Napster May File for Chapter 11 Protection

Napster Inc., the Internet music-swapping service shut down in a dispute with record companies, may seek bankruptcy protection in Delaware as early as today as part of a proposed $8-million buyout, people familiar with the matter said.

A Chapter 11 filing would allow Napster to be bought by Bertelsmann, Germany’s biggest media company, and reorganize under current management, the people said. The proposed acquisition, requiring a bankruptcy judge’s approval, doesn’t rule out the possibility of a better offer at auction before the deal is completed.

Bertelsmann said on May 17 it agreed to buy the online music company from Napster’s creditors. Former Napster Chief Executive Konrad Hilbers would rejoin the company and co-founder Shawn Fanning would be chief technology officer, Bertelsmann said.

Napster, once used by millions to swap music online, has been entangled in copyright litigation with five record companies since 1999.