Napster Seeks Bankruptcy, Part of Bertelsmann Deal

Jun 5, 2002 12:00 PM, Reuters


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NEW YORK (Reuters) - Napster Inc. said on Monday it filed for bankruptcy protection, as German media giant Bertelsmann AG prepares to take over what remains of the once dominant Internet music-swapping service.

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

"They're still not dead," said P.J. McNealy, research director at Gartner/G2, a San Jose, Calif.-based technology research firm. "Napster will continue to hope that at some point down the road, it can leverage whatever value its brand still has left."

At its peak, Napster attracted nearly 60 million users. The music quickly died, though, as five big record labels sued the company for music piracy. Napster 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.

Closely held Napster, based in Redwood City, Calif., listed $7.9 million in assets and about $101 million of debts as of April 30, in papers filed with its voluntary Chapter 11 petition at the U.S. Bankruptcy Court in Delaware.

"Today's filing marks a new beginning for Napster," chief executive Konrad Hilbers, who joined the company from Bertelsmann last July, said in a press statement. "The demand for an Internet-based music file-sharing community that benefits artists and consumers is as strong as ever."

A Napster spokeswoman declined to say when the company expects to emerge from bankruptcy. Napster's lawyers did not immediately return calls seeking comment.

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