October 24, 2001 1:20 PM PDT

Napster issues first round of layoffs

Napster laid off 16 people Tuesday, or about 15 percent of its employees, in the first serious staff cuts in the company's meteoric history.

The company has been struggling to turn its once-anarchic song-trading service into a viable business that has both revenue and the big record companies' stamp of approval. To this end, it stopped file trading in July, and it has been working on a secure, copyright-friendly subscription service. The shutdown caused many of the company's millions of enthusiasts to drift to rivals.

The company has let a few individuals go before, but not in connection with cost-cutting measures. Tuesday's layoffs were a sign that ongoing legal fees, development costs and years without appreciable revenues are taking their toll on the company's fragile bottom line.

The cuts were largely in customer service and administration, not in technical areas, Chief Executive Konrad Hilbers said in a statement. He cited the need to "streamline" the company as it moves toward its planned subscription service.

"We do not foresee any additional layoffs in the future, and we are committed to developing a very successful business over the long haul," Hilbers said.

Napster's recent business efforts have largely been funded by German media conglomerate Bertelsmann, which owns record label BMG Entertainment. Bertelsmann has given Napster more than $100 million--mostly as loans--to fund ongoing operations, development of the new subscription service, and payments for licenses and legal settlements with music publishers.

Earlier this week, Bertelsmann E-Commerce Group said it licensed much of Napster's technology for its own BeMusic service, which includes CDNow and the Myplay.com online music storage locker service. The deal focused on features such as chat and search; it did not include Napster's core peer-to-peer file-swapping technology.

Napster has not given a hard deadline for the release of its subscription service, nor has it said exactly how much it will cost. Executives previously targeted the end of the year as a deadline.

A message posted recently on Napster's Web site apologizes to frustrated visitors, saying the subscription service will be up "later this year."

"While we had hoped to restore transfers in the current service, the realities of developing new technology have forced us to focus all our energy on building the new membership service," the message reads. "We're excited about what we've accomplished so far, and we look forward to sharing it with you soon."

 

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