Roxio Expected to Win Bid for Napster
Song-swapping phenomenon Napster Inc. may return from the grave in a form that allows digital songs to be burned onto compact discs and sends payments to copyright holders.
Roxio Inc., the top seller of CD-burning software, is expected to be announced today as the favored bidder for Napster’s technology, the Napster.com domain name and the Napster brand, one of the most widely recognized on the Internet.
It had not been known that Roxio was negotiating with Napster’s creditors and a court-appointed trustee overseeing its reorganization under Chapter 11 bankruptcy proceedings.
The anticipated disclosure is remarkable because of the Silicon Valley firm’s good relations with Microsoft Corp., computer companies and record labels, whose landmark lawsuit against Napster pushed it into bankruptcy in June.
Roxio’s programs are included on many personal computers, allowing users to burn both unencrypted and encrypted songs and other types of files onto CDs. It also is included in Pressplay, a service backed by major labels that lets consumers store digital music and put some of the tracks on CDs in exchange for monthly fees.
The labels have been offering more burnable content, which analysts say is needed before consumers will pay money to authorized online music services. Pirated music in the unrestricted MP3 format became widely available through the Napster directory and is easily obtainable on such successor peer-to-peer networks as Kazaa and Morpheus.
“Based on my relationships and general discussions with the labels, I think they will be excited at this announcement,” Roxio Chief Executive Chris Gorog said Thursday. “They know that anything that Roxio will do in this space will be respectful of artist rights and will be working toward a commercial solution.”
Under sale procedures approved Thursday by a bankruptcy judge in Wilmington, Del., rival suitors will have just one week to top the bid of $5 million in cash and warrants to buy 100,000 shares of Roxio, a publicly traded company based in Santa Clara, Calif. Roxio shares closed Thursday at $3.38, up 31 cents in Nasdaq trading.
The judge permitted the bidding process to continue over the last-minute objection of John Fanning, Napster’s former chairman. His lawyers said he was “the reputed owner” of Napster’s popular cat logo and the unused Napster.net domain name.
A hearing on the sale is scheduled for Nov. 27. Much of the money will go to pay administrative costs from the bankruptcy proceedings, with the remainder to be sorted out as claims are settled in the coming months. Napster’s shareholders will get nothing, but its unsecured creditors “should get something, whether it’s 5 cents or 10 cents” on the dollar, said creditors’ attorney Rick Antonoff.
Assuming a bankruptcy reorganization plan is confirmed next year, Roxio will emerge free of Napster’s liabilities, including the unresolved copyright claims.
Gorog gave few details about how Napster’s technology will be used, and it was unclear whether Napster’s peer-to-peer system will be revived. Before the company’s demise, it was testing a second-generation system that allowed for payment streams, the expiration of songs and other restrictions on their use. It folded the initial version in July 2001 after a San Francisco federal appeals court ruled that the system allowed tens of millions of users to evade copyright laws.
Gorog gave founder Shawn Fanning the news Thursday and said he hopes to interest him in working with Roxio. Fanning, 21, had no comment.
“I have always viewed Napster and the promise of Shawn’s vision as being the celestial jukebox, not free music,” Gorog said. “One teenager not only revolutionized the way music will be distributed, but also movies and the spoken word. Whatever we do will flow from that philosophy.”
Roxio was the most generous among a number of bidders that stepped up after the Bankruptcy Court blocked Bertelsmann, owner of the BMG label, from acquiring Napster’s assets in September. The German media conglomerate had loaned Napster tens of millions of dollars to keep it afloat and also hoped to legitimize the technology, but the judge found it was too close to Napster’s management when the takeover was negotiated.
In the most recent quarter, Roxio reported a loss of $1.8 million, or 9 cents a share, on sales of $27.9 million. It had more than $42 million in cash and short-term investments on hand. Gorog became Roxio’s CEO in 2000, after jobs at Universal Studios Recreation Group, Walt Disney Co. and ITC Entertainment Group.
