*Napster, in Deal with Bertelsmann, to Convert to Membership Service

Napster and Bertelsmann AG announced today that they are working toward changing Napster's free person-to-person MP3 file-swapping service to a membership-based model.

Bertelsmann's new e-commerce group, BeCG, and Napster have developed a new business model in which a secure, membership-based service will compensate copyright holders. Recording artists, songwriters, record companies and music publishers will be able to receive payment for their work when it is transferred through Napster's service.

“This strategic alliance with Bertelsmann is the right next step for Napster,” said Hank Barry, CEO of Napster, Redwood City, CA.

“I am excited that Bertelsmann appreciates and values the uniqueness of the community Napster users have built,” said Shawn Fanning, Napster's 19-year-old founder.

Under terms of the agreement, BMG will withdraw its lawsuit against Napster and will make its music catalog available to users once Napster completes the transformation to a membership-based model. BeCG will invest funds to fuel the conversion and will hold a warrant to acquire a portion of Napster's equity.

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