Napster Chief Executive Konrad Hilbers resigned from the embattled Internet music upstart on Tuesday as the company announced it had been unable to secure funding to relaunch its once popular online song-swap service.
Hilbers, who joined Napster from Bertelsmann AG in July 2001, departed amid growing strains between Napster and the German media giant which had hoped to turn the company into a subscription-based music service that would comply with US copyright laws.
”We appreciate the contribution made by Konrad Hilbers as CEO of Napster,” the company said in a statement.
”We deeply regret that we have not yet been able to find a funding solution that would allow Napster to launch a service to benefit artists and consumers alike,” the company said. ”We will be looking at additional steps in the coming week to further reduce expenses.”
A Napster representative was unable to say immediately if the company — once one of the hottest properties on the Internet with millions of devoted users around the world — was considering filing for bankruptcy.
But the announcement of Hilbers’ resignation and the company’s tightening financial situation appeared to signal that Napster might soon face the music in its long effort to stay in business despite mounting legal troubles.
Mounting legal problems
Napster has been offline since July 2001, forced to radically reconsider its business model following a copyright infringement suit filed by major record labels.
The suit, brought by companies including AOL Time Warner Inc.’s Warner Music, EMI Group Plc, Vivendi Universal’s Universal Music and Sony Music, charged Napster with abetting widespread music piracy by allowing users to download digital music files from other people’s computers without paying any royalty fees to copyright holders.
Lengthy litigation resulted in a court injunction which barred the service from offering copyrighted songs identified by the labels, spurring Napster and its new investor Bertelsmann to begin working on a new subscription-based service which would allow users to download a certain amount of music for a monthly fee.
But progress on developing the new, secure service has been slow, and Napster announced in March it was postponing its official launch for at least nine months — in part because it was having trouble obtaining licenses from the record labels.
Meanwhile, Napster’s absence from the Internet music scene has allowed other song-swap services to gain popularity while the major record companies themselves launched their own subscription sites, Pressplay and MusicNet, seeking to exploit the digital music download craze while minimising piracy.
Napster’s technical and legal difficulties have been accompanied by mounting financial problems, a cash crunch that sharpened in March when Bertelsmann suspended talks to buy the rest of the company for between $15-million and $30-million.
A key problem hobbling the Bertelsmann bid was an unfolding dispute between other Napster investors.
One disgruntled investor, an uncle of the company’s original teen-age founder Shawn Fanning, sought to oust half of Napster’s board of directors. He also challenged moves to convert Napster’s preferred stock, which had controlled the votes in the privately held company, into common stock. Napster has said the allegations are legally groundless. – Reuters