Bertelsmann out to buy Napster

By | April 8, 2002 at 12:00 AM

The German media giant Bertelsmann has confirmed publicly that it intends to buy Napster, the music-swapping service that was ruled illegal last year in federal court.

“Our solution now is to completely take over Napster,” Thomas Middelhoff, Bertelsmann’s chief executive, said in an interview published yesterday in the German newspaper Die Welt. “We want to buy out the original shareholders. We have made them an offer, because we believe that our strategy is the right one for the future of the company.”

However, Middelhoff added that negotiations are “at a standstill” because of a legal dispute between Napster’s major shareholders over how to divide the potential proceeds. Those two investors are Hummer Winblad Venture Partners and Napster founder John Fanning, the uncle of Napster’s creator, Shawn Fanning.

A spokeswoman for Bertelsmann refused to comment on the report.

Bertelsmann has already loaned Napster an estimated $80 million and has the option to acquire a large stake in the company. Buying Napster outright will reportedly cost Bertelsmann $15 million to $30 million.

Redwood City’s Napster has been shut down since July, following a federal court ruling that its service violated copyright laws. Prior to that, the file- sharing service had been wildly popular as a way to get music by top recording artists for free.

Napster is planning to resume as a subscription service. But it must first get permission to license recordings from the major music labels, whose complaints caused Napster to be shut down in the first place.

“It shows that Bertelsmann believes that there’s hope for salvaging Napster, ” said P.J. McNealy, an analyst for Gartner Inc. “Not only reconciling the lawsuits, but also getting compelling licenses.”

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