Bertelsmann Saves Napster

Napster has been saved from what appeared to be certain death. A last-minute deal struck by German media conglomerate Bertelsmann AG will revive the company, which was reportedly near bankruptcy. It's the end of a long-running soap opera and the beginning of a new era for the company that began the audio file-sharing phenomenon.

The price? A mere $8 million, to be paid to various Napster creditors, will secure the company's assets. That's less than 10% of the $85 million Bertelsmann has pumped into Napster so far in the hope of turning it into a profit center offering licensed music. It's also half the $16 million Bertelsmann was offering earlier in the month, in a proposal that failed due to infighting among Napster executives and Hummer Winblad Venture Partners, the venture capital firm that had been Napster's primary backer. Bertelsmann provided Napster with $50,000 per day in operating capital during the negotiations, according to the Wall Street Journal.

The agreement was reached on May 17, just two days after Napster CEO Konrad Hilbers, company founder Shawn Fanning, and other Napster officials announced their resignations. The resignations came in anticipation of imminent failure at the negotiating table. Both Hilbers and Fanning have rejoined the Redwood City, CA–based company, which may still seek Chapter 11 bankruptcy protection.

"I have believed from the start that this deal was a valid and beneficial deal for Napster, the best direction for the company under the current circumstances," Hilbers said after the deal was announced. "We are very pleased to have reached an agreement with Napster's board of directors," said Bertelsmann CEO Joel Klein. "We're happy to see Napster move forward with Konrad Hilbers at the helm."

Bertelsmann hopes to leverage Napster's technology and waning fame into a legitimate alternative to pressplay and MusicNet, two commercial music sites sponsored by the industry, which have yet to win many paying customers. "We are very committed to providing artists the best possible distribution opportunities for their work, and to providing consumers more choice and control," Klein stated. Bertelsmann is the parent company of BMG, one of the music industry's "Big Five" publishing conglomerates.

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