Napster Aims to Put Pressure on Record Industry

Beneath Napster Inc.’s $1-billion offer to end its copyright battle with the music industry lies a deeper strategy to foment a backlash against the recording companies by making them look greedy and intractable.

Napster executives said Wednesday that their offer was the beginning of a new push to mobilize public and congressional pressure, forcing the industry to drop its legal assault and cut a deal.

Losing in the courts and failing at the negotiating table, Napster is embracing the strategy as its last, best hope for survival.

“We have been making these proposals privately to the labels for the last six months and nothing has happened,” said Hank Barry, chief executive for Napster. “We had to go public. . . . Since the [appeal court decision] came, the labels will not return our calls.”

It’s a risky strategy that flies in the face of how business is usually done in the music industry--quietly and behind closed doors.

So far, it hasn’t worked, say legal and industry experts. The only result has been an onslaught of name-calling and finger-pointing on both sides.

Hilary Rosen, president of the music trade group the Recording Industry Assn. of America, called Napster’s approach unprofessional, saying the company should “get in the room and try to have a rational conversation.”

Napster executives fired back, calling Rosen’s statements “vitriolic,” and described label executives as unwilling to deal.

For outsiders, neither side can claim the moral high ground. “No one’s got the side of the angels here, not Napster and not the music industry,” said Sam Fifer, a partner with the law firm Sonnenschein Nath & Rosenthal who specializes in intellectual property and licensing issues.

Napster’s hope is that all this hubbub will catch the attention of legislators.

Influential members of Congress have already expressed concern about the slow pace of the labels’ deal-making with online music companies. Hearings are expected before the Senate Judiciary Committee, and Rick Boucher (D-Va.) has already said Congress should consider requiring the labels to issue licenses.

Napster officials have been urging consumers to write to members of Congress and defend their ability to swap songs online.

After announcing the new offer Tuesday, Barry added fuel to the fire, saying, “We want users to be clear, even though we’re willing to pay, the record companies aren’t willing to take [the] money.”

The company is on the ropes, facing a potential ruinous injunction from federal District Court in San Francisco. That injunction is expected to require Napster to stop helping users make unauthorized copies of copyrighted music. On Wednesday, U.S. District Judge Marilyn Hall Patel scheduled a hearing for March 2 on the injunction.

What Napster wants to do is launch a new secure version that charges users as much as $10 per month for the right to share songs. To obtain the licenses it needs, Napster made its offer to pay $1 billion over five years, to be divided among labels, unsigned artists and music publishers.

Barry said Napster had for months been offering to pay 64% of the new user fees to the copyright owners--about the same percentage that they collect from CD sales--but switched to the $1-billion figure Tuesday.

The change was done to placate the major labels, who had complained that the revenue split didn’t guarantee enough revenue, Barry said.

For the record companies, even $200 million doesn’t seem like enough. At today’s usage rates on Napster, it works out to about 9 cents per song.

Beyond the money, however, is the underlying battle over public perception.

The record labels, and particularly the Recording Industry Assn. of America, are already the bad guys to many in the online community.

Internet users still remember being demonized by the labels as recently as a year ago, when the industry launched a national campaign designed to scare college students away from MP3 piracy and persuade universities to take a stronger stance against those who use campus accounts to swap files.

To bolster their position in the eyes of the masses, the industry is portraying Napster as stodgy and unreasonable--all traits that the public has traditionally applied to the labels.

In an interview Wednesday with The Times, the RIAA’s Rosen suggested that Napster is telling the public things they haven’t told the labels.

She said Napster executives were unwilling to meet with label executives to structure a “real” deal. “I believe there is a way to work through this,” she said, but added that Napster had to first accept the court rulings and stop talking about appeals.

Napster executives insist, however, that the labels are the difficult ones and are stonewalling.

“I had a meeting with one of the major labels for the day after the [appeal] results were announced. That meeting was canceled,” Barry said. “I haven’t heard from them since. I’ve had calls in to top executives at the labels in the last two days. They said, ‘I’ll call you back.’ They haven’t called back.”

Barry said Napster will proceed with the new system, regardless of how many licenses it obtains. But if the courts order Napster to not help its users make unauthorized copies, the company will have to find a way to filter out unlicensed songs.