Napster inks deal with major labels

Napster Inc. has signed a licensing deal with MusicNet, an online distributor of music that counts three of the major music labels among its backers, Napster announced Tuesday.

The deal should allow Napster to offer MusicNet’s content as part of a subscription service that Napster plans to launch in the third quarter, the companies said in a joint statement. MusicNet is a joint venture operated by AOL Time Warner Inc., Bertelsmann AG, EMI Recorded Music and RealNetworks Inc.

The deal marks a big step forward for Napster, which is being sued by the recording industry for allegedly helping its users to violate music copyrights on a large scale. However, despite the accord it appears that Napster has some more work to do before the record labels are ready to welcome it with open arms.

“This agreement is premised on Napster meeting the security concerns of the major labels,” said Hank Barry, Napster’s chief executive officer, in a conference call with reporters.

The labels have agreed to let Napster distribute their music “at such time as 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,” Napster and MusicNet said in Tuesday’s statement.

Sony Music Entertainment Inc. and Universal Music Group Inc., the remaining big labels, were noticeably absent from the agreement. Barry said Napster hopes to forge agreements with the two companies through its relationship with MusicNet, although Sony and Universal have shown no interest to date in joining their rivals’ joint online venture.

By the third quarter, Napster hopes to offer what will essentially be a two-tiered service. Users will be able to subscribe to a basic Napster service, which will focus on small artists and independent record labels, or a premium service that will include music from the major labels, Barry said.

“MusicNet is one service that Napster users will be able to access for an additional fee,” he said.

He declined to discuss pricing for the services; nor would the companies discuss financial terms of their partnership.

The deal makes Napster the third distribution partner to team with MusicNet. The first two affiliates are RealNetworks and America Online, both of which announced licenses for the MusicNet service in April. The company was formed by RealNetworks and Warner Music Group early last year, and in April 2001 was officially declared a joint venture of RealNetworks, AOL Time Warner, Bertelsmann, and EMI.

“We expect to offer tens of thousands, if not hundreds of thousands of songs at launch, and we’re incredibly excited about the scope of content to be offered,” Rob Glaser, chairman and CEO of RealNetworks Inc. and interim CEO of MusicNet, said during Tuesday’s conference call.

Napster said the deal marks a big step forward in its plans to provide its subscribers with access to music from the major labels, which will now be available to Napster users only through the MusicNet platform. Napster subscribers will be able to share MusicNet content

with other MusicNet subscribers who are also Napster members, the company said.

A deal of some kind with the major labels couldn’t have come soon enough for Napster. The company has watched the number of music files traded over its network plummet 90 percent in the three months since a U.S. district court ordered it to install filters to prevent the trading of copyright music, according to a study to be released Wednesday from Webnoize Inc., a digital entertainment research company.

Meanwhile, lawyers for Napster and the recording industry are due back in San Francisco district court Wednesday for the latest round of hearings in Napster’s ongoing lawsuit with the recording industry. The hearing is expected to provide Judge Marilyn Hall Patel with an update in how effective Napster’s filters have been in blocking copyright music, a Napster spokesman said.

MusicNet is on the Web at Napster, in San Mateo, Calif., can be reached at