Original URL: http://www.theregister.co.uk/2002/05/17/bertelsmann_saves_napster/

Bertelsmann saves Napster

For what?

By Drew Cullen

Posted in Media, 17th May 2002 21:01 GMT

Bertelsmann is to mop up the rest of Napster – for around $8m. Or rather the assets: it gets the name and it has the P2P software, and it pays off the creditors, but it sidesteps the liabilities – most notably, other shareholders, and the gazillions demanded by most of the music majors.

The price is a lot less than had previously been mooted in the German press in March/ April when Bertelsmann made its first attempt to buy out Napster. Then, the company (quaintly headlined today in The San Jose Mercury as 'German media conglomerate' - just how big do you have to be before you get your name in bold in the American press?) was understood to be prepared to pay $15m to £30m. Only last week, Bertelsmann offered $16m, according to reports. The inference with today's headline price is that Napster was very, very close to the point of collapse.

Today's announcement almost certainly saves Napster from bankruptcy. As a business which is all brand, no traffic, no revenues, potentially huge costs, and a very major shareholder – Bertelsmann doing all the latterday funding (a reputed 80 million bucks), Napster never did have much room for manoeuvre. But manoeuvre it tried, with the initial offer turned down because shareholders were at war over the money split.

This follows a big boardroom squabble between shareholder John Fanning (the seed money provider and uncle of developer Shawn who wrote Napster when he was 19) attempting to remove representatives from Hummer Winblad Venture Trust (which pumped in $15m into the biz in 2000) from the board. This failed, but the spat saw several Napster seniors, along with Fanning nephew and Klaud Hilbers, CEO, resign. They’re all back with the Bertelsmann dough.

Castles on sand

Napster was a phenomenon, like Hotmail, or ICQ, or, on a lesser scale, the UK's Friends Reunited, growing from zero to millions of users in nanoseconds.

People like getting stuff for free, and they loved Napster. There was a real community of like-minded people, who turned to Napster, which was so much better than rival services – it worked.

Unfortunately, the Napster phenomenon, swapping music over the Internet with fellow Napster travellers, was predicated on piracy. And a branded business built on piracy is no more stable than a castle built on sand.

As a service, as a phenomenon, Napster would have been so much stronger, if it had never been a business, if its developers had made a true P2P architecture, dispensing with central computers, if it had built a robust anonymizer. But they smelled the money, they bought the VC pitch, and they wanted to be rich. Nothing wrong with that: but piracy and above-board capitalism are difficult to square.

Bertelsmann was thought to be mad when it bought into Napster, which at the time – Octobesr 2000 - was suffering slow death by litigation. Post-Bertelsmann Napster was taken off air, for tweaking, and stayed off air through court action instigated by the music biz.

However navigating through digital rights/royalties/licensing waters proved too much, even with Bertelsmann money. By slowing down Napster to a crawl, the music majors bought time to develop their own digital download services. Payable, of course. Which hardly anyone uses. Of course.

When Napster was underground, it was king. It was community. Now it is just a brand. And very un-rock and roll. ®