Napster adds CDNow link with upgrade

Although Napster and Bertelsmann have promised a subscription-based service, Thursday's software release represents the first concrete action the companies have taken toward revenue generation since they announced their partnership in October.

The move is significant, analysts say, in that it could tip the scales toward convincing other major record labels to sign partnership agreements with Napster. To date, only Bertelsmann's BMG Entertainment has done so, and analysts agree that for Napster's yet-to-be released subscription model to thrive, the other Big Five labels--EMI Recorded Music, Sony Music Group, Universal Music Group and Warner Music Group--will need to be onboard.

"If BMG can go to the other labels and say, 'Look how many CDs Napster has sold without any marketing or promotion...You guys should get onboard; you can add your own flair to it and your own commerce partners,' it's a proposition that other major labels would be foolish not to consider," said Jupiter Media Metrix music analyst Aram Sinnreich.

Data from Jupiter Media Metrix already shows that Napster members are 45 percent more likely to increase the amount they spend on music than other online music fans that do not use Napster.

With Thursday's release, Napster and Bertelsmann will be able to compile their own data based on click-through rates onto CDNow and show this to the other major record labels. Once this data is compiled, the major record labels are more likely to feel they are missing out on capitalizing the buying power of Napster's 50 million registered members, analysts say.

Napster Chief Executive Hank Barry also emphasized the buying power of Napster's registered users.

"When Napster announced its strategic alliance with Bertelsmann, we promised innovations that would confirm our commitment to the evolution of a new business model consistent with our belief that Napster users love music and use the service to sample new music that they in turn purchase," he said in a statement.

However, showing record labels that Napster members buy CDs, too, may not be enough. An executive at one of the major record labels, who refused to be quoted because of ongoing litigation, called the installation of an e-commerce link a "weak attempt" by Napster to win the graces of the major labels.

Even if the music site was able to show a sales correlation, the executive said, this would not negate the copyright violation issues that led the Recording Industry Association of America to sue Napster.

The executive also speculated that the practice of Napster members purchasing CDs could change as broadband Internet access becomes more widespread and more MP3-focused devices are developed.

A federal appeals court is still reviewing the decision of a trial court judge to block trades of most copyrighted music using Napster's software. A ruling on the matter could come any day.

CDNow countered that the deal is a significant step toward making Napster into a viable business.

"We know from market research that a lot of consumers use Napster to discover new music and then actually go out and buy that music," said Srdjan Loncar, director of strategic business development for CDNow. "With CDNow's relationship with Napster, it will really help Napster stir up consumers better...and allow them to complete the cycle of experiencing music by actually purchasing the music they like."

People who use Napster's newest software, dubbed 2.0 beta 9, will see a CDNow button prominently displayed in the top right corner of their screens. Clicking the button will launch a separate browser window to CDNow's page, where people can purchase music.

The 2.0 beta 9 application will also let Napster members sample new music and communicate with other music fans via instant messaging and chat rooms, as well as listen to music through the Napster internal player.

Additionally, the company touted minor bug fixes and said people will have an easier time transferring files, with fewer transfer errors and time-outs.

News.com's Gwendolyn Mariano contributed to this report.