Napster founder gets copyright-friendly with new firm

Dubbed "AppleSoup," the company was started by Bill Bales, one of Napster's original founders. It already has attracted some well-connected Hollywood interest, with investments from former HBO chief executive Frank Biondi and from John Valenti, son of irascible film industry trade association head Jack Valenti.

Gartner analyst Alan Weintraub says companies such as AppleSoup must determine how they will achieve revenues. One possibility, he says, is to sell advertisements to run alongside the content. see commentary

The company aims to be a kind of authorized Napster, allowing fast, cheap distribution for entertainment products such as film or music--but with the copyright holders' permission.

"What we're creating here is really something that looks at both sides of the equation," Bales said. "In order for peer-to-peer companies to be sustainable, without lawsuits, somebody has to provide the content."

The company is one of an explosion of new firms and hopeful investments in so-called peer-to-peer technologies, which allow tens, thousands or even millions of people to open their hard drives to one another and quickly swap files. The interest has been spurred by the enormous success that Napster, Gnutella and other services have seen as they draw people who want to trade music, images, videos or other files online.

To date, the technology has been used largely for swapping copyrighted MP3 music files, a fact that has prompted the record industry and several individual artists to sue Napster, trying to shut the young firm down.

But a growing number of programmers and venture capitalists are convinced they can use the file-sharing model for something unambiguously legal and--more to the point--profitable.

A group of programmers that helped lead the Gnutella open-source effort created a search engine in May that demonstrated how the technology could be placed inside Web databases to create up-to-the-minute multimedia search results.

Interest in that effort was initiated by Netscape Communications co-founder Marc Andreessen, who subsequently sank his own money into funding the venture. He's been joined by a trio of Excite@Home executives, former Netscape colleague Mike Homer and venture firm Angel Investors.

Another budding effort is Lightshare, a start-up that aims to bring e-commerce to the file-sharing world. The company is creating technology that will allow individuals to sell products or downloads from their own computers. It is also building a peer-to-peer portal that will search Napster, Gnutella and other networks.

That company has been funded by Google board member Ram Shriram, Evite CEO Josh Silverman and Topica chief executive Ariel Poler.

But for all the snowballing hype about these peer-to-peer plans, the technologies have yet to demonstrate a solid business model.

With strong connections in the entertainment world, AppleSoup appears poised to take advantage of the same kind of content that has driven the radical success of Napster--which itself has little in the way of a business model. Bales left Napster in January to pursue the vision of a swapping company that is copyright-friendly, a critical component in the model's success, he says.

The company is still working out exactly what it can do with the connections and what a copyright-friendly file-sharing network means, however.

"The goal is to get viewpoints from the content owners and then develop (a more solid business plan)," said Kimberly Chu, the principal in Biondi Reiss Capital Management who led the AppleSoup investment.

The copyright owners, many of whom see the model as primarily a means for online piracy, will have to be led gently down the path to file sharing, Chu said.

"It's a sensitive issue," Chu said. "But we're not going to make an investment that's going to threaten the content owners."

AppleSoup will largely provide the network architecture for the distribution of entertainment content, allowing the copyright owners to maintain some control of the distribution channel, Bales said. Copyright protection technology may be provided by other companies as part of a package offered to the content owners, he said.

Bales' first round of seed funding totals $2.5 million, with contributions from Biondi's firm, former 3Com president Bill Krause and Valenti, among others.