Napster takes the next step in its troubled history

A new chapter began this week in the story of the life and times of Napster:

Chapter 11 that is, as the online music sharing company sought Chapter 11

protection under the US Bankruptcy Law.

The move is part of a financial overhaul that was a major condition by

Germany's Bertelsmann, which is trying to take over what remains of Napster.

Bertelsmann hopes to turn the Napster service into a legal service for Internet

music-swapping.

Bertelsmann has agreed to pay $8 million for Napster's assets. "The

bankruptcy marks a new beginning for Napster,'' said Napster CEO Konrad Hilbers.

''It is clear the demand for an Internet-based music file sharing community that

benefits artists and consumers is as strong as ever.'' Napster was shut down by

a Federal judge in July 2001 who agreed with the recording industry that Napster

was engaged in unlawful copyright infringement by letting its members download

copyrighted music.

Napster has tried to develop a subscription-based service that licenses songs

from the major music labels. But that effort has stalled because of the high

cost of developing the service and the mounting legal expenses in fighting the

record labels. Napster still has about 18 employees, down from nearly 100 a year

ago. Bertelsmann wants the proposed purchase approved within the next 60 days.

Bertelsmann is owed $91 million of the $101 million in liabilities that Napster

listed in its bankruptcy filing. Most of the debt are loans Bertelsmann provided

Napster while it battled the music industry's lawsuits.

Napster's assets totaled just $7.9 million. At its peak, Napster boasted 60

million users, prompting the music industry to launch the legal attack that

nearly broke the company. Even the record industry appears to be wishing Napster

a speedy recovery. ''We look forward to Napster becoming a legitimate online

music service in which artists and record companies are fairly compensated for

the use of their works,'' said Cary Sherman, president of the Recording Industry

Association of America which led the legal battle against Napster.