Napster investors stand to prosper

Napster investors stand to prosper

Summary: The rock group Limp Bizkit, UCLA and others may be rolling in the cash if Napster goes mainstream.

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TOPICS: Start-Ups, Legal
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What do Limp Bizkit, the rock group, and UCLA, the university, have in common? Both stand to do very well if Napster Inc. goes mainstream.

The two are among the scores of investors in the controversial Redwood City, Calif., music downloading site, according to internal Napster documents prepared in connection with its deal this week with Bertelsmann AG, the German music publisher.

The investment by the University of California at Los Angeles was about $25,000, and was made in May by a committee that manages a small, high-risk-oriented fund for the UCLA Foundation, the private group that manages the public university's endowment, a university spokesman said. David Lundberg, director of strategic alliances for UCLA's office of external affairs, said the committee that made the Napster investment typically invests in pre-IPO companies. He said the panel was made aware of Napster by Ron Conway, the parent of a UCLA student and a member of the committee who is himself a Napster investor.

Like Napster's other investors, UCLA will see its stake become worth anything only if Napster goes public or is bought out. But the investment also could prove to be problematic for UCLA, situated as it is in the hometown of the music industry that is among Napster's biggest critics.

Lundberg said the panel voted to invest in Napster before the controversy in the site became as intense as it is now. He declined to speculate if the foundation would make the investment again today if it could.

Napster software allows users to transfer popular music around the Internet without charge. The company is being sued by the record industry, which wants the file transferring to be curbed. A ruling by a federal appeals court in San Francisco on an injunction request is expected any day.

Limp Bizkit has been one of Napster's biggest defenders in the rock world. Napster documents show the group has been given the rights to 447,000 shares of company stock. Napster also paid Limp Bizkit $1.8 million last summer to help underwrite a national tour by the group; Napster's promotion of the tour was made public earlier this year, although not the amount of the sponsorship or the existence of the stock options.

The management office for the rock group didn't return calls seeking comment. Napster itself also declined to comment.

Napster was incorporated last year by John Fanning, uncle to Shawn Fanning, the college student who actually created the service. Initially, the senior Fanning split Napster's shares 70-30 with his nephew. As more investors were added on, the holdings of the two were diminished, though until recently, John Fanning was still Napster's biggest shareholder, with about 12 percent of the company. Shawn Fanning, while the public symbol of Napster, has a stake of just 6 percent.

Those percentages could change once more in connection with this week's deal with Bertelsmann. While the two companies didn't disclose details, insiders say that the German concern could end up with a majority stake in Napster, depending on whether other labels decide to sit down and work with the company the same way Bertelsmann did.

Napster has a long list of other investors, most of them with small stakes. Many of them are "angel" investors in Silicon Valley.

There were other tidbits in the Napster documents, including, for example, the fact that among those threatening to sue the music site was the estate of Tupac Shakur, the slain rap artist.

According to the documents, attorneys for the estate sent Napster a letter in May "threatening legal action unless the company terminates alleged 'infringement of the estate's rights.' Various other parties have been rumored as 'threatening' a lawsuit but have not filed any lawsuit."

The Shakur estate never filed its suit, but its objection to Napster was never publicly disclosed.

Topics: Start-Ups, Legal

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