Bertelsmann, Napster make peace

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Bertelsmann AG has broken from the pack of other record labels by striking a surprising major deal with renegade music-sharing site, Napster, to create a "legal business model'' for the Internet company. Bertelsmann created an e-commerce group, BeCG, which will work with Napster in establishing this venture.

As a part of the agreement, Bertelsmann's BMG music division will withdraw as a plaintiff from the music industry's lawsuit against Napster, in which, record labels have claimed that Napster illegally provides free music downloads. BeCG will also receive a stake in the new venture that will give it rights to Napster's file-sharing technology, the Napster brand, and Napster's customer data; Napster has 38 million worldwide users.

Napster isn't out of the woods in its battle with the music industry. Its public lawsuit, brought by the Recording Industry Association of America, with four other major music labels, remains.

In a statement, RIAA President-CEO Hilary Rosen said: "Today's announcement of a strategic alliance between Napster and Bertelsmann AG makes clear that Napster has come to the same conclusion we have been urging from the start: that it is better to work with the creative community than against it.'' She added, however, "today's announcement does not bring an end to the court case. There are multiple plaintiffs in addition to BMG; and BMG itself has said that it won't withdraw its complaint against Napster until they actually implement a legitimate business model.''

Copyright October 2000, Crain Communications Inc.

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