Napster, the Web service the music industry sued for copyright infringement, Monday said it was delaying the launch of its new secure service due to difficulties in getting major record label content – a complaint raised by other online start-ups and the focus of a U.S. government anti-trust probe.
“The biggest hurdle Napster faces is obtaining content,” said Konrad Hilbers, Napster’s chief executive officer, adding that the company’s new service would now launch in the first quarter of 2002 – months later than originally planned.
Hilbers gave the keynote speech at Webnoize, a digital media industry gathering, which kicked off on Monday as sources involved in planning the conference said Department of Justice representatives were also in attendance.
“We’ve been told the DOJ is here. They have a block of rooms and want to meet with company executives and observe the industry,” said one source familiar with Webnoize.
Earlier this month, a recording industry association confirmed the U.S. government had expanded its antitrust probe into Pressplay and MusicNet, two online music ventures backed by the major record labels.
The Recording Industry Association of America said it received a subpoena from the Justice Department seeking to determine the extent to which the big major music companies sought to control distribution of music over the Internet.
Backed by the five major labels, the two ventures seek to provide a legal, industry-sanctioned alternative to services like Napster, which is currently idle due to legal and technical problems.
The two services plan to launch this year. The Justice Department is seeking to determine if the industry colluded illegally to set rates and terms for use of its music, sources have said.
MusicNet is owned by AOL Time Warner Inc., Bertelsmann AG, EMI Group Plc and digital media company RealNetworks Inc..
Pressplay is owned by Sony Corp.’s Sony Music Entertainment Inc. and Vivendi Universal.
Many smaller companies attending the conference have already received CIDs or civil investigative demands from the Justice Department involving the probe.
“We received a CID and do expect this will lead to a formal testimony under subpoena,” said Matt Graves, a spokesman for Listen.com, who was at the conference on Monday.
“It would be interesting but not surprising that the DOJ was here to learn more about the industry,” he said, adding his company had not been contacted by the DOJ at the conference.
“When an industry has few participants owning a vast majority of the marketplace, its natural that the DOJ would look at such partnerships” Hilbers told Reuters.
“Traditional music companies need to create the alliances with third parties and broaden their reach with new distribution networks that will bring new vigor to the business,” he said in his speech, adding that Napster was in the midst of licensing discussions with a number of majorlabels.
“And, if not possible otherwise, the government must help establish a competitive environment that allows the new ideas and firms the opportunity to flourish,” he said.
Napster attracted nearly 60 million users at its peak by enabling people to swap songs for free. But the service has been idle since July due to technical glitches it faced while trying to comply with a court order barring it from offering the trade of copyrighted material. The big labels first sued Napster for copyright infringement in December 1999.
While several other Web music companies said they were pleased the Department of Justice was looking into the market dynamics, several attendees cited nervousness about complaining too much about the big labels for fear of alienating potential, critical partnerships.
“There’s a concern that you may cross the wrong person, the person that could be sitting across the table cutting a deal with you in a few months,” said one industry executive who requested anonymity.