Bertelsmann and Napster form Strategic Alliance

Bertelsmann AG, (www.bertelsmann.com), a large German media company, and Napster ( www.napster.com), announced the formation of a strategic alliance to further develop the Napster person-to-person file sharing service. Bertelsmann, which owns the BMG, RCA, and Artista labels, has agreed to drop its legal action against Napster, pending the implementation of a membership-based service, and is urging the other labels to do the same.

"Napster and Bertelsmann will seek support from others in the music industry to establish Napster as a widely accepted membership-based service and invite them to participate actively in this process," stated the company in a statement.

The companies state that they have developed a new business model that will generate revenue through a secure subscription-based service, while providing payment to copyright owners. An October Webnoize survey found that 67.6 percent of Napster users surveyed, would pay $15 per month to use Napster, a 9.1 percent increase from results of a survey Webnoize conducted in April. While Napster users are showing an increased willingness to pay for the service, the analysts at Webnoize note this is reflective of the unrestricted access and wide-selection of music that people can access on Napster today.

"This is not a slam-dunk for Bertelsmann or Napster. If the new pay service imposes complicated security systems or unfamiliar file formats on its users, or simply offers too few popular artists or titles, consumers won't adopt it," said Webnoize analyst, Ric Dube.

Still, the move signals the preservation of the Napster application - in one form or another. Bertelsmann has agreed to provide a loan to Napster for the development of the new secure service, and will retain an option to acquire a portion of Napster's equity.