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Posted on Sat, May. 18, 2002

Deal keeps Napster alive
BY MATTHEW FORDAHL
Associated Press

SAN JOSE, Calif. - In an abrupt shift that keeps Napster alive, German media giant Bertelsmann AG said Friday it would buy the song-swapping service's assets in an $8 million deal that keeps co-founder Shawn Fanning aboard.

The announcement came three days after Fanning and Napster's chief executive announced they were quitting the company that helped spark the digital music revolution -- with Napster saying it could be forced to file for bankruptcy protection.

Bertelsmann said Friday that it would use the $8 million to pay Napster's creditors as part of a financial reorganization.

The buyout is the latest twist for a company that three years ago set off a frenzy of online song-swapping that attracted millions of users -- as well as the ire of the recording industry, which sued for copyright infringement.

Napster never generated revenue and last year unplugged its service in anticipation of a fee-based system that has yet to launch.

Bertelsmann, which first partnered with Napster in October 2000, provided $85 million to the small start-up.

That deal was rejected by Napster's board Tuesday, resulting in an exodus of employees including Fanning and Chief Executive Konrad Hilbers.

Now, Hilbers will be back atop the company and Fanning, who created the technology in his Northeastern University dorm room in 1999, returns as chief technology officer.

''We are very pleased to have reached an agreement with Napster's board of directors,'' said Joel Klein, chief executive of Bertelsmann.

Neither Bertelsmann nor Napster would comment beyond a short news release Friday.

''While this has been a very unusual week, I'm pleased that I and my colleagues can move forward and give our full attention to Napster's future,'' said Hilbers, who also will serve as Napster's chairman.

But the deal does not guarantee Napster's survival.

''Just because this deal is kind of back on, it doesn't save the service,'' said Stacey Herron, entertainment and media analyst for Jupiter Research. ``It doesn't turn this into a thriving business that will suddenly have a multitude of users paying to subscribe.''