Napster files for bankruptcy

Napster Inc. filed for bankruptcy today, seeking court protection from creditors as music industry heavyweight Bertelsmann AG followed through on a plan to take over what was left of the company.

The Internet music-swapping service has agreed to sell its assets to Bertelsmann for eight million dollars (£5.7 million) in cash and the assumption of certain liabilities, according to papers filed in a Wilmington, Delaware, court.

The liabilities include any new loans to Napster and forgiveness of the 91 million dollars (£65 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 (bankruptcy protection) process is going to be utilised to maximise the value of Napster, whether by a sale to Bertelsmann or someone else,’’ Cieri said.

Calls to a Napster spokeswoman were not returned today.

Bertelsmann said on May 17 it would buy Napster for eight million dollars slightly more than half what it had previously offered to purchase the company to pay Napster’s creditors as part of a financial reorganisation. Napster’s board rejected that offer.

As of April 30, Napster had about 7.9 million dollars in assets and about 101 million dollars (about £72 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 symbolise both the excitement of the digital revolution and the worst nightmares of the established recording industry.