Napster sale blocked, music service future looks grim

A U.S. court has blocked the sale of the Napster online music service to German music giant, Bertelsmann AG.

Bertelsmann said a Delaware court had denied its US$9 million offer to creditors to buy Napster after record labels and songwriters opposed the deal, arguing it was not a fair price, according to a Reuters report. Things aren't looking good for Napster, which is expected to shut down and refocus its reorganization efforts to a Chapter 7 liquidation.

In May, Bertelsmann announced plans to buy Napster. Under the terms of the agreement, Bertelsmann would pay the US$9 million to creditors of Napster in an effort to acquire Napster's assets. Napster filed for Chapter 11 bankruptcy in June 2001 following months of legal battles in which companies such as Sony Music Entertainment Inc., Warner Music, EMI Group PLC and Universal Music Group Inc. sued the music service.

Even if the U.S. bankruptcy court had accepted Bertelsmann's bid, sources close to the company said the German group was unlikely to provide further funding and the operation may have either been folded into another division or closed. Bertelsmann at one point had planned to transform Napster into a subscription service.

Still, some analysts think Bertelsmann may still pick up some of Napster's assets out of liquidation.