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Bertelsmann today beckoned others to follow its lead after ditching its part of a piracy lawsuit against Napster.

The two former foes have struck an 'alliance' to develop Napster into a membership-based service that will pay royalties.

Bertelsmann, parent of music company BMG Entertainment, will fund the development of the service through a loan from its e-Commerce group. The e-Commerce group will hold a warrant to acquire a portion of the MP3 file-swapping company's equity.

While promising to "preserve the Napster experience", the all-new Napster will make payments to record artists, songwriters, recording companies and music publishers.

"Person-to-person file sharing has captured the imagination of millions of people worldwide with its ease of use, global selection of content, and community features," said Thomas Middelhoff, Bertelsmann chairman and CEO.

"Napster has pointed the way for a new direction for music distribution, and we believe it will form the basis of important and exciting new business models for the future of the music industry."

By withdrawing from the suit, Bertelsmann is going out on a limb - the rest of the record industry is still baying for Napster's blood and want the site shut down permanently.

But Middelhoff issued a plea to rivals to adopt his if-you-can't-beat-'em-join-'em attidute: "We invite other record and publishing companies, artists and other industry members to participate in the development of a secure and membership-based service."

Shawn Fanning, the college drop-out who founded Napster, said: "I am excited that Bertelsmann appreciates and values the uniqueness of the community Napster users have built. I look forward to Napster becoming a part of even more people's lives, helping the way people discover and explore music."

Napster has 38 million users, and has rattled the cages of gazillionaire artists such as The Spice Girls, Madonna and Metallica. The full Bertelsmann statement can be found here. ®

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