Word: napsterizing
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Under the agreement, Napster will develop a business model that should allow record companies and performers to be paid for their music. To help the tiny, 53-employee company overcome the enormous technological hurdles involved, Bertelsmann has opened a $50 million line of credit that could easily double. (Now hiring: any geek who thinks he or she can come up with a way to keep music files simultaneously accessible and copyright protected.) The Germans agreed that once the new model is in place, Bertelsmann's subsidiary BMG Entertainment will make its music catalog available and drop out of the copyright...
...that discussion that led to last week's audacious partnership between Napster, the 18-month-old music swap shop that has spawned a following of 38 million file-sharing enthusiasts, and Bertelsmann, the German behemoth that began 150 years ago as a religious-hymnal publisher. No matter how it benefits (or maybe damages) both sides, the deal vaults the global entertainment industry into a new arena, where the game will be played by the freewheeling rules of the Internet, not the dictates of a handful of media barons. "Peer-to-peer file sharing is the future of media distribution," says...
Everything about the Napster partnership is classic Middelhoff. It is counterintuitive, iconoclastic and so bold as to be regarded with derision, if not anger, by some of his competitors. Bertelsmann may lack the cartoon rabbits or mice that make its competitors household brands, but under Middelhoff, it has become more global and more diverse than most of them. Last year the privately held company had sales of $13.7 billion and profits of $480 million. Its empire stretches from John Grisham's novels (Random House) to Whitney Houston's hit tunes (BMG), and from Family Circle magazine to Germany's most...
Even before Napster, Bertelsmann's e-empire spanned global Web brands, including partnerships with giant search engine TerraLycos, music sites CDNow and GetMusic and a 40% interest in Barnes&Noble.com Middelhoff claims that as of July, Bertelsmann was ahead of every competitor except the Walt Disney Co. in visitors to its online sites. "Speed, speed, speed" is the Middelhoff mantra. "The world is changing fast," he said over dinner in Germany last June. "Companies must continually reinvent themselves and not be tied to one structure...
...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...