Fine-Tuning a Digital Revolution

You would think that the chief executive of Napster Inc., maker of the controversial song-swapping software, would at least have a cubicle big enough for two people.

Hank Barry does not. The venture capitalist and former drummer has cut deals, made political maneuvers and thrown the $40-billion global music industry into a state of panic--all from a work space that barely holds a single chair.

Despite these modest surroundings, Barry has helped turn a 50-person start-up into what is arguably the nation’s most-watched venture, which has prompted much of the music industry to use whatever legal means it can to thwart it.

Napster foes and fans, however, agree that the company and its use of peer-to-peer technology has sparked a revolution. Spin magazine named the PC hard drive its “album” of the year. Nearly everyone--from hackers to artists to members of Congress--has an opinion about Napster. And the venture capital firm Hummer Winblad Venture Partners and the German media conglomerate Bertelsmann are gambling on the company’s future success, despite the pending music-industry lawsuits.

Yet the controversies and problems just keep coming. On Saturday, Rudi Gassner, who was set to become CEO of Bertelsmann’s BMG entertainment unit and was to oversee the company’s alliance with Napster, died of an apparent heart attack.

And Bertelsmann recently found itself answering charges from German law-enforcement authorities that the online music exchange enables the spread of right-wing extremist music.

A few days before Christmas, as the number of people who downloaded Napster hit the 50 million mark, Barry mused on the past year and upcoming challenges.

Question: After Hummer Winblad made its $13-million investment in Napster [in May], you became the CEO. What else changed?

Answer: The board members changed a bit. There’s myself, John Fanning [Napster co-founder and uncle of Napster developer Shawn Fanning], and my partner John Hummer. We’ll be making some changes [to the board] as we move into the new year.

*

Q: Did you expect 2000 to be such a roller coaster ride?

A: Not at all. I think I’ve been delighted and surprised and sometimes petrified by what’s out there.

*

Q: Petrified by what?

A: By not living up to the opportunity. There has to be a way that we can make this thing work. The challenge that’s in front of us is to come to a model that is supported by the industry and to roll it out.

There are also legal and operational challenges, and a real business to manage.

*

Q:Tell me about Napster’s business plan?

A: Not going there.

*

Q: Some critics question whether peer-to-peer (P2P)--which was first used to swap porn and bootleg software--will be accepted by the entertainment world. Will Napster morph into something other than a music tool?

A: Napster has always been about a music community, and it always will be. Does the technology have broader implications? Absolutely. But right now, Napster is a music service and that’s where our challenge is. If you look at where the Web has been successful, from a business perspective, it’s been e-mail, instant messaging, places where people gather to do things like EBay. We think we have that kind of a community here, where people are interacting with each other. If you support that community, people will be willing to pay some amount of money in order [for] us to provide the necessary infrastructure.

*

Q: Beyond community, P2P comes down to economics. The technology lets companies shove the bulk of their storage and bandwidth costs over to the masses and the entities who provide them Net access. If Napster resolves everything with the music labels, will it face a new round of legal trouble from the cable and telecommunications companies?

A: I don’t think so. I think we actually have a tremendous community to offer to those people. I think that you’re right, though, that this question of bandwidth and storage [costs] and who bears the burden of that is something that we’re still figuring out. Our community has said, ‘Listen, we’re willing to devote some measure of our hard drives [and] some measure of the bandwidth that we purchased to this.’ We need to have relationships with the Internet service providers [or cable and phone] operators. I think Napster has tremendous things to offer those people.

*

Q: Who are you talking to?

A: I can’t say, but we are in the process of having those kinds of [relationship-building] discussions. We will have more of them as the year progresses.

*

Q: There are some studies coming out that claim the PC market, at least in the U.S., is saturated. If true, does this mean Napster’s reach is limited?

A: I look at that from the “glass is half full” perspective. I think Napster is a great reason to buy a new computer. I think having a faster processor is terrific for Napster. I think having more hard drive space is terrific for Napster. I think having access to broadband is terrific. In many ways, PC growth is always driven by applications, and Napster is a great application. It’s all about having the right partnerships.

*

Q: What is Napster’s role in the networked world, where a billion consumer electronic devices--from our cell phones to our stereo and Net appliances--are connected together?

A: It’s kind of a moving target now. The way that these devices are going to interact is not clear. There’s tremendous work being done, for example, in the automotive market, where people now are moving toward vehicle gateways, which are essentially little routers in the vehicle that will allow you to bring a [wireless] device into the proximity of the car. The car will say, “this is Hank’s PDA,” and just automatically bring it into the car system. There’s no reason why Napster can’t be part of that equation.

*

Q: The lawsuit filed by the big five record labels is currently before a federal appeals court in San Francisco. If the ruling goes against Napster, then what?

A: There are an infinite number of ways that the appellate court could rule and there is almost an infinite number of outcomes with respect to the scope of that ruling. In a worst-case scenario, I think we’d be right back to where we were, in terms of looking at whether there’s any way to continue the service without shutting it down.

*

Q: The alliance with Bertelsmann shocked everyone. How did that deal come about?

A: It was about eight weeks worth of discussions. It felt like a lot longer period of time, because it was pretty intense.

They contacted us. We have a mutual friend who asked me whether I’d be interested in talking? And I said, “absolutely,” and that’s how we got started.

*

Q: What’s the status now with Bertelsmann and the other labels?

A: The good news is the Bertelsmann people have been terrific about allowing Napster to operate as an independent company and making sure the message gets across to the rest of the world that it’s Napster who’s out there making these deals, not Bertelsmann. They’ve allowed us to continue to go out and make the same kind of deals that we were trying to make before. I’m optimistic that we’ll have some announcements here in the not-too-distant future to share with you.

*

Q: Napster is a member of the Secure Digital Music Initiative, a consortium formed to combat digital-music piracy. Why has the coalition failed so badly?

A: I don’t know. Having a rational system for understanding what uses are being made in music, whether it’s on a portable device or being burned to a CD or whatever, makes perfect sense.

I question whether the media companies are really interested in promoting an international, ubiquitous standard for these kinds of things. Frankly, I don’t think [the problem] is with the record business as much as it is about the consumer electronics industry and the PC makers. To some extent, what you may be seeing is conflicting corporate interests among different divisions and different players. But, it’s been surprising to me, frankly, that we haven’t been able to adopt some standard.

*

Q: There’s soon to be a new president, a new Congress and Napster has a new political lobbyist. How do you think the changes in Washington are going to affect the fight over copyright issues on the Net?

A: Manus [Cooney, chief counsel and staff director of the Senate Judiciary Committee who is joining Napster on Jan. 1] is going to be a lot more than just a lobbyist. But clearly one of his great contributions will be to help us out in understanding the legislative landscape.

I think it’s too early to tell about the political [realm]. If there isn’t any resolution of these issues I’ve talked about, I think we will see some movement toward legislative solutions in the next Congress. It’s not my preferred outcome. But there are a lot of factors that suggest it may be the only place where we can develop the uniform set of standards.

*

A special report on Napster and the music-sharing controversies appears at https://www.latimes.com/musicweb.