Napster Files for Bankruptcy Protection

By Clint Boulton | June 03, 2002
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Redwood City, Calif.'s Napster Monday filed for Chapter 11 bankruptcy protection with the U.S. Bankruptcy Court in Delaware.

The move comes two weeks after the file-sharing software maker agreed to be bought by German media giant Bertelsmann for $8 million in a bizarre turnaround.

That nearly didn't happen, as the company's CEO Konrad Hilbers and CTO/Co-Founder Shawn Fanning quit the firm after buyout talks with Bertelsmann, which had been ebbing and flowing, bogged down.

Napster, flagging in a court-ordered shutdown since July 2001, posted a note to its homepage on May 17, announcing the deal and its subsequent drive to become a valid online music subscription service.

"Over the coming weeks, Bertelsmann will help Napster through a financial reorganization that will enable the company to keep working toward offering a secure music file sharing service that benefits artists and consumers alike," the company said. "...In the meantime, we have concluded the beta program. We are grateful to our beta testers for providing such valuable and detailed feedback, and we are pleased by the positive response to our system that's ready to go as soon as we are able to obtain major label content."

While the company's survival may indeed be a testament to it's near universally-known brand, the firm has yet to find music label partners who will touch it -- the same members of the Big 5 who sued it for copyright infringement and who have been inking deals regularly with other online subscription service providers, such as pressplay, MusicNet and FullAudio. To be sure, it has yet to settle the suit with the likes of BMG Entertainment (a unit of Bertelsmann), AOL Time Warner, EMI, Sony and Vivendi International.