Could bankruptcy be in Napster's future?

By Susan Rush
from CED Broadband Direct, May 15, 2002

After falling from grace and relinquishing its crown as the ruler of peer-to-peer online music file swapping, Napster Inc. is having a harder time trying to go legit than it expected. The latest: a deal to be acquired by Bertelsmann AG has fallen through and Napster CEO Konrad Hilbers is walking away from the company. Some are speculating that bankruptcy could be in Napster's future.

Napster has confirmed Hilbers departure, saying it appreciates the contributions made by Hilbers in the past year. "We deeply regret that we have not had yet been able to find a funding solution that would allow Napster to launch a service to benefit artists and consumers alike," the company said.

In its statement, Napster made no mention of a possible bankruptcy filing. A Wall Street Journal report quoted a Napster source as saying a filing is "probable." The struggling company, which laid off 30 percent of its employees last month, did admit that it will be "looking at additiional steps in the coming weeks to further reduce expenses."

Althoug the future of Napster hangs in the balance, the Napster peer-to-peer music revolution forced the music industry to realize online music distribution is here to stay and that they better get in the game. And, while Napster battled in the courts and worked to revise its business structure, several industry heavyweights were busy developing fee-based services of their own. The two top contenders for market share are MusicNet -- backed by AOL Time Warner, EMI Group Inc., Bertelsmann and RealNetworks -- and pressplay -- a joint venture between Vivendi Universal and Sony Music Entertainment, and Microsoft Corp. Both services have launched, but it remains to be seen whether music fans will embrace the fee-based services.