Record label signs deal with Napster

German media conglomerate Bertelsmann said Tuesday that it has formed an alliance with online music-swapping service Napster, signaling a significant shift in the so far hostile face-off between the major record labels and the start-up. The two companies are developing a new subscription service to let Net users swap songs copyrighted by the recording giant. Members of the proposed service would be able to search and download songs--legally--from Bertelsmann's entire catalog of artists, including Santana, the Dave Matthews Band, Christina Aguilera and Whitney Houston. Bertelsmann said it will drop its lawsuit against San Mateo, Calif.-based Napster once the service successfully launches. For now, the company will offer a loan to Napster to create the subscription service. In addition, Bertelsmann said it will purchase warrants that will give it a minority interest in the start-up. A stake in Napster could provide a lucrative return for Bertelsmann should the start-up go public. And the prospect of equity also could appeal to other record labels looking for a foothold in the company. Bertelsmann executives invited the other major labels to follow its lead in dealing with Napster.