Napster files for bankruptcy

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Napster, the struggling online music company, filed for bankruptcy protection on Monday. The filing comes just weeks after Napster agreed to sell its assets to German media conglomerate Bertelsmann for $8m (£5.6m). As expected at the time of that transaction, Napster said Monday that it has filed under Chapter 11 of the US Bankruptcy Code with the US Bankruptcy Court in Delaware. Napster's service, which provided software that lets people swap music files over the Internet, has been shut down since July 2001 as a result of a lawsuit by the music industry. The company has been trying to strike licensing deals with record companies and music publishers to launch a revived, and legitimate, version of its service but to no avail. Napster's ambitions have been thwarted by the music industry's unwillingness to deal with the company. Instead, the Big Five record companies have tried to launch their own services, such as MusicNet and Pressplay, which to date have not gained a significant following among consumers who are used to swapping music files for free. Nevertheless, Monday's filing does not spell the end for Napster because under Chapter 11, the company can -- and is likely to -- reorganise. Napster still expects to launch its long-delayed service. "The Chapter 11 process will allow the company to move forward with a talented team and continue on the path toward launch, while pursuing a plan to make payments to our creditors," Napster chief executive Konrad Hilbers said in a statement. Napster's financial outlook remains standing on shaky ground, however. Its assets were valued at $7.9m, but the company has $101m in liabilities, according to a Napster representative. One of Napster's largest creditors is the law firm of David Boies, the company's star attorney who unsuccessfully defended it in the recording industry's lawsuit. Napster owes $2.1m to Boies' firm, according to the bankruptcy filing. A Napster representative said the company's debts include some $91m owed to Bertelsmann that would be forgiven if the court accepts its buyout offer. While other bidders could step in with counter offers, none have yet emerged. The bankruptcy filing puts on hold a copyright infringement suit brought against Napster last year by the major record labels. While that case has not reached a conclusion, the record labels may now bring their claims before the bankruptcy court for settlement.
See the MP3 News Section for the latest on everything from MP3 players to Napster and the other music swapping services. Have your say instantly, and see what others have said. Go to the Napster Debate. Let the editors know what you think in the Mailroom.

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