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Napster Hires New Lawyer, Signs Loudeye Deal

Moving ahead with plans for a new pay service, Napster Inc. Thursday hired a former U.S. government lawyer to oversee legal affairs and signed a deal with Loudeye Technologies Inc. to help it identify songs on its new and existing services.

The developer of the popular but controversial song-swap service said Jonathan Schwartz joined Napster from the U.S. Justice Department, where he most recently served as the principal associate deputy attorney general.

Napster said Schwartz will manage legal issues for the new coypright-friendly service it plans to launch this summer as well as its efforts to comply with a court-ordered injunction against its original song-swap service.

Its been a busy week for Napster, which got a shot in the arm Tuesday when MusicNet – a joint music subscription service between RealNetworks Inc. and three big record labels, AOL Time Warner’s Warner Music, EMI Group Plc and Bertelsmann AG’s BMG – announced a licensing deal for Napster to carry these labels’ music once it launches a new version that pays royalties.

These labels are part of an industry-wide suit against Napster, which resulted in the injunction. Napster’s usage has dropped sharply since the order was issued in March and which bars the song-swap service from offering copyrighted songs.

To further its compliance efforts and the development of its new service, Napster Thursday also struck a multi-year deal with Loudeye, which translates digital fingerprints of music files that Napster has been generating through a deal with Virginia-based Relatable.

Loudeye’s shares rose 58 cents, or 48 percent, to $1.79 on Nasdaq after climbing to a session high of $2.25.

Relatable’s software reads sonic characteristics of song files and tags them with “fingerprints” and then Loudeye identifies the actual songs that the fingerprints represent using a database it has compiled through agreements with the world’s biggest recording companies and independent labels.

This week’s developments indicate that Napster may actually survive in some form after many industry watchers wrote its obituary following the injunction.

“Napster continues with the rehabilitation of its brand and is building on its filtering capacity,” said PJ McNealy, senior analyst with Gartner.

But several analysts and industry experts also note that Napster still has a tough road ahead of it in terms of damages it may owe for past copyright infringements. Others also said that the company’s brand popularity has diminished with the injunction.

Data from research firm Webnoize shows that the estimated total number of songs downloaded dropped from 2.79 billion in the month of February 2001 to 360 million in May 2001.

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