A surprising truce emerged from the ongoing legal face-off between the recording industry and embattled online music sharing service Napster, as German media-giant Bertelsmann AG and Napster struck an alliance this week to develop Napster's file-sharing system into a membership-based service.
The two companies said they constructed a membership-based business model that preserves the quality and ease-of-use of Napster while ensuring payments to recording artists, companies, and music publishers.
As part of the alliance, Bertelsmann, the media conglomerate that owns brands such as BarnesandNoble.com, CDnow, and BMG Entertainment, will provide a loan to Napster to develop the service and will hold a warrant to acquire a minority stake in Napster.
Bertelsmann said it will drop its lawsuit against Napster once the membership-based service is in place. But the lawsuit filed earlier this year by the Recording Industry Association of America on behalf of several major music labels, including BMG, will continue.
Although few details of the new membership-based file sharing system were given, officials from both companies said they would like Napster to be a membership-based service for the entire industry.
According to one analyst, a lack of details about the membership-based service leaves questions about how sticky issues - such as how much control the recording labels will have and how much the service will cost - will be resolved.
"This is a placeholder announcement. The details are just not worked out at all," said Malcolm Maclachlan, media ecommerce analyst at International Data Corp.
"Presumably peer-to-peer will be a part of the service, [but] it is not clear that the Napster that emerges will be primarily a peer-to-peer company," Maclachlan added.
"Peer-to-peer was a valid platform to begin with" and will continue as a viable model, whatever the result of the Napster case, he said. Still unclear, however, is whether Napster's unique status in the file-sharing community can be maintained.
"It shifts the focus of how people perceive Napster because previously it had been such an 'us vs. them' mentality," said Susan Billheimer, an analyst at Zona Research. "Now that Napster is entering into deals with the recording industry, it is less clear if free file sharing will continue or if it will completely transform."
According to IDC's Maclachlan, Bertelsmann's move applies heat to the other major recording labels that could be left out of a burgeoning online opportunity leveraging p-to-p technology.
"BMG realized Napster represented their best chance to create a subscription service people would actually use, and it already has millions of users," Maclachlan said.
Aside from Napster's current base of approximately 38 million users, p-to-p computing can offer record companies other benefits as well.
"The beauty of peer-to-peer [technology], as far as the record labels are concerned, is that it lets them offload some of their technology infrastructure," Maclachlan said. "Instead of buying lots and lots of servers, they can allow users to serve the content."
The US Library of Congress has posted a rule stating that only two types of digitized works are exempt from the 2-year-old Digital Millennium Copyright Act's (DMCA) prohibition against cracking access codes designed to protect movies, software, books, and other digitally recorded material from illegal use.
The rule is seen as a victory for the entertainment industry, which uses access codes to protect the copyrights of digital recordings of films and music. But the decision is a sound defeat for software developers, who "reverse engineer" some software code in order to customize it, and for librarians, who say the DMCA prohibition impedes libraries' ability to provide public access to digital works.
The DMCA went into effect in October 1998, outlawing the cracking of a software access code or other technology that protects digitally recorded material from illegal access. But at the same time, Congress asked the Library of Congress, with the help of the library's Copyright Office, to examine the prohibition and to determine whether there should be any exemptions to ensure that the rights of users were not "diminished."
The two exempt "classes of work" are: first, literary works and lists of Web sites that are blocked by filtering software, and second, computer programs and databases that are protected by malfunctioning, damaged, or obsolete access controls. Only those two types of materials can be legally accessed by circumventing the access control, according to a statement issued Friday by James H Billington, a librarian at the Library of Congress.
Billington based his statements on the recommendations of the register of copyrights, who was assigned to consider a wide range of possible adverse impacts of the prohibition.