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Napster to Develop Fee Service

Napster has a new business partner, Bertelsmann AG – and with it comes the beginning of the evolution from free to fee.

The file-trading service that built its user base on free access to music will begin developing a multi-tiered system that will include a new subscription component.

In a Tuesday morning press conference in New York, Napster CEO Hank Barry said that while there will be some services that require payment, the basic service would remain free.

The new service, which has yet to be developed, would include a section where users could trade files for free and a membership section where higher-quality tracks could be downloaded. Both sections would have links to Bertelsmann-owned online retailer CDNow, which would allow users to immediately purchase albums.

“This is not a new service. We are going evolve this into a membership service,” Barry said. “In a subscription, you pay money to get something. In a membership, you pay to be a part of a community. We think that with a $4.95 price-point you can generate revenues that are really compelling to artists and everyone involved.”

Over the course of the last 14 months, Napster has grown to a community of 38 million users who have had access to music free and on demand. Comparing the new service to America Online’s (AOL) transition into the subscription model, Barry said he isn’t concerned that Napster’s user base will shrink now that the company plans to charge fees.

“This alliance is the right next step for Napster,” Barry said. “Our community has told us they are anxious to move to the next level where artists can get paid for their work. I can say that our user experience will continue to include a free, file-sharing section, as well as a secure membership-based section.”

“For consumers, we are looking to provide access to a database of music while making Napster easier to use,” said Andreas Schmidt, president and CEO of Bertelsmann’s e-commerce group, which struck the deal with Napster.
“This will include links allowing Napster users to purchase CDs through CDNow,” Schmidt said. “We want to make person-to-person sharing an important part of distribution. Somebody had to step up to the plate and come up with a solution to this problem.”

The service is being developed specifically for music-file sharing, but if the subscription model is successful, the Bertelsmann company has plans to use the service as a means to distribute other media, including books and movies.

“Bertelsmann is part of the entertainment and publishing industry,” said Thomas Middlehoff, chairman and CEO of Bertelsmann AG. “This new strategic relationship makes it possible for us to get money for our artists, songwriters, and maybe even authors and actors.

“Content will be an important part of this in the future. The great message of today is that we now have a great way for content to be worth something in the future, even when file sharing becomes an important part of the media and entertainment industry.”

Earlier, Barry said Napster was willing to pay nearly 60 percent of its revenues to content owners.

While terms of the current deal weren’t disclosed, Barry maintained that content owners would still receive a large percentage of the company’s revenues. That percentage, he said, would be posted on the company’s website as soon as the figures are finalized between Bertelsmann and Napster.

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