Napster Files for Bankruptcy

Napster has reported that it has filed for bankruptcy protection, as German media giant Bertelsmann AG prepares to take over what remains of the once dominant Internet music-swapping service.

Napster listed $7.9 million in assets and about $101 million of debts as of April 30, according to papers filed with its voluntary Chapter 11 petition at the US Bankruptcy Court in Delaware.

The filing is part of a comeback plan for three-year-old Napster, which became one of the Internet's hottest properties by allowing millions of people to swap music online for free.

Though Napster was wildly popular, attracting nearly 60 million users at its peak, the music quickly died as major record labels sued the company for music piracy. Napster, based in Redwood City, California, has been offline since July.

"It still holds a sense of promise of being a universal jukebox," said Steve Jones, who heads the communications department at the University of Illinois at Chicago. "The name Napster can be revived, but it would take more than Bertelsmann alone to do it. It requires the agreement of major (record) labels to get Napster up and running the way it was."

A federal appeals court in San Francisco dealt closely held Napster a fresh setback in March, ordering it to remain shut until it complies with an injunction to remove all copyrighted music. Napster failed to find enough backing to relaunch as a royalty-paying service.

"The extraordinary costs associated with developing the New Napster Pay Service and defending against the Prepetition Lawsuits have depleted (Napster's) available cash reserves," and could have forced Napster to close by June, Chief Financial Officer Carolyn Jensen said in a court filing.

Calls to Napster were not immediately returned.

Bertelsmann stepped in on May 17 with $8 million to buy Napster's assets. Napster owes Bertelsmann $91 million, court papers show.


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