Napster founder pursues new, legitimate venture

Napster the brand is going legit under new owner Roxio Inc.

Now Napster the person is trying to do the same with an Internet startup that could, once again, have far-reaching impact on the music business.

Napster creator Shawn Fanning is looking for backers of technology he's developing that would let file-sharing networks distribute music without violating copyrights, people familiar with the project said.

Fanning's technology would recognize copyrighted songs on a network and let the copyright owners set a price for downloading them.

That's quite a departure from the original Napster service, which let users copy songs from each others' computers free. Bearing the then-18-year-old Fanning's online nickname, Napster launched in 1999 but quickly drew a copyright infringement lawsuit from major record companies and music publishers, which forced it to shut down in mid-2001.

Regardless of whether the gambit works, it demonstrates that the now 22-year-old Fanning has moved beyond the service that made him a household name. Yet Fanning, who lives in the San Francisco Bay Area and declined to be interviewed, is still trying to shape the future of the music industry -- this time by working with his onetime competitors.

Fanning's new program relies on audio fingerprinting that identifies every song being offered by users on a file-sharing network. As the user submits the song, it would be checked against a database at Fanning's company to see whether it is copyrighted. If it is, the song couldn't be distributed without payment.

Napster Inc., the company, was trying to develop something similar when it ran out of money and filed for bankruptcy last year. Roxio bought Napster's brand name, Web address and technology at a bankruptcy auction. Santa Clara, Calif.-based Roxio plans to offer a new version of Napster by March, but it probably won't have any of the file-sharing flavor of the original. Instead, it will be built around the label-backed Pressplay subscription service that Roxio bought from Vivendi Universal's Universal Music Group and Sony Corp.'s Sony Music Entertainment.

Fanning has been acting as a consultant for Roxio while also pursuing his new file-sharing venture independently. Record-company executives say Fanning has been making the rounds of the major labels in recent weeks, demonstrating his technology and urging them to invest in and endorse his system.

"It's fantastic, but it only works if Kazaa goes along with it," said one label executive who asked not to be named. He said his label was impressed with Fanning's demonstration and is reviewing the proposal.

Spokesmen for the companies distributing Kazaa, Morpheus and Grokster, three leading file-sharing programs, said they hadn't been contacted by Fanning and weren't familiar with his efforts. StreamCast Networks Inc., the company that distributes Morpheus, is "willing to look at any business opportunity," Chief Executive Michael Weiss said. "If he's looking for us to distribute his software through the Internet, I'd be willing to see what he had in mind."

Grokster President Wayne Rosso said that given the record companies' history of internal disagreements, Fanning would have "a better chance of getting Yugoslavia back together" than persuading all the labels to back the new venture. Another problem, Rosso said, is that it perpetuates a pay-per-track approach that "really isn't the answer in the long run" because customers want to pay a flat fee for unlimited downloading. Nevertheless, the label executive said Kazaa might agree with the plan because "it gives them a way to make money." As things stand, Kazaa is an advertiser-supported service offered as a free download by Sharman Networks, and consumers use the software to find each other and share music, movies and other digital goods, many of them pirated.

There are a number of strategic hurdles to the plan, including the concern that if Kazaa opts in to the system, its rivals may not. Without a uniform approach among the file-sharing networks, users may simply migrate to networks that don't block unauthorized copying.

Another issue is that it will be up to the labels to claim ownership of each track, and they may claim greater rights than they are entitled to or that are subject to dispute. Many songs have multiple rights-holders, depending on who wrote the composition and who performed it, and the labels and the artists signed to them have frequent ownership disagreements.

For example, many of the songs on file-sharing networks are recordings of live performances, whose digital distribution rights and royalties may have to be negotiated between labels and artists. That prospect is daunting to some record company executives, even though the live recordings could prove to be a new source of revenue for labels and artists alike.