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Napster's life after judgment.

napster Set to Become a Paid Service by Summer." Titles like this bloomed in the news this winter. When the announcement of Napster's new subscription model hit the wire, the company's multiple problems with copyright law seemed to be almost solved. Days after the announcement, a federal judge ruled against the company by ordering them to remove hundreds of thousands of infringing copyrighted files. Napster's users moved quickly during the month of January, swapping 2.66 billion files, according to webnoize's New Subscription Models report, before the file filtering and removal began. Napster's service has quieted down as users download similar services to continue the free music swapping.

Napster's plan to reorganize its service started with a strategic partnership with music industry giant Bertelsmann AG, back in October. Soon after the merger, Thomas Middelhoff, Bertelsmann AG's chairman and CEO, announced at the WEF in Davos that it had a subscription plan in the works for Napster's service. In a statement regarding the announcement, Frank Sarfeld, Bertelsmann eCommerce Group's senior V.P. and chief communications officer, said, "We are very much on track with the development of the new, membership-based, subscription-based service. The talks with the other labels are in progress; Edel Music and TVT Records, two of the largest independent labels, have already joined BeCG and Napster. Both companies entered into a strategic alliance to jointly develop a new business model that will uphold the interests of musicians, authors, and publishers."

The Bertelsmann-Napster subscription plan seemed to be a solution to make the exchange and distribution of music files legal, as long as other music houses had the opportunity to join the alliance--and all parties involved got their shares of revenue. The federal court, however, ruled against the service, and somewhat hindered Napster's plans to make it up to all parties. "It's somewhat unfortunate that once Judge Patel retools her injunction, Napster will likely be shut down before it has an opportunity to migrate millions of users from the free illegal service to the paid legitimate one," said Larry Miller, president of Reciprocal Entertainment.

Following the massive file removal ordered by the federal court, "consumers w ill then likely turn to other illegal services, which might set the industry as a whole back even further," added Miller. Webnoize analyst Matthew Bailey said that, after the ordered filtering, "the number of downloads per Napster user has dropped by half, and the amount of users decreased by 20%." As predicted by Miller and other executives and analysts, a big number of Napster users opted to turn to other services. Through monitoring other Napster-like services on usage, webnoize found that Music City's membership, for example, increased from 15,000 to 35,000 users since Napster's files were filtered.

Will subscription models be successful after lawsuits fade away? According to webnoize's New Subscription Models report, "A new breed of subscription model will solve the problems of digital music. Digital Music Aggregators (DMA) will meld the confusing array of products into a one-stop digital music experience. DMAs will deliver content from a central location, reducing delivery costs. Consumers will display a high willingness to pay for digital music services, expanding revenues rapidly to make DMAs a large and lucrative business." Webnoize predicts that nearly half of college students--over four million consumers--would pay up to $20 per month for an unlimited download subscription to a digital music service. According to the report, paid digital music subscribers could reach nearly 12 million by 2003,
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Date:May 1, 2001
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