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Dawn of the Ded Kitty

Roxio’s pending purchase of Napster isn’t as crazy as it sounds.

An intriguing chapter in the ongoing saga of online music came over the wire just before Thanksgiving. Roxio Inc., the top seller of CD-burning software, announced that it would acquire substantially all of Napster’s assets, including its technology, the Napster.com domain name, and the Napster brand. The idea that Roxio was negotiating with Napster’s creditors and a court-appointed trustee overseeing its reorganization under Chapter 11 bankruptcy proceedings had barely even reached the rumor mill before the announcement, because the idea of such a purchase seemed so bizarre.

Why? Because Roxio’s business is making the creation of homemade CDs, a bane of the record industry, easier and cheaper. In buying Napster (once the seat of easy, free music downloading), Roxio was flirting with the potential for alienating some heavy hitters–such as Microsoft and other computer companies, not to mention the major record labels–that worked so tirelessly to push Napster into bankrupcty last June. On the surface, the mystery is why Roxio would want to jeopardize positive relationships with Napster’s enemies in order to try to revive a company that spent more than a year on a respirator before finally being pronounced a “ded kitty”.

The most likely answer is that Roxio intends to play ball with its well-heeled business partners as much as it can. The labels have been searching for a way to offer a greater variety of burnable content, which most experts feel is needed before consumers will pay for authorized online music services. Of course, pirated MP3 music is still widely available via such peer-to-peer networks as Kazaa and Morpheus. The job of Napster Mark II will be to carve out a piece of the pie those networks now have to themselves.

Roxio has the resources to revive, rebuild, and market Napster as a clearing house for legitimate MP3 tracks from any and all companies, something Bertelsmann, a previous Napster suitor, could never really do. Roxio has no vested interest in one label over another (though it probably answers Sony’s messages before those of the indie down the street), so variety shouldn’t be an issue as long as it can convince the five major labels to participate.

So why would a Roxio-owned Napster succeed where enterprises like eMusic have struggled? One, the idea of a one-stop MP3 shopping place is one whose time has come. The major labels are more eager to work with an MP3 service now than they were when eMusic debuted. Two, centralization. Roxio’s programs are bundled with many PCs, 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 idea of one company having a hand in every stage of the downloading, burning, and playing process is appealing to everyone involved.

Roxio also has money on its side, which suggests the ability to buy time while the bugs are being worked out of the new and (hopefully) improved Napster. Though it posted a loss in its most recent fiscal quarter, Roxio bid $5 million in cash and 100,000 shares of its stock for Napster. Most of that money will go to Napster creditors, and once at least a portion of that debt is paid off, a pending bankruptcy reorganization would leave Roxio free and clear of remaining liabilities–including unresolved copyright claims.

That last piece is important. In order for this crazy idea to work, the hard feelings engendered on both sides of the issue by the “old” Napster have to be swept aside. All consumers want is a variety of inexpensive tracks comparable (not even identical) to what Napster used to offer, made easily accessible and burnable. All the labels want is the consumers’ money. Roxio might be the ideal middleman to make that utopian vision a reality.

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