A big cat neatly nabs Napster

Welcome to a new world! Yep, big stuff is happening, and its impact will forever change our music culture. What is this sea of change I am referring to? The announcement on Oct. 31 that the e-commerce arm of Bertelsmann AG, which is the German parent of BMG Entertainment (one of the so-called big five music labels), will offer a membership-based music sharing service through Napster Inc.

This is a remarkable move on the part of Bertelsmann. When the Napster system came on the scene, the music labels-BMG included-responded to the threat of massive copyright infringement by millions of Internet users by taking Napster to court.

This was not the way to address the problem. I have always contended that the Napster phenomenon was, and is, not only unstoppable but that it was also inevitable. The time was right, the mechanisms were there: Millions of multimedia PCs plus adequate data transfer rates plus millions of consumers can only equal the mass sharing of music, video and any other content that can be digitized. It only required a system like Napster to make the sharing process easy.

But the big cats of the music business didn’t like the Napster system for a more profound reason than copyright infringement-the potential loss of revenue was an anathema to them. When CDs replaced vinyl in the 1980s, the lower production costs shot record company profits into the stratosphere. With the ‘net and Napster came the next technological leap, and the consequence was going to be lower profits. There was only one solution-call in the law!

While the rest of the music labels are still spinning madly in place trying to determine how to get the music-sharing genie back into the bottle, Bertelsmann has finally recognized that a major rethink was required.

The company figured out that when a product can be duplicated and distributed at negligible cost, the product copyright owner must add value to retain control. What Bertelsmann will do in exchange for an undisclosed equity stake in Napster is to exclude itself from the lawsuits and fund the company in the creation of a subscription service that will provide access to the BMG catalogue. Pricing will be, it is rumoured, about US$4.95 per month, per user.

Given that Napster claims a user base of around 38 million, if only one per cent of us sign up, that will create a business with gross revenue of almost US$23 million! Throw a few more labels into the Napster mix and that one per cent could become 10 per cent or 20 per cent. Add in the majority of the big labels and Napster could see revenue of billions of dollars.

To do this, Napster obviously needs to polish its user interface. The current one is OK for free software, but it has some serious deficiencies as a commercial product. There are interesting questions about exactly what a Son-of-Napster user could do in the way of sharing files. If Napster becomes just a mechanism for getting music from the BMG archives, then those archives better be fantastic.

These concerns aside, will the other four labels-Warner Brothers Music Group (Time Warner, Inc.), Sony Music Entertainment (Sony Corp.), Universal Music Group (Seagram Co.) and EMI Group PLC-change? Can they become different animals in the face of the inevitable evolution they cannot control?

I believe they will, but not without a lot of kicking and screaming because ultimately, the issue is bigger than just music. Next on the Internet sharing agenda will be movies, and that’s where Warner, Sony and Universal will have a huge problem. Even so, they will have no choice-no more than they did for music. The big cats will have to change their stripes and their spots.

Gibbs is a contributing editor at Network World (US). He is at nwcolumn@gibbs.com.