The Grown-Up In Charge of Napster
For most of his career, Konrad Hilbers has stayed in the background. During his one-year stint as chief operating officer of online service AOL Europe, Hilbers was overshadowed by Andreas Schmidt, his more flamboyant boss. In his most recent post as COO of BMG Music, a unit of German media company Bertelsmann, a job he held until July 24, Hilbers was No. 2 in the organization after Rolf Schmidt-Holtz, who attracted the most press. Outside of $15 billion Bertelsmann -- for which Hilbers has worked directly or indirectly, through business partners such as AOL, for nearly a decade -- he is little-known.
A chronic second banana? Not any more. Last week, Hilbers, a 38-year-old German, became CEO of music file-sharing site Napster, the world's most popular music Web site. Now, he may have to get used to the limelight. Hilbers, who succeeds lawyer and interim CEO Hank Barry, faces one of the most visible and difficult assignments in business today: converting Redwood City (Calif.)-based Napster into a paying proposition amid a continuing legal assault by the music industry.
Why the low-key Hilbers? His appointment signifies that Bertelsmann, Napster's main financial backer, thinks the service needs the steady hand of a sober-minded numbers guy to lead it into a new phase of commercial legitimacy. "He comes more from a financial, professional background. He's not an outgoing, salesperson type," says Felix Somm, former chief of the German unit of CompuServe, which AOL (AOL ) acquired in 1998. "But you feel he is someone you can trust."
Trust is something Hilbers will need. First, he must win over the music industry, whose copyright-infringement suit against Napster has hobbled the site's ability to act as a platform for users to swap music tracks. Hilbers must find a way to license music from the major record labels so that Napster can relaunch as a paid subscription service. That's a big challenge. The record companies are trying to build their own music sites and have little incentive to do Napster any favors. So far, Napster has deals with several independent labels and with MusicNet, a joint venture including BMG, EMI Group, and Warner Music. But big labels such as Sony and Universal, which are developing their own music offerings on the Net, have so far refused to give Napster access to their catalogs.
Hilbers also will have to retain the trust of Napster users. Napster still has more unique users than any other music site on the Web -- 18.3 million in June, according to audience tracker Jupiter Media Metrix. But they're dropping away fast. Unique users dropped 31% in June, from 26.4 million people at the peak in February. And the amount of time Netheads spent using Napster fell 65%, to 2.2 billion minutes from 6.3 billion over the same time period, according to a Jupiter study of 14 countries, including the U.S. And that was before a July court ruling forced Napster to block file sharing. For the time being, the site functions as little more than a source of information about Napster's efforts to stay alive.
The legal dispute, along with the challenge of developing software to regulate file swapping, has put Napster behind schedule in converting to a fee-based model. Earlier this year, Bertelsmann CEO Thomas Middelhoff declared Napster would introduce a paid service by July. Now, Napster spokespeople say the site will be open again by the end of summer.
TROUBLESHOOTER FOR HIRE.
Finally, Hilbers will have to win the trust of Napster's staff, led by 20-year-old founder Shawn Fanning. In some ways, Hilbers seems an odd choice for that task. The married father of two, he's a product of the business school at the University of St. Gallen in Switzerland, a bastion of the European capitalist establishment. At the same time, though, he has international experience gained during his stint as chief financial officer at Bantam Doubleday Dell, the New York-based publisher owned by Bertelsmann, from 1994-96. He speaks excellent English, and his work with AOL Europe, which he joined at its inception in 1996, exposed him to business at Net speed. Colleagues say he's relaxed enough to talk business over a brown-bag lunch in New York's Central Park.
In addition, Hilbers has a good track record with troubleshooting assignments. During his tenure at AOL, Hilbers also oversaw the integration of CompuServe's German operations. And in Britain, he led the launch of a free Internet-access service, Netscape Online, which AOL used to fend off free-access competitors.
Hilbers is typical of the young executives who has done well at Bertelsmann under Middelhoff. Like the CEO, Hilbers combines a traditional European business education with varied experience in the media and plenty of time in the U.S. If Hilbers manages to make Napster a profitable business, he could put himself in line for a top position at Bertelsmann.
Indeed, Hilbers' combination of traditional business experience and Internet combat duty may prove the key to his success. He may not be a groovy Silicon Valley visionary, but those people are out of style anyway. Instead, Hilbers could be just the candidate to serve as a bridge between Napster's rebel culture and the business needs of Bertelsmann, which lent Napster $60 million and has an option to take a majority stake. "It fits in entirely with this stage in Napster's career," says Mark Mulligan, an online-music analyst at Jupiter. "This closes the page on Napster's adolescence and begins its adult career."
So far, Hilbers isn't saying how he'll overcome the challenges. He declined a request for an interview, saying through a spokeswoman that he needs time to learn his way around. That approach is typical, say people who know him. "He's a quiet guy," says a Bertelsmann insider who also worked with Hilbers at AOL Europe. "Shy isn't the right word. He's always trying to bring everyone onto the same page." In this case, the page is www.napster.com.
By Jack Ewing, who covers Bertelsmann for BusinessWeek in Frankfurt