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The Honolulu Advertiser
Posted on: Saturday, May 18, 2002

Germans to acquire Napster

By Matthew Fordahl
Associated Press

SAN JOSE, Calif. — In an abrupt shift, media giant Bertelsmann AG said yesterday it will buy Napster Inc.'s assets in an $8 million deal that keeps co-founder Shawn Fanning at the troubled song-swapping service.

The German media conglomerate said that under the agreement, the money would be used to pay the Internet company's creditors as part of a financial reorganization.

The buyout is the latest twist for a company that helped spark the digital music revolution three years ago by allowing networked music lovers to swap songs for free over the Internet.

Napster attracted millions of users, media attention and copyright-infringement lawsuits. Yet it never generated revenue and last year unplugged its service in anticipation of a fee-based system.

Bertelsmann first partnered with Napster in October 2000, providing $85 million to the small startup. Before reaching the deal announced yesterday, it had made a $15 million offer to purchase the company.

That offer was rejected by Napster's board Tuesday. As a result, Fanning and chief executive Konrad Hilbers said they intended to leave.

Now, Hilbers will continue to lead the company and Fanning, who created the technology in his Northeastern University dorm room in 1999, will return as its chief technology officer.

But the deal does not guarantee Napster's survival. Stacey Herron, entertainment and media analyst for Jupiter Research, said the deal by itself won't turn Napster "into a thriving business that will suddenly have a multitude of users paying to subscribe."