Swan Song: Bankruptcy For Napster

Had Agreed To Sell Assets To Industry Giant Bertelsmann

(AP)  Napster Inc. filed for Chapter 11 bankruptcy protection Monday, seeking court protection from creditors as music industry heavyweight Bertelsmann AG follows through on a plan to take over what's left of the company.

The Internet music-swapping service has agreed to sell its assets to Bertelsmann for $8 million in cash and the assumption of certain liabilities, according to papers filed in a Wilmington, Del. court.

Those liabilities include any new loans to Napster and forgiveness of the $91 million Bertelsmann loaned Napster before the filing, Napster's bankruptcy lawyer Rick Cieri said.

After the bankruptcy process is complete, Napster will sell itself to Bertelsmann, unless another company submits a higher bid, Cieri said.

"The Chapter 11 process is going to be utilized to maximize the value of Napster, whether by a sale to Bertelsmann or someone else," Cieri said.

Calls to a Napster spokeswoman were not immediately returned Monday.

Bertelsmann said May 17 it would buy Napster for $8 million — slightly more than half what it had previously offered to purchase the company — to pay Napster's creditors as part of a financial reorganization. Napster's board rejected that offer.

As of April 30, Napster had about $7.9 million in assets and about $101 million in liabilities, according to the filings.

The bankruptcy filing is the swan song for a company that three years ago set off a frenzy of online song-swapping that attracted millions of users, as well as the ire of the recording industry, which sued for copyright infringement.

At its peak, Redwood City-based Napster boasted some 60 million users and seemed at once to symbolize both the excitement of the digital revolution and the worst nightmares of the established recording industry.