The chief executive of Napster and several of its top executives resigned Tuesday, a move that may foreshadow the imminent bankruptcy of a service that became synonymous with the free exchange of music online.
The resignations followed the collapse of negotiations between Napster and the German media conglomerate Bertelsmann, which has sought to acquire the online music service. People close to the negotiations said that Napster's board -- mired in its own infighting -- rejected Bertelsmann's latest offer and that the company has virtually no funds left with which to continue to operate.
People familiar with the company's plans said Napster may now be forced to file for Chapter 7 bankruptcy, likely shuttering a company that just one year ago was arguably the most popular service on the Internet.
By letting people exchange music at no charge, Napster exploded in popularity, engendered the ire of the record industry, and helped shape the early days of the Internet. By last spring, at the height of Napster's popularity, more than 80 million people had downloaded the software that let them exchange music and store it on their personal computers.
But Napster was confronted with two extraordinary hurdles -- it needed to make money from a service it was providing free of charge, and it had been sued by the major record labels, which asserted the company had helped millions of people to pirate copyrighted music.
Last July, seeking to overcome both hurdles, Napster went offline and sought to create a for-pay service that would charge users to exchange music and would compensate record labels.
But the service never got off the ground. Napster claimed the record labels refused to license music for use on the service. In the meantime, Napster's remaining funds dwindled, leading to a series of layoffs within the last six months at the Redwood City, California, company.
In a letter to employees last Thursday, Konrad Hilbers, the departing chief executive, wrote that he was resigning because Napster's board refused to accept the latest offer from Bertelsmann. He said the deal would have allowed Napster to "keep the company's 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 a place where I don't want to lead it," Hilbers said.
In a statement, Napster acknowledged that negotiations had fallen through with Bertelsmann, and seemed to suggest that its aspirations to create a for-pay service have ended. "We deeply regret we have been unable to find a funding solution that would allow Napster to launch a service to benefit artists and consumers alike," the statement said.
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