Napster Offer Hits Sour Note With Music Industry

By
Seth Sutel
January 7, 2006, 7:42 AM ET
2 min read

N E W   Y O R K, Feb. 22, 2001 -- Music executives on Wednesday shook off Napster’s offer to settle a copyright infringement lawsuit, saying it didn’t offer a viable business plan and failed to address security concerns.

The timing of Napster’s proposal late Tuesday also struck manyindustry watchers as odd, coming the night before the GrammyAwards, the biggest annual event on the music calendar.

Music executives also expressed displeasure at Napster’sdecision to reveal its offer at a news conference.

Sony Music Entertainment said Napster’s offer to pay $150million a year in royalties “does not make sense” for an industrywith annual revenues of $40 billion.

“Delivering their proposal to the entire industry through themedia is not a valid way to address our many concerns,” Sony said.“They have still not answered questions we have about a securesystem which prevents unauthorized trading, or about how theyintend to create a business model that respects the rights ofrecord companies, artists and publishers.”

On the Heels of a Crippling Legal Setback

Last week, Napster suffered a potentially crippling legalsetback when a federal appeals court in San Francisco ordered thecompany to stop allowing copyrighted music to be swapped freely viaits service.

Warner Music Group, a unit of AOL Time Warner Inc., EMI andUniversal also issued statements calling the Napster proposalinadequate. “If there’s a compelling and convincing businessmodel, we would be interested in participating,” EMI said.

Among the major music labels, only BMG Entertainment issupportive of Napster’s proposal.

The unit of German media conglomerate Bertelsmann has allieditself with Napster, loaning it money and technical expertise asthe company tries to make good on a promise to develop by thissummer a secure, fee-based system that will compensate artists fortheir work.

Napster says it hopes to start generating income through monthlysubscriptions ranging from $2.95 to $9.95. But numerous technicalissues remain unresolved, including how files would be protected,accessed and stored.

Napster says it has made progress on addressing those issues,but so far it has not presented a secure system under which musicfiles could be exchanged over the Internet.