Napster Files for Bankruptcy

Action part of Bertelsmann-initiated financial restructuring

June 4, 2002 12:00 AM ET

After a bizarre two-week series of events that saw major Napster figureheads resign and almost immediately rejoin the embattled online music swapping software maker, the company, as expected, filed for Chapter 11 bankruptcy in a Wilmington, Delaware, court on June 3rd.

The decision to file Chapter 11 is part of a financial restructuring plan initiated by the May 24th announcement that media conglomerate Bertelsmann AG had purchased Napster, Inc. for $8 million, an amount nearly half of a previous offer that Napster had previously rejected. Following the rejection of the first offer, Napster CEO Konrad Hilbers and founder Shawn Fanning resigned from the company.

By filing for bankruptcy, Napster has been granted protection from creditors to which the company owes millions of dollars. Also likely to be washed away, or at least severely compromised, are millions of dollars in potential damages stemming from copyright violations that the Recording Industry Association of America and recording artists have been seeking from Napster.

Napster shut down its wildly popular service last July in order to begin work on a new subscriber-based music-swapping service that would license songs from record labels to comply with copyright law.

Hilbers spoke of the company's bankruptcy as "a new beginning," though its survival will be contingent upon its ability to get a viable new service up and running, a task made more difficult by the introduction of services like MusicNet and PressPlay, which have been created by the major labels themselves.

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