Napster Inc., fighting for life in its battle with the angry giants of the recording industry, has turned to a small Los Angeles technology company to help build its new membership service.
The company, PlayMedia Systems Inc., said it inked the deal last week to provide digital decoding and file security technology for Napster’s new subscription-based service, which the notorious Redwood City, Calif. company hopes to launch later this summer.
The deal has been licensing its music decoding technology to Napster and other music services like-Vivendi Universal-owned MP3.com for years. But if embattled Napster can launch its membership service successfully, PlayMedia’s digital content distribution technology will be a standout among competitive offerings from Microsoft Corp., IBM Corp., RealNetworks Inc. and scores of start-ups.
PlayMedia chief executive and co-founder Brian Litman said the technology will enable Napster’s software to encode, recognize and play copyright-protected music files over the membership service.
“It’s a playback and file security system that preserves the delicate balance between security, listener convenience and music enjoyment,” he said.
But with Napster’s fate anything but certain, the deal PlayMedia struck last week is not necessarily significant.
“It doesn’t say much about competitive advantage or sustainability of the business, particularly if they’re doing a deal with Napster,” said Rohit Shukla, chief executive of the L.A. Regional Technology Alliance. “The recording industry isn’t concerned about keeping Napster around. They’d rather see them get slammed.”
Legal hurdles
Napster, which has a joint venture deal with German media giant Bertelsmann AG for a start-up subscription file-sharing service, went offline this month as engineers try to fix problems with new song-filtering systems it believes will bring the service into compliance with court orders directing it to protect copyrighted material.
Two weeks ago, just as Napster was ready to resume operations, a federal judge ordered it to stay offline until it could show it has done everything in its power to guarantee that the new filters are a success.
Napster declined to comment about the PlayMedia deal. In a statement issued by the company, interim chief executive Hank Barry said, “PlayMedia’s technologies and consulting services for playback and advanced file security have been instrumental in helping us build a new Napster service that will give our users a satisfying experience for discovering and listening to new music.”
No matter what happens to Napster, Litman wants to take his company’s patented digital encoding technology global.
“Our core mission is to create and deploy systems and technologies that support viable business models for digital content distribution and related commerce,” he said.
Other more viable customers that are licensing PlayMedia’s “AMP” digital encoding technology include Hughes Electronics Corp.’s DirecTV, DMX/AEI Music Inc. and AOL Time Warner Inc.
“When they came out with AMP, they were way ahead, because it was efficient and it sounded the best,” said Nick Wilson, vice president of research and development for DMX/AEI, which operates music playback systems in 5,000 retail stores globally. “Nobody has come out with anything better to make us want to want to change. Litman very accurately saw that there would be a backlash by the labels and began early on to develop rights management and cryptology systems.”
Profits elusive
Despite those AMP licensing deals, PlayMedia is not profitable and won’t be until next year, Litman said.
A former executive with US West Communications Inc. charged with heading up the telecom’s worldwide distribution and music and entertainment strategy, Litman has assembled a team of 20 mostly Croatian engineers to expand the company’s offerings.
They’re focused on what Litman calls a “conditional-access” digital content distribution and “commerce-potentiating” system, which he called “Maestro.” That patent-pending system is quietly being developed with the involvement of “major strategic partners,” Litman said. “It will efficiently connect buyers and sellers of all digital content types, and is consistent with the objectives of the (Recording Industry Association of America’s Secure Digital Music Initiative).”
That kind of system could prove to be a major step toward a standard for secure digital entertainment transmission, a holy grail for the major content owners.
“There’s a plethora of stuff out there, and because the bar to entry is so low there isn’t a killer one out there yet,” Shukla said. “What’s needed is a worldwide effort to get together and hammer out differences industry by industry.”
