hang on in there. Napster will ultimately have to settle out of court - or risk face anihilating damages - and modify its service to allow it to develop into what it really is: the FM radio of the 21st Century. In a business that relies on selling product on the back of samples - albums sold by promoting singles; CDs sold on the back of radio airplay - the major music labels have a lot to gain from getting Napster on their side. And, as per radio, that means putting up with the possibility that some users won't buy albums, they'll simply copy them.

And - pace Metallica's nice Mr Ulrich - college kids who dupe CDs tend to grow up into twenty- and thirty-somethings with large disposable incomes who would rather buy the full package (music, artwork, lyrics) than put up with scruffy tapes with handwritten labels. Home taping never killed music - contrary to the music industry's fears and numerous ad campaigns - and neither will Napster. It's the Chinese CD plants turning out bootleg copies of Dark Side of the Moon that the music business needs to fear.

If the music industry can come to a deal with Napster, it will gain one of its most powerful marketing tools, and that's probably what the RIAA lawsuit (but not the Metallica one) is about: getting Napster to the point where the industry can make it do what the industry wants. That's unlikely to diminish Napster's userbase, and add in the prospect of selling ads to a very tight demographic, and the future for Napster suddenly looks very rosy indeed.

No wonder HW wants a bigger part of it. ®

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