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Morning News

Napster's Deal With Bertelsmann Will Assure Artists' Royalties

Aired November 1, 2000 - 11:53 a.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

DARYN KAGAN, CNN ANCHOR: Fans of the Napster site on the Internet have been getting their music for free, but now Napster has cut a deal that could change everything.

Andrew Morse covers the media for "Industry Standard;" he joins us now from San Francisco to help us understand how the world is changing this time.

Andrew, good to see you.

ANDREW MORSE, "INDUSTRY STANDARD": Good morning.

KAGAN: So now you're going to have to pay to use Napster?

MORSE: That's what it looks like. It looks like Bertelsmann, the big, German media giant is going to cut a deal with Napster to create a sort of membership-based service that will secure the MP3 transfer and insure that artists gets paid copyright royalties for their works.

KAGAN: A couple of interesting features about this deal: First of all, Bertelsmann -- isn't this one of the big critics of Napster that was suing the company...

MORSE: That is correct.

KAGAN: ... and that, if you can't beat them, join them?

MORSE: Well, Bertelsmann is -- Bertelsmann owns BMG, which is one of the big five, major recording labels. And they are currently engaged in a lawsuit alleging that Napster contributes to copyright infringement. That case is currently in a hearing for a preliminary injunction that was issued against the company to shut down it's service. We're waiting for an imminent decision the court here in San Francisco.

KAGAN: So what does this mean for Napster users?

MORSE: Well, what it looks like it means is that, coming down the pipe they're going to have to pay a fee. Now, both companies have been a little bit vague as to how big a fee that will be; maybe $5, maybe $6, nobody really quite knows yet. But they are going to have to pay to access the premium service on Napster. But, sort of, a free, regular Napster will continue to exist and that will be used for promotional materials like songs that the recording industry wants to promote or new artists that they want to promote.

KAGAN: Even five or six bucks, that's a lot cheaper than even going out and buying one CD from a regular store. But all along, the argument's been made: You can pick on Napster, but if you shut down Napster -- or even have them start paying, like now -- there are other sites out there where you can still get music for free.

MORSE: Well that's absolutely correct. One of the big arguments is that, if you shut down Napster, you're just going to push it's 38 million users to different services like Gnutella or Freenet, which are open-source programs that anybody can download from the Internet, install on their computer and start using to swap files with people out there.

KAGAN: Another little interesting detail; as I was reading, Napster has told Bertelsmann, we'll figure out who's downloading what and how often and how many songs; but in the lawsuit Napster said the technology is not available to be able to figure that out.

MORSE: Yes, that's absolutely correct. Napster's lawyers said that it currently cannot do that. It cannot monitor what songs are being swapped via its system. However, Hank Barry, the CEO of Napster said yesterday that they are going to pour a good chunk of Bertelsmann's investment in Napster into developing a technology that will allow them to monitor how many times a song is downloaded and what artists are popular. And that's important because that's how royalties are paid.

KAGAN: But if I log on today, it's still free?

MORSE: It's still free today.

KAGAN: As of today. OK, there you go; Andrew Morse, thanks for joining us this morning.

MORSE: Thank you.

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