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Napster loses users, cred
June 6, 2001: 8:33 a.m. ET

Music-swapping online service loses users as it goes legitimate
By Chris Nuttall
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LONDON (CNN) - Music-sharing service Napster is still in danger of being marginalized despite linking up with three major record labels.

Napster made a tentative agreement to licence music from AOL Time Warner's Warner Music, Bertelsmann's BMG Entertainment and EMI Group. The three formed the MusicNet online venture with media-streaming Real Networks.

MusicNet will be a subscription service offering downloadable music files. Napster will now be able to incorporate it within its own subscription service and will integrate the two in a software release later this year.

But users may baulk at paying two subscriptions and many have already deserted Napster for song-swapping services that are remaining free.

Napster's popularity was its biggest asset – it had no revenue streams to speak of – but the latest figures show the average number of files shared among Napster users has fallen by 90 percent in the past three months.

Filtering technology had to be introduced to prevent the downloading of copyrighted material in response to litigation by the five major record labels.

Napster fans are now going to unfiltered services such as Aimster and Gnutella and its number of simultaneous users has dropped 47 percent from 1.5 million to 840,000.

The major labels are also picking up the technology of companies such as Napster to introduce their own solutions. Vivendi Universal bought for $372 million last month to incorporate its technology in the Duet online service it is developing with Sony, the other major.

Other formerly independent online services, Myplay, Emusic and CDNow have been absorbed by the major labels in recent months. And Bertelsmann has the right to buy a majority stake in Napster after lending the service $60 million last October.

Music industry executives say that as long as MusicNet and Duet are operating separately, consumers will lack a single destination online store for all their downloadable music needs.

"We are still leaving Vivendi and Sony out of this [Napster] deal," Alon Harnoy, former chief executive of the iCrunch music site, told CNN.

"Consumers won't find Eminem or U2 or Jennifer Lopez or Destiny's Child [at the Napster/MusicNet service].It's a step in the right direction but we're not there yet." graphic