Discussing Bertelsmann's (BMG) recently-announced deal with controversial file-sharing software company, Napster, BMG chairman and CEO, Thomas Middelhoff said: "We can't criminalize 37 million users."

He added: "We have to develop business models that are legal. Somebody has to take the lead for the industry." BMG and Napster announced last week that they would be developing a subscription-based file sharing service together.

BMG is to loan Napster cash to develop the service, and the BMG chief said his company would drop its outstanding litigation against Napster if it "realizes our requirements".

Peace The statements were made in an interview with Business Week magazine, in which Middelhoff hinted at the full extent of the digital détente between established music-business groups and the online-music business.

"We are inviting other companies to climb aboard with us," he said. BMG is aiming to show that it is possible to develop a digital-distribution business that protects intellectual property rights, despite the prevalent culture among Napster fans that they should not pay for downloaded music.

Napster recently announced a Mac version of its peer-to-peer file exchange software. Napster has an estimated 30 million plus users and over one million files available over its network at any one time.

Death Middelhoff claims BMG has no option but to find a solution to the Napster problem. He said: "If we didn't do anything, the music industry would die."

The issue is intellectual copyright. A note on Napster's site said: "We have been working to find a system that rewards artists for their work when members of our community share their music over the Internet."

In a recent statement, Middelhoff said: "Person-to-person file sharing has captured the imagination of millions of people worldwide with its ease of use, global selection of content, and community features.

"Napster has pointed the way for a new direction for music distribution, and we believe it will form the basis of important and exciting new business models for the future of the music industry."

Industry plans Both parties hope to develop alliances with other established music businesses, and to deliver established artists with new forms of content delivery.

At the Digital Distribution and the Music Industry conference in London this May, entertainment lawyer, Jodi Sax, said: "The truth about piracy is that the world enjoys twice as much CD-manufacturing capacity as the number of CDs legally pressed each year – the Internet is not the bugbear."

Established music business concerns have been suspicious of the Internet, and this suspicion has lost them valuable ground, according to analysts. With the Napster deal, and the recently-announced strategic alliances between MP3.com and established music brands, the business is evidently preparing itself for the Web.