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Napster Files for Bankruptcy

Action part of Bertelsmann-initiated financial restructuring

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

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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