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Wednesday, 15 May, 2002, 14:27 GMT 15:27 UK
Is it curtains for Napster?
Napster founder Shawn Fanning
Broken dreams for Napster
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By Emma Clark
BBC News Online business reporter

How the mighty fall.

At its height in the late 1990s, the online song-swapping service Napster attracted more than 60 million users and reigned supreme among web enthusiasts.

Its service proved enormously popular because it allowed users to download recorded music for free.

From boom to bust it had the most potential

Sean Badding
The Carmel Group
But before too long, Napster incurred the wrath of the world's music industry, which accused the site of promoting music piracy.

One lengthy and contentious court case later, and Napster is staring down barrel of a gun.

Insiders are whispering about the prospect of bankruptcy, its blue-chip chief executive Konrad Hilbers has headed for the exit, and its founder Shawn Fanning has stepped down.

"If... Napster does file for bankruptcy, I think it would be one of the most compelling technologies to have captured American culture in recent times and then go on to failure," says Sean Badding, an analyst from The Carmel Group.

"From boom to bust it had the most potential."

Legal problems

The lawsuit was filed against Napster in 1999 by the Recording Industry Association of America, which was backed by AOL Time Warner, Bertelsmann, EMI, Vivendi Universal and Sony.

Konrad Hilbers, former chief executive of Napster
Hilbers rallied to Napster's cause in happier times
Since the court case, Napster has lost one-fifth of its users and last summer was forced to take its service offline.

For months, it has promised to resurrect a fee-paying subscription service, but has been plagued by delay after delay.

Napster has blamed its adversaries in the music industry for its problems.

Late last year, Mr Hilbers publicly slated the record companies for failing to provide Napster with permission to offer their music to subscribers online.

For their part, the music companies, which control 80% of all recorded music, say that they are still unhappy with Napster's system.

Earlier this year, Mr Hilbers resorted to calling on the US government to force recording companies to grant access to their catalogues.

This is the system used by radio and TV stations, which are granted automatic access to copyright music - along with an obligation to pay record companies and music publishers.

Vested interests?

At the heart of the problem lies the record companies' own ambitions to run successful online music sites.

Web grab of MusicNet site
MusicNet is one of many new music sites
Last year, Sony and Vivendi Universal launched their own version of Napster, called PressPlay.

The site offers music from the Sony and Vivendi Universal record catalogue, and is affiliated with Microsoft, Roxio and Yahoo.

Meanwhile, EMI, AOL Time Warner, and Bertelsmann have set up rival site, MusicNet.

Inevitably, the record companies have been slow to license content to services competing with their own platforms, not just Napster.

  Click here to read more about online music services


Fees aside, this inertia may be one reason why rival sites have been unable to replicate the stunning success that Napster enjoyed in its early years.

Napster founder Shawn Fanning
Fanning has abandoned his college project
In February, OC&C Strategy Consultants found that legitimate, paid-for music downloads earned only $1m (710,000) in the US and UK last year.

In addition to the official record-company sites, a host of sophisticated file-swapping services, such as Gnutella, Morpheus and Aimster, have sprung up to take Napster's place - and are proving even more difficult to close down.

Even Napster still has some reach in Europe and the US - despite the best efforts of the record industry.

In the latter part of last year, it was still being used by almost 5% of Europe's 60 million internet users, according to Jupiter Media Metrix.

Hope against hope?

Many of Napster fans also believe that its powerful brand could be salvaged for profit by another business.

However, internal power struggles between Shawn Fanning's uncle, John Fanning, and other board members have hampered its ability to operate as a unified company.

The recent decision by Shawn Fanning to leave is more symbolic than wholly damaging, as he had already been relegated to the technology side of the business.

More serious is the departure of Mr Hilbers, a veteran of Napster's erstwhile white knight, Bertelsmann.

Mr Hilbers sent Napster staff a memo making it all too clear that he had become disillusioned with Napster's decision making.

In the memo, he slammed the company's board of directors for turning down a $30m buy-out offer from Bertelsmann earlier this year.

Perhaps this was hubris on Napster's part, but the decision may haunt its bosses if the company is finally forced into bankruptcy.

The best Napster could hope for then would be a sale of its assets to Bertelsmann and any other interested parties.

And in light of Napster's latest woes, the vultures will no doubt be circling quietly behind-the-scenes.

See also:

15 May 02 | Business
Napster chief and founder resign
25 Apr 02 | New Media
Internet boss challenges piracy fears
16 Apr 02 | Music
Global music sales drop
12 Apr 02 | New Media
Napster lays off more staff
05 Apr 02 | Business
Bertelsmann 'steps up' Napster bid
27 Mar 02 | New Media
Napster delayed despite legal win
20 Feb 02 | New Media
Digital music deadline expires
10 Jan 02 | New Media
Napster tests legal song-swap service
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