Word: bertelsmann
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...January, the Bertelsmann train was sidetracked. Middelhoff's good friend Steve Case announced that AOL was buying Time Warner (TIME's parent company), and other media megamergers left little room for the big deal that might seal a No. 1 content position for Bertelsmann. The private Bertelsmann's board has a deep-rooted aversion to debt. So Middelhoff redoubled his efforts to reorganize the company around digital content and in one stroke sold off its stake in a string of companies before the dotcom meltdown. That netted an estimated $15 billion in cash ($8 billion from AOL Europe alone...
...Middelhoff, Napster was a natural solution to his long-standing pledge to make Bertelsmann king of the music-content world. "I realized that we had to pursue music from two sides," he said last summer. "There is content, but there is also online file sharing. We could not get ahead without file sharing." Bertelsmann's technology arm had been working on its own file-sharing system for months. "But we realized that all the technology gave us was an illegal way to distribute files," says Middelhoff. "We had to make it legitimate, and Napster already had a base to work...
...conclusion after a meeting with Seagram chairman Edgar Bronfman Jr., a staunch Napster foe, in which they discussed ways to resolve the Napster question. "We walked out of Edgar's office, and Thomas and I looked at each other, and it just clicked," says Andreas Schmidt, president of the Bertelsmann E Commerce Group, who orchestrated the partnership. That day Schmidt got on the phone to Napster CEO Hank Barry and began eight weeks of intense transcontinental negotiations, from San Francisco to Miami, New York City to Gutersloh...
...long way from that base to a real solution, however. Though other music companies last week voiced cautious approval of the Bertelsmann move, there is considerable resentment. Indeed, it took intense negotiations last month and, ultimately, management fiat for Middelhoff to get the support of top executive Strauss Zelnick at his own BMG. So far, nobody has indicated any willingness to drop the legal action against Napster. "We're still not on Napster's side," says Zelnick, laughing. "We're suing Napster. But we are also on the side of creating an array of legitimate distribution alternatives...
...sticking point now is the new business model, which nobody at either Napster or Bertelsmann is certain of. The main reason is technology. So far, it just isn't clear how to track every digital file out there and put a user name and a price on it. And there are huge questions about what a reasonable price would be. Barry has suggested a monthly fee of $4.95. But websites all over cyberspace burned furiously last week as Napster fans threatened to ditch the service if it charged as much as a nickel for music-file access...