Bertelsmann rescues Napster, retains Hilbers and Fanning
ByJun 2, 2002 10:00 PM
Just days after its CEO and founder tendered their resignations, Napster has struck a new deal with German media conglomerate Bertelsmann that will keep the company afloat and its staff intact.
Just days after its CEO and founder tendered their resignations, Napster has struck a new deal with German media conglomerate Bertelsmann that will keep the company afloat and its staff intact.
Under the terms of the agreement, Bertelsmann will acquire all of Napster’s assets, and will pay $8 million-worth of the company’s debts, according to a joint press release the two parties issued on Friday (5/17).
The agreement was reached in the wake of Tuesday’s (5/14) announcement that Napster CEO Konrad Hilbers and company founder Shawn Fanning were resigning. The two have withdrawn their resignations in light of the new deal.
Hilbers had originally decided to resign because Napster’s board of directors rejected a previous deal that Bertelsmann offered the company.
“I am convinced that not pursuing the offer is a mistake,” Hilbers reportedly wrote in an internal company memo announcing his resignation, “and it will lead the company to a place where I don’t want to lead it.”
In Friday’s press release, Hilbers and Fanning pledged their renewed commitment to the company.
“I have believed from the start that this deal was a valid and beneficial deal for Napster,” said Hilbers, “the best direction for the company under the current circumstances. 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.”
“Bertelsmann understood our vision when they first invested in us,” added 20-year-old Fanning, who developed the Napster file-sharing network two years ago while attending college. “They still believe in that vision. I’m ready to work with the many talented people at Napster to complete the new service and get it off the ground.”
That new service--a paid-subscription-based model--has been in development since last summer, when Napster disabled its then-free file-sharing network.
The company, which has long been the target of a copyright-infringement lawsuit filed by the major record labels, in October of 2000 was able to hammer out a strategic alliance with Bertelsmann, parent company of major-label BMG, but was unable to strike similar deals with the remaining labels.
Bertelsmann and Napster had in recent weeks tried to hammer out a deal similar to the one announced on Friday, but negotiations had seemingly broken down in recent days. Infighting between Napster board members John Fanning (Shawn’s uncle), and Hank Barry and John Hummer--both of whom are from the venture-capital firm Hummer Winblad, which invested millions into Napster--are believed to have contributed to the stalemate.
John Fanning, in a bid to gain control of the company, recently filed a lawsuit against Barry and Hummer. A Delaware court reportedly dismissed the suit this week, an outcome that solidified the board’s structure and led to Friday’s announced agreement. Hilbers will now chair the board.
Launched in 1999, Napster quickly became the target of copyright infringement lawsuits filed by major and minor record labels, and by artists such as Metallica and Dr. Dre. Through a series of legal maneuvers and settlements, the company was able to dodge a court-ordered shutdown until last year.