Napster"s deal with music publishers announced earlier this week will cost the company $36 million up front--$26 million to settle the publishers" ongoing lawsuit, and another $10 million as an advance on future licensing fees.
That money, sources close to both companies say, is coming from Bertelsmann"s pockets. Add to that the near-$60 million original loan the media company gave Napster last year, as well as a second loan "in the $7 million to $12 million range" extended to the company in midsummer, sources say, and Bertelsmann"s outlays well exceed the century mark.
Napster"s outlay of cash is by no means finished. The company is hoping to create a subscription service that is as attractive as those operated by much larger companies such as America Online or the Microsoft Network. Such a venture will require considerable cash. And the publishers are just one part--and likely the smaller part--of a lawsuit that still faces Napster. If it does survive, the company will likely have to pay damages or a settlement fee to record labels that exceeds the $26 million offered music publishers.
The privately owned German giant did receive warrants that can be converted to equity in Napster in return for its first loan last year. A source close to the companies said that the most recent funding, slated to fulfill the agreement with the publishers, would not increase Bertelsmann"s potential stake in Napster, however.
But the succession of loans also indicates Bertelsmann is betting heavily that Napster still can become a major player in the music business, enough to repay more than $100 million despite an uncertain future.