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Napster officially done


Associated Press

REDWOOD CITY, Calif. -- Solemn, freshly fired workers enjoyed one last pizza party at Napster Inc. after they were all laid off and the enterprise shut down following a judge's decision to block the sale of the song-swapping network to its chief investor, Bertelsmann AG.

The bad news came Tuesday from Wilmington, Del., bankruptcy court Judge Peter J. Walsh who found Napster's CEO Konrad Hilbers had conflicting loyalties with his former employer Bertelsmann.

Many employees at Napster had hoped the deal would go through and that the small Redwood City-based company that turned the music industry on its ear would survive.

"I'm pretty surprised," said programmer Keith Melmon. "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."

Melmon toted off a cardboard box with a telephone, a Frisbee and a few other small personal items that were checked at the door by a private security guard hired to make sure no ex-employees made off with whatever Napster still deems valuable.

Bertelsmann had sought to purchase the remains of the defunct Napster network for an additional $8 million after having already sunk $85 million into the company to keep it afloat. Bertelsmann is now a creditor, but Napster has been off line for more than a year and no one else is lined up to buy the brand or much else the company has to offer.

The Napster Web site, altered Tuesday, summed it up with a page that displayed a cartoon tombstone with the Napster cat logo below the words: "Ded (sic) Kitty."

Suits by several major record labels effectively destroyed Napster. Those record companies also filed motions in the bankruptcy case, vigorously objecting to the sale of the company to Bertelsmann.

A&M Records, Geffen Records, Interscope Records and other labels objected to the proposed Bertelsmann buyout, citing a reticence on the German media giant's part to turn over documents related to the loans and relationships between Napster and Bertelsmann.

Hilbers, a Bertelsmann veteran, said the judge's decision likely will force Napster to change its reorganization effort into a Chapter 7 liquidation.

"Napster is disappointed with the bankruptcy court's decision not to approve the sale of the company's assets to Bertelsmann. As a result of the record companies' and music publishers' opposition, Napster's creditors will be denied substantial repayment and the company will likely be forced into Chapter 7 liquidation," Hilbers said in a statement.

Hilbers' divided loyalites between Napster and Bertelsmann drew scrutiny from Walsh as he looked at the proposed sale. The judge said he wanted to hear from someone who was in on negotiations, especially Hilbers. But Hilbers never took the stand.

Walsh also cited an e-mail sent by Hilbers to Bertelsmann executives in which Hilbers confirmed his decision making as head of Napster always was driven by what was best for Bertelsmann.

Napster's song swap servers have been down since July 2001, after a series of punishing rulings by federal judge Marilyn Hall Patel that Napster completely rid its network of unauthorized copyright recordings.

Bertelsmann issued a short statement Tuesday, acknowledging it would not succeed in its purchase of the vanguard technology company that changed the way millions of computer users acquired and listened to music.

"We accept the court's decision that the sale of Napster's assets to Bertelsmann has been denied and that the purchase process will not proceed," said Bertelsmann spokesman Gerd Koslowski.

Phil Leigh, an analyst for Raymond James & Associates who has followed the Napster saga through the courts, said the dwindling assets of the company could still bring a price if the record labels relent and allow access to their music catalogs. Without such access, Napster is dead and its value is in question, Leigh said.

"It's like having a jet engine without wings. The airplane just won't fly," Leigh said.

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.

Napster use peaked with 13.6 million users in February 2001, according to comScore Media Metrix. The service went offline five months later, and the five largest record labels combined to form two subscription online music services, MusicNet and pressplay, to pick up the slack.

Morpheus, KaZaA and Gnutella networks, other free file-sharing applications, still flourish on the Internet allowing the trade of various multimedia files.

Other former Napster employees, like Alex Eulenberg, paced aimlessly in front of Napster headquarters, musing over what ultimately went wrong. He worked on Napster's filtering measures that were supposed to prevent the trade of unauthorized files, as system he said was never quite ready for prime time.

"Napster was about communicating. It was not just about swapping files," Eulenberg said. "I think as long as people are listening to music and making music, things are going to be all right." (More on Napster)

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