Fee Services Prepare to Pick Up Where Napster Left Off

Napster Inc. proved that tens of millions of consumers would flock to an online file-sharing service that let them copy music for free.

Now, with Napster scrambling to avoid a potentially crippling injunction for copyright violations, several upstart file-sharing networks are preparing to test whether consumers will pay for the privilege.

These companies--including Britain-based Wippit, CenterSpan Communications Corp. in Oregon and Ipingpong of New York--are building what Napster wants to become: music-sharing services that charge users and pay copyright holders.

Although they have much in common with Napster, the fundamental difference is that they let the record companies and music publishers, not the users, decide which songs can be swapped.

They might well launch their services before Napster can retool itself into a fee-based, copyright-friendly system, which the beleaguered company wants to do by summer.

Although Wippit and the other upstarts might avoid the copyright troubles that have beset Napster, they face their own set of problems.

They need licenses from the music industry for the songs that will make or break them, and that support has been slow in coming. Even if they gain access to the record companies’ catalogs, the upstarts won’t be able to match Napster’s selection of hits, bootlegs and live recordings, which some industry insiders say is more important to Napster’s phenomenal growth than the free music.

Many of these services also require consumers to accept the inconvenience of scrambled song files that might not be freely copied or moved from device to device, unlike the MP3 files popularized by Napster. One exception is Wippit, which takes a different approach to combating piracy.

Wippit is expected to announce today that it will use technology from Cantametrix of Bellevue, Wash., to prevent unauthorized MP3s from being shared on its system. An early version of Wippit is already in public trials with a few thousand users.

Later this month, CenterSpan plans to start public tests of a new, secure file-sharing system based on the technology it acquired from the defunct Beverly Hills-based Scour. And Ipingpong has announced private tests with two Britain-based music services, Channelfly and Playlouder.

To make their fees and restrictions more palatable, the upstarts plan to offer several features that consumers can’t get from Napster or the other free file-sharing sites online. They’ll make it easier to find songs and guarantee the quality of downloaded files. Ipingpong even promises financial rewards to users based on the amount of music they ship to friends.

Because consumers have responded eagerly to “peer-to-peer� file-sharing systems such as Napster, proponents of the copyright-friendly alternatives say they could be the key to a new, multibillion-dollar revenue stream for the music, movie and publishing industries. If they can deter piracy, such networks could turn the companies’ customers into a giant sales force, with fans pitching the files they like to their friends.

The upstarts say they’re making progress in negotiations with the record labels and music publishers, although that process hasn’t been easy.

Wippit has won one major license, covering a portion of the music publishers’ copyrights. CenterSpan has gained permission to use some major-label music in its public trial, while Ipingpong has tentatively agreed to terms with one of the labels, officials at the companies said.

“Napster has certainly opened up the industry’s minds,� said Paul Myers, chief executive of Wippit. By contrast, he said, six months ago one industry executive “actually laughed in my face, saying, ‘This can’t happen.’ �

In a file-sharing system, users copy files directly from one another’s PC instead of a central point on the Net. The systems compile databases of all the files available at any moment, enabling users to find the songs they’re looking for.

The same technique can be used for any type of file, and some of the services plan to go beyond music into movies and electronic books.

A federal appeals panel has ruled, however, that consumers have no right to copy songs on Napster without the permission of the copyright holders. Although Napster has appealed the ruling to the full U.S. 9th Circuit Court of Appeals, U.S. District Judge Marilyn Hall Patel is crafting a preliminary injunction that would bar Napster from helping consumers make unauthorized copies.

As a concession to the court, Napster has started blocking the unauthorized copying of thousands of files. It’s also promised to launch a new version this summer that tracks the songs being downloaded and prevents them from being copied outside of the system.

That new version, which is backed by the Bertelsmann media conglomerate, faces competition from a growing number of companies that, in addition to Wippit and the others, includes such companies as Flycode and Angry Coffee. The companies are trying to leapfrog Napster by not only getting the right licenses but also providing advanced features.

One of the main differences between Wippit and Napster is the way they search for music. Though Napster users can search by artist or title, Wippit users can also search by genre, year, track number, album name or a combination of all these criteria. The idea, Myers said, is to make it easier for users to discover new music that fits their tastes or to fill gaps in their collections.

Unlike most of the new systems, including the proposed new Napster, Wippit is designed to work with unencrypted MP3 files. It uses Cantametrix’s audio fingerprinting technology to compare the MP3s in users’ collections against a database of authorized songs, and only the files that match what’s in the database can be searched for and copied.

As for the price, Myers said, $50 per year sounds about right. “It has to be sort of no-brainer cheap as far as we’re concerned,� he said.

At CenterSpan, the plan is to let copyright owners seed the system with secure, high-quality audio and video files, which could sell on a subscription, pay-per-use or rental basis. Those files and their duplicates will be the only ones users can trade. One consequence is that the service won’t offer the bootlegged live tracks and demo recordings found on Napster.

Ipingpong is building a multimedia network that other companies could use to offer their own file sharing services. Users would send one another encrypted files that the recipient would pay a small amount to unlock, drawing from budgets managed by Ipingpong.

To spur trading, Ipingpong will give users financial rewards for distributing files to their friends, Chief Executive Wanita Burnett said--small ones at first, but more as the number of users and files grows.