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Defunct Napster to Liquidate

Napster’s newly altered Web page said it all Wednesday, one day after its remaining 42 employees were fired and the song-swap company’s doors closed for good.

After a Delaware bankruptcy judge blocked the sale of the company’s assets to its chief investor, the company prepared to convert its Chapter 11 bankruptcy reorganization filing into a Chapter 7 liquidation proceeding.

There was no eulogy for Shawn Fanning’s innovative software application from the recording industry, which helped kill Napster with its lawsuits. The Recording Industry Association of America has made no comment on Napster’s passing.

Record labels, artists and copyright holders all realize the battle to stamp out music piracy may have begun with Napster, but it won’t end there. Napster’s legacy is very much alive, and the latest numbers show that peer-to-peer file sharing is still growing fast.

According to comScore Networks, there were 8.2 million users of the file-sharing program KaZaA Media Desktop last month, a 1,491 percent increase from the previous year. Similar programs Audiogalaxy Satellite and Morpheus had 3.2 million and 2.9 million users, respectively, last month.

Those numbers don’t even touch upon the various Gnutella networks, clusters of users banded together by computer bandwidth, sharing everything from Adobe Photoshop 7 ($609 retail) to the latest chart-topping music hits – all free of charge.

“I think that Napster is out of business, but there continues to be a very strong and growing user base for file sharing despite the legitimate services that have been trying to enter the market,” said Max Kalehoff, a senior researcher at comScore.

Those legitimate services include MusicNet and pressplay, the music labels’ joint ventures launched within the last year to provide a legal alternative to acquiring music online.

It’s still too early to tell how successful MusicNet and pressplay are, as neither company has released information on total subscribers.

Suits by several of those major labels effectively brought Napster down. And the close relationship between Napster chief executive Konrad Hilbers and his former employer, Bertelsmann AG, undermined the bid by the German media giant to purchase Napster’s remaining assets.

Bertelsmann loaned Napster $85 million to keep the embattled company afloat during its legal battles with the recording industry and had been seeking to buy Napster’s remaining assets for an additional $8 million. Now, instead, Bertelsmann is simply another creditor waiting in line for repayment.

Off and on Wednesday, Napster’s Web site linked to a cartoon of a dead cat on a tombstone, playing off its cat-with-headphones logo. At other times, the site offered no links and said simply, “Napster was here.”

Late Tuesday, a low key beer and pizza party provided the entertainment for Napster’s last day. Freshly fired Napster employees milled about on the company lawn in Redwood City, snapping pictures of each other dressed in Napster T-shirts and baseball caps.

They once lauded the promise of Napster’s next software version, one that would screen out unauthorized music files to comply with a federal judge’s ruling. But for all its promise, Napster will be remembered more as a catalyst for change and not a business bonanza.

“I’m pretty surprised,” said programmer Keith Melmon, upon hearing the news he had been laid off. “It’s a real shame because I put a lot of effort into the new user interface that would have really turned some heads. Now nobody gets to see it.

“A year and a half of work just gone completely to waste.”

GartnerG2 analyst Mike McGuire said Napster should have weaned its users off the free music model much earlier.

“It’s kind of hard to ask for money for something you’ve been giving away for free for a while,” McGuire said.

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