The ‘Ded Kitty’ Bounces

How many lives does Napster have?

When a Delaware Bankruptcy court denied Bertelsmann AG its bid to buy Napster, it seemed like game over for the most notorious music file swapping service in the history of the Internet.

That’s it. Game over. Thanks for playing.

The Napster site even sported a crudely rendered picture of a gravesite with the Napster cat logo and the phrase “ded kitty” suggesting the once powerful peer-to-peer service had given up. As of now, Napster CFO Carolyn Jensen is the only one left with the company.

But the bankrupt Redwood City-based Internet song-swapping icon has not yet entered Chapter 7 and is headed to the auction block yet again.

Costa Mesa, Calif.-based Trenwith Securities LLC, which facilitated the first auction Thursday said it is initiating a new process to auction Napster’s assets free of all liabilities and pending litigation claims.

On Wednesday, the U.S. appointed trustee Wednesday filed a motion to convert Napster’s Chapter 11 case into Chapter 7, but the committee’s proposal blocks the trustee’s motion since it at it’s very least looks to recover some money for creditors in the case.

The holding company said it is contacting all of the previous interested parties and lowering the minimum bid price from $25 million to $6 million. The company anticipates a closing of the sale within 30 days.

“An acquisition of the Napster assets presents a number of significant growth opportunities for the winning bidder,” Trenwith issued in their statement.

Up for auction again is Napster’s world-renowned brand name, user base e-mail addresses and its P2P technology but not its debt or its landmark legal problems. The assets do not include Napster founder Shawn Fanning, former CEO Konrad Hilbers or any of the Napster team.

Trenwith spokesperson Rick Chance said whomever gets Napster could tap into a cross selling and/or bundling deal as well as a distribution channel worth some $15 billion. Chance could not confirm the number of interested parties, but said it was “significant.”

Once the committee picks a winner from the auction pool, that party will be presented to the Delaware bankruptcy court for approval. Given Trenwith’s 30 day timeframe, Napster’s next owner could be named by early October.

The Music Publishers Association and the Recording Industry Association of America (RIAA) had been most vocal in trying to block Napster’s sale. The two trade organizations have been fighting Napster in court over accused copyright infringement.

Bertelsmann could conceivably bid on the Napster, although it is not likely given the court’s distain for Hilbers’ connections with both Bertelsmann and Napster.

“This auction will take on more of a private sale structure,” said Chance. “With the last auction, Bertelsmann had a ‘no shop’ provision, which limited how the auction could run.”

Even if someone succeeds in buying and investing in the Napster brand, they will have an uphill climb. Similar legitimate music file download sites like MusicNet, pressplay and Listen.com have gained momentum and underground P2P song swapping sites like KaZaA and Morpheus have replaced Napster as the place to get MP3s and other files for free.