This from BBC Online:
The controversial online music-swapping site, Napster, has formed an alliance with one of the companies taking legal action against it, with the aim of developing a new subscription-based service.

German entertainment giant Bertelsmann has broken ranks with the other four companies suing Napster over alleged copyright infringement.

It says it is seeking support from the other companies to establish Napster as a membership-based service which will pay them royalties.

Bertelsmann says it will withdraw its lawsuit and make its catalogue available once Napster has successfully introduced a membership-only system.

Its e-commerce arm is providing a loan to Napster to develop such a service in exchange for a warrant to acquire a stake in the company.

Landmark decision

The deal comes as Napster awaits an Appeal Court decision on whether it will be allowed to continue to operate pending a final judgement in the copyright suit.

The judgement is expected to define how books and movies, as well as music, are distributed on the net.

The companies involved in the case against Napster are Bertelsmann's BMG Music, Seagram's Universal Music, Sony Music, Warner Music and EMI.

Bertelsmann chairman Thomas Middelhoff said: "Napster has pointed the way for a new direction for music distribution.

"We believe it will form the basis of important and exciting new business models for the future of the music industry."

Napster chief executive Hank Barry said: "The Napster community, which is the fastest-growing in the history of the internet, will benefit enormously from Bertelsmann's historic commitment to innovation."

'Promotional potential'

Andreas Schmidt, president of Bertelsmann e-commerce group, said: "Our alliance with Napster is key to providing consumers in the future with access to the largest global music catalogue of high-quality music files - with added convenience and features.

"We will work closely with Napster to establish a new membership-based service that achieves acceptance by other music providers.

"For recording artists and songwriters, we hope to realise Napster's full potential as a promotional vehicle while protecting their interests.

"For the recording industry, we are looking to take a positive and forward-looking approach with a membership-based service that complements other forms of music distribution."

Wrath

Napster, which claims it has 38-million users, has incurred the wrath of the music companies because it enables anyone who wishes to browse its site to download music free.

The music companies who own the copyright to tracks involved in the MP3 file-swapping have gone to court to ensure they are paid royalties.

Napster was founded in 1999 by Shawn Fanning, then an 18-year-old freshman at Boston's Northeastern University, and is based in Redwood City, California.

The site and its founder have received numerous industry awards for technology, innovation and marketing, including Wired magazine's Best Music Site award.

(C) BBC News Online
RtS