Napster Gets Another Cash Infusion From Bertelsmann

By | October 27, 2001 at 12:00 AM

Song-swap service Napster on Friday said it has received another cash infusion from German media giant Bertelsmann AG, which sources familiar with the situation put at about $26 million.

“Bertelsmann did commit to a fixed amount of further funding, a portion of which was tied to our recent licensing deal,” a Napster spokeswoman said on Friday, declining to provide specifics.

Earlier this week, Bertelsmann said it will use Napster’s new secure song-swap technology for its BeMusic operations as part of a licensing agreement between the two companies.

Sources said part of the latest funding was payment for Bertelsmann’s licensing of the technology and the remainder went toward ongoing operational and development needs.

Sources said this latest funding from Bertelsmann came in addition to money provided by the giant German company to help Napster pay off a $26 million settlement announced in September with music creators and copyright owners regarding damages for past, unauthorized uses of music.

Bertelsmann also confirmed on Friday it had provided additional unspecified funding. The company broke ranks with the rest of the music industry last year by investing about $60 million in Napster, which was sued for copyright infringement by other labels because its service enabled users to swap songs for free.

Napster, which was once wildly popular but has stood idle since July due to legal pressures, announced this week it would cut about 16 of its 104 jobs. Sources said the latest cash infusion was also tied to the company’s cost-cutting measures.

“They were to receive $26 million funding, pending a reduced burn rate which is why they provably had those cutbacks,” said one source familiar with the situation.

Some industry sources speculated that Napster received another round of funding from Bertelsmann this summer as well. Prior to the Bertelsmann alliance, Napster got about $13 million in funding from Hummer Winblad Venture Partners.

Many music industry experts believe Napster’s days are numbered due to billions of dollars in potential damages it may owe the recording industry. But Bertelsmann Chief Executive Officer Thomas Middelhoff has often said he believes Napster will be a powerful brand and player in the online music arena, once it is transformed into a service with paid subscriptions and secure online connections.

Napster’s Chief Executive Officer Konrad Hilbers will deliver the opening keynote speech at Webnoize 2001, a digital entertainment conference beginning on Monday in Los Angeles.

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