Napster delays launch amid label content struggles

Sue Zeidler

LOS ANGELES: Napster on Monday said it was delaying the launch of its new

secure service due to difficulties in getting major record label content -- a

complaint raised by other online start-ups and the focus of a US government

anti-trust probe.

"The biggest hurdle Napster faces is obtaining content," said

Konrad Hilbers, Napster's chief executive officer, adding that the company's new

service would now launch in the first quarter of 2002 -- months later than

originally planned.

Hilbers gave the keynote speech at Webnoize, a digital media industry

gathering, which kicked off on Monday as sources involved in planning the

conference said Department of Justice representatives were also in attendance.

"We've been told the DOJ is here. They have a block of rooms and want to

meet with company executives and observe the industry," said one source

familiar with Webnoize. Earlier this month, a recording industry association

confirmed the US government had expanded its antitrust probe into Pressplay and

MusicNet, two online music ventures backed by the major record labels. The

Recording Industry Association of America said it received a subpoena from the

Justice Department seeking to determine the extent to which the big major music

companies sought to control distribution of music over the Internet.

Backed by the five major labels, the two ventures seek to provide a legal,

industry-sanctioned alternative to services like Napster, which is currently

idle due to legal and technical problems. The two services plan to launch this

year. The Justice Department is seeking to determine if the industry colluded

illegally to set rates and terms for use of its music, sources have said.

MusicNet is owned by AOL Time Warner Inc., Bertelsmann AG, EMI Group Plc and

digital media company RealNetworks Inc. Pressplay is owned by Sony Corp.'s Sony

Music Entertainment Inc. and Vivendi Universal.

Many smaller companies attending the conference have already received CIDs or

civil investigative demands from the Justice Department involving the probe.

"We received a CID and do expect this will lead to a formal testimony under

subpoena," said Matt Graves, a spokesman for Listen.com, who was at the

conference on Monday.

"It would be interesting but not surprising that the DOJ was here to

learn more about the industry," he said, adding his company had not been

contacted by the DOJ at the conference. "When an industry has few

participants owning a vast majority of the marketplace, its natural that the DOJ

would look at such partnerships" Hilbers told Reuters.

Alliances needed



"Traditional music companies need to create the alliances with third
parties and broaden their reach with new distribution networks that will bring

new vigor to the business," he said in his speech, adding that Napster was

in the midst of licensing discussions with a number of major labels.

"And, if not possible otherwise, the government must help establish a

competitive environment that allows the new ideas and firms the opportunity to

flourish," he said. Napster attracted nearly 60 million users at its peak

by enabling people to swap songs for free. But the service has been idle since

July due to technical glitches it faced while trying to comply with a court

order barring it from offering the trade of copyrighted material. The big labels

first sued Napster for copyright infringement in December 1999.

While several other Web music companies said they were pleased the Department

of Justice was looking into the market dynamics, several attendees cited

nervousness about complaining too much about the big labels for fear of

alienating potential, critical partnerships.

"There's a concern that you may cross the wrong person, the person that

could be sitting across the table cutting a deal with you in a few months,"

said one industry executive who requested anonymity.

(C) Reuters Limited.