Napster expected to file for bankruptcy

Is it all over for the music swap pioneer?

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By  Marcus Webb Published  May 16, 2002

Online US music swap pioneer Napster may file for Chapter 7 bankruptcy protection - a move which involves complete liquidation according to industry insiders.

The move follows the collapse of talks with German media group Bertelsmann over its offer - believed to be between $15 million and $20 million - for a majority stake in the company.

Chief Executive Konrad Hilbers, founder and Chief Technology Officer Shawn Fanning, and four other vice-presidents have already quit the company.

At the height of its popularity some 2.8 billion copyrighted songs were traded per month on Napster, according to Internet research firm Webnoize. The Recording Industry Association of America (RIAA) responded by suing Napster for allowing the distribution of copyrighted material. On May 5, 2001 a federal court sided with the RIAA and ordered the service to shut down.

Although Napster has not made an official comment, a source close to the company believes the filing is inevitable. “Napster has been unable to generate revenues since the courts blocked the swapping of copyrighted music last summer,” said one industry insider. “It had hoped to offer a secure membership-based service, which would have provided royalties to record companies and artists, but nobody wants to pay for MP3 downloads when other sites are offering them for free,” the source concluded.

Napster's technology was the collateral for $85 million of Bertelsmann loans, which also gave Bertelsmann an option to buy 52% of Napster.

Since Napster's service stopped, the five major record labels suing Napster - BMG, EMI, AOL Time Warner, Sony and Universal – have all launched subscription services in response to the demand for music downloads.

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