Napster files for bankruptcy

Napster, the Californian company that pioneered the mass-market swapping of music online, has filed for bankruptcy protection from its creditors.

The decision forms part of a deal announced last month under which Bertelsmann, the German media giant, agreed to buy Napster's assets for just $8m.

Founder Shawn Fanning agreed to return

Should the courts agree, Napster will become a wholly owned subsidiary of the German firm, which has been supporting the company financially since October 2000.

Napster's board had previously turned down an offer from Bertelsmann reported to be as high as $30m, prompting Napster founder Shawn Fanning and chief executive Konrad Hilbers to resign briefly.

Both men agreed to return to Napster as part of the latest deal with Bertelsmann, which went from being part of the group of record companies suing Napster to its white knight.

"Over the coming weeks, Bertelsmann will help Napster through a financial reorganisation that will enable the company to keep working toward offering a secure music file-sharing service that benefits artists and consumers alike," Napster said last month in a statement.

Crippling lawsuit

The firm's software was once near ubiquitous, achieving massive popularity among its 60 million users who embraced the ability to "rip" music from CDs and swap it over the internet.

But the music industry thought this was nothing more than piracy, and sought to shut Napster down.

The Recording Industry Association of America - backed by Bertelsmann, as well as AOL Time Warner, EMI, Vivendi Universal and Sony - filed their massive lawsuit against Napster in 1999.

The company lost 20% of its users before being forced to take its service offline in July 2001.

Since then, it has been trying to come up with a business model its opponents would accept, pledging that it would return as a subscription-based internet music service.

Copyright woes

But in March, an appeals court in San Francisco ordered Napster to stay shut down until it complied with a lower court order to remove all copyrighted music from its service.

Bertelsmann, owner of the huge BMG label's music catalogue, has said it wants to operate Napster as legal online music service that would pay royalties to music companies.

Reuters news agency reported that Napster listed less than $10m in assets and more than $100m of debts in its bankruptcy-protection filing, made in a court in the US state of Delaware.