Bertelsmann and Napster Form Alliance

Posted on November 2, 2000

Bertelsmann AG and Napster, Inc. have announced the formation of a strategic alliance to further develop the Napster person-to-person file sharing service. Napster, which reaches over 38 million music fans, has been defending itself from lawsuits from record companies, music groups and artists for allowing users of its free service to share files of copyrighted music. Bertelsmann AG's newly formed eCommerce Group, BeCG, and Napster have developed a new business model for a secure membership-based service. Bertelsmann has combined all of its ecommerce companies, stakes and holdings, such as www.bol.com, BarnesandNoble.com, CDNOW, and Bertelsmann Broadband Group, in BeCG.

The company plans for the membership-based service to preserve the Napster file-sharing experience while at the same time providing payments to rightsholders, including recording artists, songwriters, recording companies and music publishers. Napster and Bertelsmann will also seek support from others in the music industry and invite them to participate actively in this process.

Under the terms of the agreement, once Napster successfully implements its new membership-based service, Bertelsmann's music division, BMG, will withdraw its lawsuit against Napster and make its music catalogue available. Bertelsmann eCommerce Group will provide a loan to Napster to enable development of the new service and will hold a warrant to acquire a portion of Napster's equity.

Thomas Middelhoff, Bertelsmann's Chairman and Chief Executive Officer, said ``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. 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. 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, founder of 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.''