WASHINGTON, May 15 (UPI) -- Napster, a pioneer of online music -- which at its highpoint boasted nearly 60 million users -- may be reaching the end of its own long and winding road.
The Cupertino, Calif.-based company, which has been unable to successfully launch a pay-per-download service, has been shut for a number of months as the result of a court injunction based on ongoing copyright infringement complaints from major record labels.
On Wednesday the company was potentially teetering on bankruptcy after failing to execute a buyout deal with major investor Bertelsmann AG, the German media conglomerate, and after the resignation of the company's founder Shawn Fanning and Chief Executive Officer Konrad Hilbers.
In a letter to Napster staff, Hilbers cited the rejection of the Bertelsmann buyout offer by the Napster board as the reason for his leaving, saying the deal would have allowed the online music service to "keep the company assets, including its employees, together in the long term."
"I am convinced that not pursuing the offer is a mistake, and it will lead the company to place where I don't want to lead it " Hilbers said in his letter.
Although Bertelsmann was one of the original litigants against Napster for copyright infringement, executives at the German company started to envision the potential for large profits from online music distribution, and viewed Napster as having a key foothold the online world with its large group of users. This in turn led to investments from Bertlesmann.
Prior to joining Napster, Hilbers was a Bertelsmann executive.
Since becoming an investor in 2000, the German music giant has sunk an estimated $85 million in the hope of turning the online music service around. In a statement Wednesday, Bertlesmann still expressed faith in the possibilities of online music distribution and for a still potential buyout for Napster.
"We regret that the Napster shareholders were unable to reach an agreement regarding the offer from Bertelsmann," the German conglomerate said. "However, we continue to believe in the value of peer-to-peer (file sharing) technology. We are hopeful that Napster brand and technology will be able to realize its potential as a compelling consumer proposition."
Founded in a college dorm room by the then 19-year-old Shawn Fanning, who was to break the online music world wide-open by using innovative file sharing technology, the Napster service encountered mixed fortunes as it tried to become an actual business with revenues and a plan. The problems were myriad, as Napster was hounded with lawsuits by the major record labels and as its evolution into a pay service was hampered by its user base, which the company was uncertain would actually pay for online music.
At question for the record labels was the rampant file swapping of copyrighted material that Napster made possible, though supporters of the service defended the music downloads as unprecedented promotional vehicle for the music industry -- even if it was for free.
Music titans -- among them the heavy metal group Metallica -- blasted Napster for large-scale free distribution of the band's copyrighted material. But other bands and industry figures stepped in to support the online music service.
With the expectation of eventually having a profitable pay-per-download service, Napster had proposed a billion dollar settlement to the record labels, which ultimately foundered. Under one proposal, the major labels -- including Sony, Warner, EMI, Universal and formerly Bertelsmann Music Group -- would have collectively received $150 million per year for a non-exclusive license to use their music, divided according to those respective files transferred through Napster.
Also, $50 million per year was to be set aside for independent labels and artists, according to Napster.
But the recording industry has proved cool to any ongoing proposal by Napster, with legal troubles hampering any progress by the online music service.
Napster's onetime proposed membership model for online service was based on two tiers structure. Under this plan, Napster would have a "basic membership" plan that company estimated would cost in the range of $2.95 to $4.95 per month with limit on file transfers. A "premium membership" would cost between $5.95 and $9.95, and would offer unlimited file transfers.
This pay model, however, missed a deadline last summer for unveiling, and gathered dust amid the company's ongoing troubles.
