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Wednesday, 28 February, 2001, 21:39 GMT
Amazon shares sink 13%
Amazon sign
Amazon shares slip on bankruptcy rumour
Shares in the online retailer fell over 13% on Wednesday following a rumour that the company is planning to file for bankruptcy.

Seattle-based Amazon strongly denied the rumour, which is long-standing but was recently revived.

I can tell you absolutely, positively that there is no truth whatsoever

Patty Smith
The share slide comes as Amazon announces a new initiative to allow music downloads of free songs from hundreds of independent artists.

Although the service sounds similar to the free file-swapping facilitated by Napster, it will in fact be closely linked to Amazon's selling of CDs.

"There are lots of bridges back and forth between the CD buying area and the download area," said Greg Hart, group manager of Amazon's music store.

The download service also has the blessing of record labels because it is seen as a legitimate way of driving CD sales.

Bankruptcy rumour

The bankruptcy rumour was reportedly sparked by a short story on the respected German business news wire VWD.

The wire reported that speculation about the company planning to file for bankruptcy was coming from the US.

Graph of Amazon share price
Amazon's shares have slipped from their highs in 1999 and early 2000
"I have no idea where this rumour is coming from," said a company spokeswoman, Patty Smith.

"I can tell you absolutely, positively that there is no truth whatsoever. I'm here to tell you it's not true."

Shares in Amazon fell $1.56 to $10.19 at the close of trading on the Nasdaq.

Earlier this month the company also protested against a warning by the investment bank Lehman Brothers when it told investors not to purchase Amazon bonds.

According to a Lehman report, Amazon was down to its last $386m by the end of 2000, well below the company's own reported liquidity reserves of $1.1bn.

The online shop rejected as "silly" the assertion that it faced a possible credit squeeze.

Driving CD sales

Amazon's plan to operate a download service is seen as part of the e-tailer's efforts to accelerate slowing growth on its site.

Sales in books, music and videos grew at 11% last quarter.

Jeff Bezos, chief executive at the company, has announced a slew of measures to fulfil his promise that Amazon would turn an operating profit by the end of the year.

Amazon won't make any direct money from the downloads but it will provide a virtual tipping jar to let fans donate money to the music artists.

The company will take a 30% cut of any tips.

Amazon began a more basic download service two years ago. With the new initiative, the company will allow artists to offer songs for downloading.

"Basically the goal here is to dramatically expand what we've done in the past and do it in a way that's much more integrated with our existing store," said Mr Hart.

The songs will be downloaded in the popular MP3 format, or in a format by Liquid Audio that allows record companies to limit usage of the material.

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See also:

06 Feb 01 | Business
Bank warns against Amazon bonds
31 Jan 01 | Business
Will Amazon ever make a profit?
09 Jan 01 | Business
Amazon pleases Wall Street
27 Jul 00 | Business
Amazon losses mount
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