Napster humming a new tune

The agreement will allow Napster to sell songs offered by MusicNet, a company created by media software developer RealNetworks and three major labels--AOL Time Warner's Warner Music Group, EMI Recorded Music and Bertelsmann's BMG Entertainment

The tie-in between MusicNet and Napster is not surprising. When the companies involved in MusicNet first made details public in April, executives said they would strike a licensing deal with Napster. Executives also said that MusicNet would license its music library to numerous companies as its primary method for generating revenue.

Under the arrangement, Napster users would first have to subscribe to the company's basic service, which allows people to swap songs by independent labels and self-produced tracks freely. They can then upgrade to download a limited number of MusicNet songs for an additional fee, the sources said.

The companies are slated to announce the agreement as soon as Tuesday, sources added.

The MusicNet deal marks yet another significant concession for Napster, which had hoped to ride its once-overwhelming popularity into a position of strength for negotiating with the labels. They have been waging a legal war, suing the file-swapping service for copyright infringement. The battle has taken its toll; the file-swapping service is seeing its audience walk out as a court order has forced progressively more music off the service.

But one label owner, German media giant Bertelsmann, has broken ranks from the pack. In October, Bertelsmann's E-Commerce Group offered a loan to Napster to create a legal version of its service. If Napster is successful, Bertelsmann will take a majority ownership of the company and drop its legal campaign.

Bertelsmann and Napster foresaw a subscription service based almost wholly on the old file-swapping service, where all the major labels would give their permission for their music to be traded. The new Napster would pay royalties on the music trades out of subscription fees. which executives estimated would be $5.95 to $9.95 a month.

But after the shock of an alliance between the two unlikely partners, that idea has withered. The other four major labels were cool to the concept of giving up rights to their catalogs to a service they didn't control and raised questions about how well any new security system could protect their music in a file-trading environment.

Meanwhile, the labels were pursuing their own alliances for subscription services, a tack that added to their natural skepticism of any Napster-led venture. Those took the form of MusicNet and Duet, backed by Sony Music Entertainment and Universal Music Group.

The security question remains as one of the biggest questions looming over music subscription services, as it long has for any potential label relationship with Napster. As news of the MusicNet agreement leaked Tuesday, Warner Music put out a statement underlining this fact.

"As previously announced, our content will not be available to Napster as part of the MusicNet service until we are reasonably satisfied that Napster is operating in a legal, non-infringing manner and has successfully deployed a technology that accurately tracks the identity of files on the service," the company said in a statement.

Napster has outlined a security service created by Bertelsmann affiliate Digital World Services, which would prevent songs from being burned to CD or transferred to portable devices. In early descriptions of the system, the company even hinted at creating a new format to replace the MP3 files now swapped through its service.

The MusicNet service outlined its own security a few weeks ago, although the companies involved have not given details on its source. There, subscribers will be able to listen to streamed and ultimately to downloaded music, but they will be periodically required to renew their license to songs online. This way, people will not be able to listen to downloaded music after their MusicNet subscription has lapsed.

As with Napster's proposal, the MusicNet music would be "tethered" to the PC, meaning that subscribers could not burn songs to CD or take them to portable devices.

Online music-swapping service Napster has agreed to begin offering downloads and streamed audio from three major record labels, according to sources close to the deal.

The agreement will allow Napster to sell songs offered by MusicNet, a company created by media software developer RealNetworks and three major labels--AOL Time Warner's Warner Music Group, EMI Recorded Music and Bertelsmann's BMG Entertainment

The tie-in between MusicNet and Napster is not surprising. When the companies involved in MusicNet first made details public in April, executives said they would strike a licensing deal with Napster. Executives also said that MusicNet would license its music library to numerous companies as its primary method for generating revenue.

Under the arrangement, Napster users would first have to subscribe to the company's basic service, which allows people to swap songs by independent labels and self-produced tracks freely. They can then upgrade to download a limited number of MusicNet songs for an additional fee, the sources said.

The companies are slated to announce the agreement as soon as Tuesday, sources added.

The MusicNet deal marks yet another significant concession for Napster, which had hoped to ride its once-overwhelming popularity into a position of strength for negotiating with the labels. They have been waging a legal war, suing the file-swapping service for copyright infringement. The battle has taken its toll; the file-swapping service is seeing its audience walk out as a court order has forced progressively more music off the service.

But one label owner, German media giant Bertelsmann, has broken ranks from the pack. In October, Bertelsmann's E-Commerce Group offered a loan to Napster to create a legal version of its service. If Napster is successful, Bertelsmann will take a majority ownership of the company and drop its legal campaign.

Bertelsmann and Napster foresaw a subscription service based almost wholly on the old file-swapping service, where all the major labels would give their permission for their music to be traded. The new Napster would pay royalties on the music trades out of subscription fees. which executives estimated would be $5.95 to $9.95 a month.

But after the shock of an alliance between the two unlikely partners, that idea has withered. The other four major labels were cool to the concept of giving up rights to their catalogs to a service they didn't control and raised questions about how well any new security system could protect their music in a file-trading environment.

Meanwhile, the labels were pursuing their own alliances for subscription services, a tack that added to their natural skepticism of any Napster-led venture. Those took the form of MusicNet and Duet, backed by Sony Music Entertainment and Universal Music Group.

The security question remains as one of the biggest questions looming over music subscription services, as it long has for any potential label relationship with Napster. As news of the MusicNet agreement leaked Tuesday, Warner Music put out a statement underlining this fact.

"As previously announced, our content will not be available to Napster as part of the MusicNet service until we are reasonably satisfied that Napster is operating in a legal, non-infringing manner and has successfully deployed a technology that accurately tracks the identity of files on the service," the company said in a statement.

Napster has outlined a security service created by Bertelsmann affiliate Digital World Services, which would prevent songs from being burned to CD or transferred to portable devices. In early descriptions of the system, the company even hinted at creating a new format to replace the MP3 files now swapped through its service.

The MusicNet service outlined its own security a few weeks ago, although the companies involved have not given details on its source. There, subscribers will be able to listen to streamed and ultimately to downloaded music, but they will be periodically required to renew their license to songs online. This way, people will not be able to listen to downloaded music after their MusicNet subscription has lapsed.

As with Napster's proposal, the MusicNet music would be "tethered" to the PC, meaning that subscribers could not burn songs to CD or take them to portable devices.