napster plans to appoint a new chief

http://www.nytimes.com/2001/07/24/te...rchpv=nytToday

JUL 24, 2001
Napster Plans to Appoint a New Chief

By MATT RICHTELwith DAVID D. KIRKPATRICK

SAN FRANCISCO, July 23 — Napster, the online song-sharing service and recording industry pariah, will name Konrad Hilbers, a former executive from the media company Bertelsmann, as its chief executive.

Mr. Hilbers's appointment reflects the current stage in Napster's continuing fight for survival, preparing to compete as one of many fee-based digital music services expected to begin this summer.

"His task will be to move us into an era where Napster is just a normal business," said Hank Barry, who has been Napster's interim chief executive.

Bertelsmann, the media giant based in Gütersloh, Germany, has had a complex relationship with Napster; its music division is one of Napster's antagonists in a copyright suit, and its Internet division is one of Napster's main allies.

For the last six months, Mr. Hilbers, a 38-year-old native of Germany, held the title of chief administrative officer of BMG Entertainment, Bertelsmann's music division, where he negotiated across the table from Mr. Barry in talks about licensing BMG's music for Napster's use.

"Hank started joking, `When are you finally going to come work for us?' " Mr. Hilbers recalled. Now he will be negotiating for Napster with his former boss at BMG.

For the previous five years, Mr. Hilbers was an executive of AOL Europe, then jointly owned by Bertelsmann and America Online, which is now part of AOL Time Warner (news/quote). He most recently was AOL Europe's chief operating officer.

Mr. Hilbers stressed his experience in membership-based online services at AOL Europe during the sometimes-bumpy period of America Online's growth in Europe and the United States. "I lived through all that, and that creates an asset that I can bring to Napster," he said.

Mr. Barry, an intellectual property lawyer turned venture capitalist, will remain on Napster's board while returning to work full time at the investment firm Hummer Winblad. Mr. Barry, who took over as interim executive in May 2000, said he never expected to remain for more than a few months.

Mr. Barry gambled on Napster's future as his first investment at the firm and wound up shepherding the company through both explosive growth and hard-fought legal battles. But he is leaving his post as interim chief executive still not knowing whether his firm's $12 million investment will pay off.

Mr. Barry said Mr. Hilbers was "uniquely qualified" because he "has both Internet experience and record company experience."

Mr. Hilbers's previous employment for Bertelsmann reflects the complicated ties between the two companies. Last year, Bertelsmann's Internet division made a loan to Napster in exchange for the right to buy a stake if it managed to turn itself into a fee-collecting business.

The transaction was structured as a loan instead of a direct investment, partly to shield Bertelsmann from potential liabilities from the recording industry's lawsuits against Napster and partly because Bertelsmann's own music division is still suing Napster.

Although Bertelsmann executives have sometimes talked of Napster as a future part of Bertelsmann's media empire, executives of both companies said yesterday that they planned to stay at arm's length for the foreseeable future.

"Konrad will be a Napster employee, not a Bertelsmann employee," Mr. Barry said.

Bertelsmann invested in Napster in the hope of settling the litigation with the record industry, but BMG and four other record companies continued to press the lawsuit with success. A federal court has ruled that Napster must prevent users from exchanging copyrighted files; on July 1, Napster suspended its file- sharing service while it worked to comply fully with the ruling. It has not yet restarted its service.

Mr. Barry at one time vigorously defended the right of Napster users to share music, hiring David Boies, a prominent lawyer who argued the government's antitrust case against Microsoft (news/quote), to fight a case many people said would help define copyright law in the digital era. But Mr. Barry was simultaneously striving to obtain licenses from record companies for a fee-based service that would make money and pay copyright holders. Since Bertelsmann's investment and Napster's defeat in preliminary hearings, he has softened his stance and increasingly emphasized Napster's desire to become a legitimate, paid service.

During Mr. Barry's tenure, Napster signed a deal with MusicNet, a joint venture of three major record labels — AOL Time Warner, EMI and BMG — to use its technology and license their music. He also signed deals with several independent record companies.

"I tried really hard to remove some of the contentiousness" between Napster users and the record industry, Mr. Barry said. "Like any other dialogue, it has its good days and bad days but in general people are still talking and that's a good thing."

Mr. Hilbers said he was undeterred by Napster's suspended status. "I have never had such a huge response in terms of friends and family and people at companies around the world in terms of being interested," he said.